Dissolution

Question 1

DISSOLUTION

Answer 1

Unlike dissociation, dissolution generally requires the partnership business to be wound up. When dissolution and winding up occur, partnership assets must be applied to the discharge of partnership
liabilities. If the assets are insufficient, individual partners are required to contribute (“pay in”) in accordance with their loss shares. If there are excess assets, they are distributable to the partners in
cash in accordance with their profit shares.

Question 2

Dissolution of a Partnership at Will

Answer 2

When a partnership is formed with no particular undertaking or definite term, it is said to be a partnership at will. A partnership at will can be dissolved at any time by the express will (for example, notice of dissolution) of any partner without penalty.

Question 3

Priority of Distribution

Answer 3

Each level of priority must be fully satisfied before beginning the next level:
a. First, the partnership must pay all creditors. Creditors include “outside creditors” (for example, trade creditors, lenders, suppliers) and “inside creditors” (for example, partners who
loaned money).
b. Second, the partnership must repay all capital contributions paid into the partnership by partners.
c. Third, profits or losses, if any.

Question 4

Apparent Authority—Partner’s Power to Bind
Partnership After Dissolution

Answer 4

Partners retain apparent authority to bind the partnership to a third party on new business even after an event requiring winding up. A partnership can be bound after dissolution by any act of a partner
appropriate for winding up the partnership’s business. The partnership will also be liable for other acts if the party with whom a partner dealt did not have notice of the dissolution. The partnership can protect itself by notifying creditor