What is the main consequence of bankruptcy on a partnership?

The primary consequence of bankruptcy on a partnership is that partners may be held personally liable for the debts of the partnership. In a general partnership, the partners share both the profits and losses of the business. This means that if the partnership declares bankruptcy and cannot meet its financial obligations, the individual partners may be personally responsible for the partnership’s debts. This liability arises because, under partnership law, each partner typically has joint and several liabilities for the debts incurred by the partnership.

In contrast to other types of business structures, such as corporations where shareholders enjoy limited liability, partners in a general partnership do not have that protection. Thus, creditors can pursue the personal assets of individual partners if partnership assets are insufficient to cover debts.

Partners' personal liability can remain in effect even after the partnership is dissolved or goes bankrupt, meaning financial implications can persist long after the formal end of the partnership. This understanding is crucial for partners when they consider entering a partnership, as it places significant financial risk on each individual partner.