dissociation / dissolution

Question 1

what is dissociation

Answer 1

Dissociation is a change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business.

does not necessarily cause dissolution

Question 2

events triggering dissociation

Answer 2

(1) notice of the partner’s express will to withdraw

(2) happening of an event the partners agreed would cause dissociation

(3) expulsion of
the partner pursuant to agreement, by unanimous vote if unlawful to continue business with the partner, or by judicial decree;

(4) the partner’s bankruptcy;

(5) the partner’s death or incapacity to perform partnership duties;

(6) appointment of a receiver;

or

(7) termination of a business entity that is a partner.

Question 3

consequences of dissociation

Answer 3

P-SHIP’s OBLIGATINOS:

(1) p-ship must buy out their interest at either liquidation or going concern value

(2) p-ship must indemnify the partner against known pre-dissociation liabilities and post-dissociation liabilities not incurred by his acts

-
DISSOCIATING PARTNERS CONSEQUENCES:

(1) no right to participate in management

(2) If dissociates in violation of partnership agreement, or before expiration of definite partnership term, etc. = liable for damages caused by wrongful dissociation

(3) if wrongful dissociation before the expiration of a definite term or completion of undertaking = no entitlement to buyout until end of term unless they can establish that it won’t cause undue hardship

– Interest must be paid on the buyout price from the date of dissocia- tion to the date of payment.

Question 4

dissociated partner’s power to bind p-ship

Answer 4

A partnership can be bound by an act of a dissociated partner under- taken within 1 year 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.
(Personal notice that the person no longer is a partner is required for existing creditors and publication notice is required for all others.)

Question 5

dissociated partner’s liability to other parties

Answer 5

A dissociated partner can be liable for obligations incurred by the partnership within 1 year after the partner dissociates if:

(1) when entering into 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.

Partner can cut short this period of liability by filing a notice of dissociation with the State Corporation Commission; all persons are deemed to have notice of a dissociation 90 days after such a notice is filed.

Question 6

events causing dissolution / winding up

(winding up - period in which remaining partners liquidate assets to satisfy creditors]

Answer 6

(1) In a partnership at will, notification by any partner of an intent to withdraw/dissociate

(2) In a partnership for a definite term or particular undertaking:
– expiration of the term or completion of the undertaking;
–consent of all of the partners to dissolve;
or
– within 90 days after a partner’s death, bankruptcy, or wrongful dissociation at least half of the remaining partners vote to wind up the partnership business

(3) The happening of an event agreed to in the partnership agree- ment that will trigger winding up the partnership business

(4) The happening of an event that makes it unlawful for the partnership to continue

(5) Issuance of a judicial decree on application by a partner that — the economic purpose of the partnership is likely to be frustrated,
— a partner has engaged in conduct making it not reasonably practicable to carry on the business,
OR
– the business cannot practicably be carried on in conformity with the partnership agreement

(6) ssuance of a judicial decree on application by a transferee of a partner’s interest that it is equitable to wind up the partnership
– after the term expires or the undertaking is completed in a partnership for a definite term or particular undertaking
or
– at any time in a partnership at will

Question 7

partnership’s liability on old and new business during winding up period

Answer 7

OLD BUSINESS
The partnership and, therefore, its individual partners retain liability on all transactions entered to wind up old business with existing creditors.

NEW BUSINESS
– A partnership can be bound after dissolution by any act of a partner appropriate for winding up the partnership’s business. — —- The partner- ship will also be liable for other acts if the party with whom a partner dealt didn’t have notice of the dissolution [but if you file a statement of dissolution with the State Corporation Commission; all persons are deemed to have notice of a dissolution 90 days after such a notice is filed]

Question 8

who may wind up

Answer 8

all living partners have right to wind up

Question 9

priority of distribution

Answer 9

First, the partnership must pay all inside and outside creditors
(creditors may include trade creditors or suppliers as well as partners who loaned money to the partnership)

second, – capital contributions paid into the partnership by partners [NOT LOANS]

THIRD - w/r to profits and losses, any money remaining must be shared equally in the absence of an agreement

*** if there is not enough money to pay off the creditors or cap contributions, the partners are liable for that loss in equal shares