Dissociation and Dissolution of a Partnership

Question 1

Dissociation and how to do it

Answer 1

Withdrawal by a partner.

Can be done by: (1) a partner giving notice to the partnership of his desire to withdraw (disassociation express will), (2) a partner’s expulsion, death, or bankruptcy, (3) an agreed-upon event; and (4) the appointment of a receiver for a partner

Question 2

Wrongful Dissociation

Answer 2

Wrongfully dissociated if partner breaches an express term in the partnership agreement (one that says no one can disassociate)

Also wrongful if partner withdraws, is expelled, or becomes bankrupt before end of the term.

Partner who wrongfully dissociates is liable to the partnership for any damages caused by dissociation

Question 3

At-will partnership

Answer 3

one where partners have not agreed to remain partners until the expiration of a definite term or completion of an undertaking

default form of partnership and most common

Question 4

Term partnership

Answer 4

Partnership where partners have agreed, explicitly or implicitly, to remain partners for a definite term or until the completion of an undertaking

Question 5

Consequences of Dissociation

Answer 5

(1) partnership is dissolved and business is wound up (partnership is liquidated); or
(2) partnership continues in existence with the dissociated partner becoming entitled to a buyout of his partnership interest

Question 6

Dissolution of At-will partnership

Answer 6

any partner who dissociates by EXPRESS WILL may COMPEL dissolution and winding up

The happening of an event agreed to that requires winding up in the partnership business

Happening of an event that makes carrying on the business unlawful

Question 7

Dissolution of term partnership

Answer 7

Expiration of the term or completion of the undertaking

Consent of all partners to dissolve; or

if, within 90 days after partner’s death, bankruptcy, or wrongful dissociation, one half of the remaining partners agree to wind up the partnership; or

happening of an event that makes it unlawful for partnership to continue

Question 8

Judicial Decree

Answer 8

Triggers dissolution that, if applied for by partner or transferee

(1) economic purpose of partnership is likely to be frustrated;
(2) partner has engaged in conduct making it not reasonably practicable to carry on the biz; or
(3) the biz cannot practicably be carried on in conformity with the partnership agreement

Question 9

Buyout

Answer 9

So long as partner’s dissociation does not result in a dissolution and winding up, the partner is entitled to receive a buyout of his partnership interest and biz carries on

If dissociation is wrongful, any damages will be offset against the buyout price

Question 10

Liability of Dissociated Partner

Answer 10

Generally, remains liable for pre-dissociation partnership obligations

Also liable for post-dissociation partnership liabilities incurred within two years after dissociation if dissolution has not occurred.

HOWEVER, can protect himself by notifying creditors directly of his dissociation (effective immediately) or by filing a public statement of dissociation (effective 90 days after filing)

Question 11

Apparent Authority of dissociated Partner

Answer 11

apparent authority to bind the partnership for a period of time not exceeding TWO YEARS after dissociation

partnership can protect itself by notifying creditors directly or by filing a public statement of dissociation (effective 90 days after filing)

Question 12

Priority of distribution

Answer 12

(1) Partnership must first pay ALL creditors. Includes outside creditors and inside creditors (partners who loaned money)
(2) partnership must then repay al capital contributions paid into the partnership by partners
(3) rest is split as profits or losses amongst the partners

Question 13

LLC dissociation

Answer 13

a person has the power to dissociate as a member of an LLC at ANY TIME, right or wrong, by EXPRESSLY WITHDRAWING as a member

Events that cause dissociation of a partner in a partnership will also cause dissociation of a member in an LLC

Wrongful dissociating member may be liable to LLC for damages

Question 14

Dissolution of LLC

Answer 14

LLC will dissolve if any of these occur:

(1) an event or circumstance that is expressly stated in the operating agreement;
(2) the consent of ALL of the members; or
(3) the passage of 90 consecutive days during which the LLC has no members

Question 15

Judicial dissolution of LLC

Answer 15

Court may grant judicial dissolution if:

(1) the conduct of all or substantially all of LLC’s activities is unlawful; OR
(2) it is not reasonably practicable to carry on the company’s activities in conformity with the certificate of organization and the operating agreement

Also, if those in control of the LLC

(1) act in a manner that is illegal or fraudulent; OR
(2) act in a manner that is oppressive and directly harmful to the member applying for dissolution