Dissolution and Winding Up of Partnership

Question 1

GP v. LLP

Answer 1

Rules are the same (because an LP is a GP for all purposes except for liability)

Question 2

Can a Transferee File an Application for Dissolution?

Answer 2

Generally yes (but court must hold that it is equitable to wind up the partnership business):

• if partnership is at will –> the transferee can file the application at any time
• if the partnership is for a definite term or undertaking –> the transferee can only file the application after the completion of the term or undertaking

Question 3

Mandatory Dissolution for Partnership at Will

Answer 3

-When the partnership receives notice from a partner of that partner’s express will to withdraw

Question 4

Mandatory Dissolution for Partnership For a Definite Term or Particular Undertaking

Answer 4

Includes:

• the expiration of the term or completion of the undertaking
• when a partner wrongfully dissociates (dissolution 90 days after unless a majority of partners agree to continue beforehand)

Question 5

Mandatory Dissolution for Either at Will or for a Definite Term

Answer 5

• When there is an event agreed to in the partnership agreement resulting in the winding up of the partnership; or
• an event makes it unlawful for all, or substantially all, of the business of that partnership to be continued, except when there is a cure of illegality within 90 days after notice of event

Question 6

Permissive Dissolution

Answer 6

• Unanimous consent among partners
• On application by a partner with a judicial determination
• On application by a transferee of a partner’s transferable interest with a judicial determination

Question 7

When a Partner’s Application Will be Granted by Court

Answer 7

Finding that:

• the economic purpose of the partnership is likely to be unreasonably frustrated; or
• the carrying on the business in conformity with the partnership agreement would not be reasonably practicable; or
• the carrying on of the business in partnership with a particular partner is no longer reasonably practicable in light of that partner’s conduct relating to the partnership’s business

Question 8

Dissolution of a Limited Partnership

Answer 8

Can occur (not limited to):

• upon the withdrawal of its lone general partner (unless the majority of limited partners consent to continue business and admit one or more general partners to replace dissociating general partner within 90 days.
• if one of the multiple general partners dissociates, the limited partnership will dissolve if, within 90 days of the dissociation, a majority of the remaining partners consent to its dissolution
• upon the withdrawal of its sole limited partner unless another limited partner is admitted within 90 days

Question 9

Consequences of a Partnership’s Dissolution (Winding Up)

Answer 9

Once dissolved, a partnership continues its existence for the purpose only of winding up its business, that is, for the purpose of discharging its debts and distributing its assets.

Question 10

Who May Participate in the Winding Up?

Answer 10

A partner who properly withdraws from a partnership may participate in winding up, where as a partner who wrongfully withdraws from the partnership may not participate in the winding up of the partnership

Question 11

Duties of Those Participating in Wind-Up

Answer 11

Partners who participate in the wind up continue to have a fiduciary relationship to the partnership and the other partners, and must exercise the duty of loyalty, duty of care, and duty to disclose.

Question 12

Transactions During Dissolution

Answer 12

Transactions of a partner that would have bound a partnership if entered into before dissolution are still binding upon the partnership if the other party to the transaction did not have notice of the dissolution.

Question 13

Debts During Dissolution

Answer 13

Partnership debts incurred during the winding up phase are shared by all partners, even those dissociating.

Question 14

Use of Assets During the Winding Up Process

Answer 14

• Discharging the partnership’s obligations to creditors; including, to the extent permitted by law, partners who are creditors
• Reimburse partners for their capital contributions; and
• Allocate the balance, if any, to partners in accordance with profits

Question 15

What if the Winding Up Process Does Not Fully Discharge the Debt

Answer 15

Each partner will be jointly and severally liable for the entire amount of the outstanding debt (but they will have a right to contribution).

Question 16

Buyout

Answer 16

If a partner is dissociated without dissolution and winding up, the partnership must purchase the dissociated partner’s interest for a buyout price.

Question 17

Buyout Price

Answer 17

The buyout price must be equal to the greater of either the liquidation value or the value of the partnership’s assets based on a sale of the entire business as a going concern (plus interest).

Question 18

Buyout: 120-Day Requirement

Answer 18

If no agreement for the purchase of a dissociated partner’s interest is reached within 120 days after a written demand for payment, the partnership must pay the amount the partnership estimates to be the buyout price.