Dissolution and dissociation of partnerships

Question 1

Dissociation

Answer 1

Does not mean the end of the partnership business; it simply means the end of one form of the partnership.

Arises where a partner ceases to be associated from the firm, by reason of death, bankruptcy, voluntary withdrawal or other reasons.

Question 2

Dissolution and breach of the partnership agreement

Answer 2

Any partner may dissolve at any time even if the partnership is for a specified term and even though dissolution would violate the partnership agreement.

A partners breach of the partnership agreement does not by itself result in dissolution

Question 3

Wrongful dissociation

Answer 3

Will subject the violating partner to damages and will affect that partner’s right to partnership property

Question 4

Dissolution

Answer 4

Winding up and termination

The partnership business is not terminated at the time of dissolution. It may continue if there is a continuation agreement.

In the absence of such an agreement, the partnership business continues while its operations are in the process of being terminated → called “winding up” or liquidation

Question 5

When does the termination of a partnership occur?

Answer 5

Termination occurs when the assets are liquidated, partnership debts are satisfied and any remaining assets distributed to the partners

Question 6

What happens in liquidation of the partnership?

Answer 6

Under UPA § 18(a), subject to any agreement among the partners, in liquidation partners receive back their initial contribution to the partnership and then share equally in the profits and surplus after all liabilities have been paid off

Must value the business

The UPA allows for a dissolution at will unless stipulated in the agreement.

Question 7

What happens if one partner dissociates from the partnership?

Answer 7

Sometimes the partners cannot buy out the dissociating partner right away, but they may work out an agreement to pay out the partner in the next 5 years with 3% interest, etc.

Question 8

Can a dissociated/former partner compete with the partnership?

Answer 8

Dissociation ends the partner’s duty to refrain from competing with the partnership, unless of course the partnership agreement provides otherwise

Dissociation limits the partners remaining duties of loyalty and care, which continue only as to matters or events that occurred before the partner’s dissociation

Question 9

Can a partner bind the partnership after the partner’s dissociation?

Answer 9

Yes within 1 year after dissociation if:

1. the act would have bound the pship before dissociation, and
2. the other party to the transaction reasonably believed the dissociated partner was still a partner, and
3. did not have notice of the dissociation.

Question 10

Can a partner be held liable for transactions the partnership enters into after the partner’s dissociation?

Answer 10

A partner remains liable as a partner for transactions the partnership enters into within a specified period following the partner’s dissociation if at the time of transacting the other party (1) doesn’t have notice of the partner’s dissociation, and (2) reasonably believes that the dissociated partner is still a partner.