Dissociation and Dissolution of a Partnership

Question 1

Dissociation

Answer 1

a partner’s ceasing to be associated in the carrying on of the business.

Question 2

Does dissociation of a partner always cause a dissolution and winding up of the business?

Answer 2

not always

Question 3

A partner becomes dissociated from the partnership by:

Answer 3

1) oral or written notice of the partner’s express will to withdraw; 2) happening of an agreed event; 3) valid expulsion of the partner; 4) the partner’s bankruptcy; 5) the partner’s death or incapacity to perform partnership duties; 6) the decision of a court that the partner is incapable of performing a partner’s duties; or 7) termination of a business entity that is a partner.

Question 4

What automatically triggers a dissolution of the partnership?

Answer 4

a partner’s giving notice of their express will to withdraw from a partnership at will.*

Question 5

When does a partner’s right to participate in management of the partnership cease?

Answer 5

upon the partner’s dissociation.

Question 6

When a partner dissociates from a partnership, what must the partnership do?

Answer 6

it must 1) buy out his interest and 2) indemnify him for any preexisting liabilities and any postdissociation liabilities not the result of the partner’s acts.

Question 7

Where a partner dissociates prior to when he is authorized to do so under the partnership agreement, what result?

Answer 7

the partnership can sue him for wrongful dissociation and get damages.

Question 8

Can a partner who wrongfully dissociates still be bought out by the partnership?

Answer 8

yes, but only when the term of the partnership occurs or when the particular purpose for which the partnership was created is complete.

Question 9

When can a wrongfully dissociated partner be bought out prior to the occurrence of the end of the partnership’s term or the purpose for which the partnership was created?

Answer 9

when he can establish that an earlier payment will not cause undue hardship to the partnership business.

Question 10

Must interest be paid on a partner’s being bought out?

Answer 10

yes

Question 11

How is the interest in a partner’s being bought out calculated?

Answer 11

from the time of dissociation to the date of payment.

Question 12

When can a partnership still be bound by acts of a dissociated partner?

Answer 12

a partnership can be bound by an act of a dissociated partner undertaken within two years after dissociation if: 1) the act would have bound the partnership before dissociation; and 2) the other party to the transaction a) reasonably believed the dissociated partner was still a partner and b) did not have notice of the dissociation.

Question 13

When can a dissociated partner be liable to third parties?

Answer 13

a dissociated partner can be liable for obligations incurred by the partnership within two years after the partner dissociates if 1) when entering the transaction the other party reasonably believed the dissociated partner was still a partner and 2) did not have notice of the partner’s dissociation.

Question 14

How can a dissociated partner cut short the period of time during which he will be liable to third parties?

Answer 14

he can file a formal notice of dissociation with the secretary of state.

Question 15

Dissolution

Answer 15

the dissolving of a partnership at will.

Question 16

Partnership at Will

Answer 16

a partnership that is formed with no particular undertaking or definite term.

Question 17

Dissolution generally requires what?

Answer 17

the partnership to be wound up.

Question 18

What causes a dissolution?

Answer 18

a partnership at will will be dissolved at any time by the express will of any partner without penalty.

Question 19

When can a partnership be bound following its dissolution?

Answer 19

by any act of a partner appropriate for winding up the partnership’s business.

Question 20

If a partnership is dissolved but does not notify a party with whom the partnership dealt of the dissolution, will the partnership be liable?

Answer 20

yes

Question 21

Does a partnership continue to exist after it has been dissolved?

Answer 21

yes, until the date of winding up.

Question 22

What partners have a right to participate in the winding up of the partnership?

Answer 22

all living partners who have not wrongfully dissolved the partnership or declared bankruptcy.

Question 23

If all partners have died, who wraps up the partnership?

Answer 23

the legal representative of the last surviving partner.

Question 24

Can dissolution be waived?

Answer 24

yes, but this must be achieved by a unanimous vote of all the partners who have not wrongfully dissolved the partnership.

Question 25

What is the priority of distribution of partnership assets when the partnership is being wound up?

Answer 25

partnership assets are reduced to cash and liabilities are paid to 1) creditors, then 2) partners.

Question 26

Where a partner is forced to pay more than his share of partnership debts, what can he do?

Answer 26

he can sue the other partners for contribution to even out the shares.