It appears that you are in a General Partnership (i.e. not registered as a Limited Liability Partnership (“LLP”) at Companies House) and therefore there is no separate legal personality between the business and personal assets and liabilities of the Partners.
The Partners are essentially a group of self-employed Sole Traders for legal and taxation purposes and are jointly and/or severally liable for the acts of the Partnership. Whether the Partners have joint, several or joint and several liability depends on the act in question and the circumstances of the act.
The individual Partners are entitled to an equal share of the Partnership’s profits and assets even if they do not contribute Capital or Services to the Partnership equally. A written Partnership Agreement may vary this provision.
A General Partnership will “Dissolve” when an existing Partner decides to “Retire” from the Partnership (i.e. leave the business), or a “New Partner” joins the Partnership. If the business of the Partnership is to continue, then the “Old Partnership” will Dissolve and a “New Partnership” comprising the Continuing Partners (together with the “New Partner”) will replace it, with all the assets and liabilities from the Old Partnership transferring to the New Partnership.
However, if the Continuing Partners no longer want to run the Partnership business and it is to cease entirely after Dissolution, the Partnership will be “Wound-Up” and the Partnership’s surplus cash and assets will be used to pay the Partnership’s debts and other liabilities. If there is a shortfall, the Partnership’s creditors may be entitled to pursue the individual Partners personally for payment of their debts.
In your situation, it appears that one Partner wishes to Retire from the Partnership and leave the business altogether while the other Partner wishes to continue with the business as a Sole Trader.
I strongly recommend that you instruct expert accountants to prepare the Partnership’s Final Accounts and expert business and commercial contracts solicitors to prepare a Deed of Retirement and Sale to the Continuing Partners as a New Partnership or the Sole Remaining Partner to carry on the Partnership Business as a Sole Trader. This Dissolution and Sale Agreement may share out the Partnership’s surplus cash and assets and apportion liabilities in accordance with each Partner’s contribution to the business.