DISSOCIATION/DISSOLUTION OF PARTNERSHIP

Question 1

Partner Dissociation

Answer 1

Partnership is voluntary relationship from which a partner can dissociate at any time (after providing notice) and is non waivable.

However while a partner always has the POWER to withdraw, he may not have the RIGHT to and can be liable for damages to the partnership and other partners as a result of the wrongful dissociation

Question 2

Events resulting in Partner Dissociation

Answer 2

1. Partner’s death
2. Partner’s bankruptcy
3. Appointment of guardian for partner
4. Judicial determination that partner is incapable of performing his duties as partner
5. Occurrence of an event specified in the partnership as triggering a partner’s dissociation.
6. Expulsion from partnership via:
   a. Provision in partnership agreement
   b. Unanimous vote of the partners
   c. Judicial determination made upon application by another partner

If partnership is for definite term or undertaking, dissociation by bankruptcy is wrongful

General and limited partners will be liable for wrongful dissociation if it occurs before the termination of the limited partnership

Question 3

Consequences of Dissociation

Answer 3

Dissociation terminates a partner's:
1.  Right to co-manage partnership
2. Right to conduct partnership business
IN RESPECT TO MATTERS OCCURRING AFTER DISSOCIATION
1. Duty of loyalty
2. Duty of care

Dissociated member can compete with partnership business

Dissociation can in some circumstances result in the dissolution of the partnership

Question 4

Causes for Partnership Dissolution

Answer 4

Individual partner can file an application with court to dissolve partnership. To be granted the court must find:

1. The economic purpose of the partnership is likely to be unreasonable frustrated.
2. Carrying on the business in conformity with partnership agreement is not reasonably practicable
3. Carrying on the business in partnership with a particular partner is no long practicable in light of that partners conduct relation to the partnership’s business.

Even though the transfer of partnership interest does not automatically result in partnership, the transferee can file application for dissolution at that time UNLESS partnership is for definite term or undertaking

For partnership at will - Dissolution will also occur when the partnership gets notice of partner’s express will to withdraw.

In a term partnership, if one partner dissociates wrongfully, or if a dissociation occurs because of a partner’s death or bankruptcy, dissolution and winding up of the partnership are required only if, within 90 days after the dissociation, 1/2 of the remaining partners agree to wind up the partnership.

Question 5

Dissolution of Limited Partnership

Answer 5

Upon withdrawl of lone general partner, the limited partnership dissolves UNLESS:
before 90 days the majority of the limited partners consent to continue the business and admit one or more general partners to replace the dissociating partner

If one of multiple general partners dissociates, the partnership can dissolve if a majority of the remaining partners consent to dissolution.

Limited partnership dissolves upon the withdrawl of its sole limited partner unless another limited partner is admitted within 90 days

Question 6

Consequences of Partnership Dissolution

Answer 6

Upon dissolution:

1. Partnership continues existence for the purpose of winding up its business (discharging of debts and distributing assets)..
2. Partnership bound by any transaction entered into that is appropriate for the winding up process.
3. Transaction of a partner that would have bound a partnership prior to dissolution is binding if the other party had no notice.

Partnership terminates once business winds up

In the winding up process, the partnership’s assets will be used to: (1) discharge the partnership’s obligations to creditors, including, to the extent permitted by law, partners who are creditors; (2) reimburse partners for their capital contributions; and (3) allocate the balance, if any, to partners in accordance with profits.

Distribution hierarchy for partnership assets:

1. Creditors (including partner creditors)
2. Partners for capital contributions
3. Balance if any, to the partners in accordance with their respective shares of the profits.

To the extent further contributions are needed to meet obligations during wind up, all partners are jointly and severally liable for outstanding debt