Dissociation & Dissolution

Question 1

What is dissociation?

Answer 1

A change in the relationship of the partners caused by any partner ceasing to be associated in the partnership.

Question 2

What causes dissociation?

Answer 2

1. Notice of partner’s express will to withdraw
2. Happening of an agreed event
3. Valid expulsion of partner
4. Partner’s bankruptcy
5. Partner’s death or incapacity
6. Decision of a court that partner is incapable of performing duties
7. Termination of a business entity that is a partner

Question 3

What is the effect of a partner expressly providing notice of their wish to withdraw?

Answer 3

Dissolution of the partnership is automatically triggered.

Question 4

What is wrongful dissociation?

Answer 4

• When dissociation is in breach of an express term in the partnership agreement, or
• When a partner withdraws, is expelled, or goes bankrupt before the end of a term partnership.

Question 5

What happens to a partner who wrongfully dissociates?

Answer 5

They are liable to the partnership for any damages caused by the dissociation.

Question 6

What is a term partnership?

Answer 6

A partnership where the partners have explicitly or implicitly agreed to remain partners for a specific term or until the completion of a particular undertaking.

Question 7

What are the consequences of dissociation?

Answer 7

Partnership is either liquidated (dissolution) or the dissociated partner’s interest is bought out.

If wrongful dissociation: partners can choose.

If rightful dissociation: partnership must be liquidated

Under RUPA, partners can choose either option no matter how dissociation occurred.

Question 8

What liabilities does a dissociated partner have?

Answer 8

Generally remains liable for pre-dissociation obligations.

Can be liable for post-dissociation liablities incurred within 2 years after dissociation if:

• 3P reasonably believed still a partner, and
• no notice of dissociation

Question 9

What power does a dissociated partner have to bind the partnership?

Answer 9

Can bind the partnership for 2 years after dissociation if:

• Act would have bound the partnership before dissociation,
• 3P reasonably believed still a partner, and
• 3P did not have notice of dissociation.

Question 10

What events cause dissolution?

Answer 10

1. Notice of a partner’s express will to withdraw;
2. Occurrence of an agreed upon event;
3. The business becoming unlawful; OR
4. Judicial dissolution.

Question 11

What is “winding up”?

Answer 11

Period between dissolution and termination, when assets are liquidated to satisfy creditors.

Question 12

What is the priority of distribution during wind up?

Answer 12

1. Both inside & outside creditors
2. Partners’s capital contributions
3. Profits & losses

Question 13

Who gets to participate in the wind up?

Answer 13

All living partners, except partners who have wrongfully dissolved the partnership and bankrupt partners.

Question 14

What is a partner’s power to bind the partnership after dissolution?

Answer 14

A partner has apparent authority to bind the partnership for –

1. Any act appropriate for winding up the partnership’s business &
2. Any other act where the 3P did not have notice of the dissolution and the act would have bound the partnership before dissolution.