Dissolution and Winding Up

Question 1

Causes of Dissolution (applicable to all partnerships)

Answer 1

• becomes illegal to carry on partnership’s business
• occurrence of event agreed upon and specified in PA
• partner files application to dissolve partnership which is granted
• a transferee of a partnership interest makes an application to dissolve (may only be made on the ground that equity demands the partnership be wound up)

Question 2

When will a partner’s application to dissolve the partnership be granted?

Answer 2

+ The economic purpose of the partnership is likely to be unreasonably frustrated.

+ Carrying on the business in conformity with the PA isn’t reasonably practicable, OR

+ Carrying on the business with that particular partner is no longer reasonably practicable because of that partner’s conduct.

Question 3

Application by transferee of a partnership interest to dissolve partnership

Answer 3

May be made only on the ground that equity demands the partnership be wound up.

Partnership at-will: transferee can file application at any time.

Partnership for a definite term or particular undertaking: transferee can file only after completion of the term or undertaking.

Question 4

Causes of Dissolution (applicable to at-will partnerships only)

Answer 4

Dissolution occurs if one partner gives the partnership notice of his express will to withdraw.

Question 5

Causes of dissolution (applicable to partnership for definite term/particular undertaking only)

Answer 5

If a partner wrongfully dissociates – automatic dissolution in 90 days UNLESS a majority of partners vote to continue the partnership.

Question 6

Dissolution of LP

Answer 6

If the sole general partner dissociates – automatic dissociation in 90 days UNLESS a majority of limited partners vote to continue business AND a general partner is appointed.

If only one of multiple general partners dissociates – NO automatic dissolution UNLESS the majority of all partners (limited and general) vote to dissolve LP.

If sole limited partner dissociates – automatic dissolution UNLESS a limited partner is admitted within 90 days.

Question 7

What happens upon dissolution of a partnership?

Answer 7

Partnership continues to exist only for the purpose of winding up the business (paying debts and distributing assets).

Partnership terminates after the winding-up process.

Question 8

Partnership’s liability on post-dissolution contracts

Answer 8

Liable if the transaction would have bound the partnership before dissolution and the other party did not have notice of the dissolution.

Question 9

In what order are Partnership assets distributed?

Answer 9

FIRST - pay creditors (including partners who are creditors).
If not enough to pay creditors, partners are jointly and severally liable for the entire amount of the outstanding debt (but may seek contribution from other partners)

SECOND - reimburse partners for capital contributions

THIRD - pay the balance to partners in accordance with their share of profits.