Dissolution and Winding Up

Question 1

What is dissolution?

Answer 1

When one or more partners end their association with the partnership.

Question 2

What is winding up?

Answer 2

The bringing of a partnership’s business to a conclusion, which must occur before termination.

Question 3

How can a partnership be dissolved?

Answer 3

1. By mutual consent
2. Under the partnership agreement that sets a specific term
3. An individual partner gives notice of withdrawal
4. By law
5. By court order

Question 4

Under what circumstances will a partnership be dissolved by law?

Answer 4

• Carrying out the partnership’s business becomes illegal,
• A partner or the partnership declares bankruptcy, OR
• A partner dies

Question 5

Under what circumstances may a court order the dissolution of a partnership?

Answer 5

• Partner’s conduct prejudices the carrying out of the partnership’s business;
• partnership’s business can only continue at a loss;
• partner willfully or continually breaches the partnership agreement;
• partner is unable or incapable of performing the partnership agreement;
• partner is found by a court to be mentally ill, of unsound mind, or otherwise incompetent; OR
• the court finds any other equitable reason.

Question 6

Under what circumstances will a partnership continue after dissolution?

Answer 6

• If one party wrongfully dissolves the partnership, the other parnters may choose to continue the business IF they pay the dissolving partner the value of his interest.
• If the partners agree to continue.
• If one parner is expelled under the terms of the partnership agreement and the others want to continue.
• If a partner dies or retires.

Question 7

Generally, when will an open-ended partnership dissolve?

Answer 7

When any partner chooses to leave the partnership.

Question 8

Generally, when will a partnership for a term or an undertaking dissolve?

Answer 8

When the term expires or the untertaking is complete.

Question 9

How can any partnership be dissolved?

Answer 9

1. As set forth in the partnership agreement.
2. Whenever the partnership is in violation of some law that makes it unlawful to continue if the violation is not cured within a reasonable period of time.
3. By judicial determination.

Question 10

Who may wind up the partnership?

Answer 10

1. Any partners who have not wrongfully dissolved the partnership.
2. Any legal representative of the last surviving partner.
3. Any partner, legal representative, or transferee may seek judicial supervision of winding up.

Question 11

Who is entitled to distribution, and in what order?

Answer 11

1. Creditors of the partnership;
2. Repay the partners’ capital contributions;
3. Any remaining proceeds are distributed among the partners.