Dissolution of a Partnership Flashcards
1
Q
Dissolution - General Requirements
A
- generally requires the partnership business to be wound up
- when dissolution + winding up occur, partnership assets must be applied to the discharge of partnership liabilities
- if assets insufficient -> individual partners are required to contribute (“pay in”) in accordance with their loss shares
- if excess assets -> distributable to the partners in cash in accordance with their profit shares
2
Q
Dissolution of a Partnership at Will
A
- when a partnership is formed w/ no particular undertaking or definite term, it’s said to be a partnership at will
- partnership at will can be dissolved at any time by express will of any partner w/o penalty
3
Q
Events Causing Dissolution
A
- in a partnership at will, notification by any partner of an express will to withdraw as a partner
- happening of an event agreed to in the partnership agreement that requires winding up the partnership business
- happening of an event that makes it unlawful for the partnership to continue
- passage of 90 consecutive days during which partnership doesn’t have at least two partners
- issuance of judicial decree on application by partner or transferee (must meet certain additional requirements)
- in a partnership for a definite term or particular undertaking:
1) expiration of the term or completion of the undertaking
2) consent of all the partners to dissolve OR
3) w/in 90 days after partner’s death, bankruptcy or wrongful dissociation, at least half of remaining partners wish to dissolve
4
Q
Dissolution - Judicial Decree by Application of Partner
A
- dissolution triggered by issuance of a judicial decree on application by a partner that:
1) the economic purpose of the partnership is likely to be frustrated
2) a partner has engaged in conduct making it not reasonably practicable to carry on the business OR
3) the business cannot practicably be carried on in conformity w/ the partnership agreement
5
Q
Dissolution - Judicial Decree by Application of Transferee
A
- dissolution triggered by issuance of a judicial decree on application by a transferee of a partner’s interest that it is equitable to wind up the partnership:
1) after the term expires or the undertaking is completed in a partnership for a definite term or particular undertaking OR
2) at any time in a partnership at will
6
Q
Priority of Distribution
A
Assets dealt w/ in following priority order:
1) partnership must pay all creditors
-> includes outside creditors (trade creditors, lenders, suppliers, etc) and inside creditors (ex: partners who loaned money)
2) partnership must repay all capital contributions paid into the partnership by partners
3) Profits or losses, if any
7
Q
Dissolution - Existence of Partnership
A
- partnership CONTINUES after dissolution until it is wound up
8
Q
Who May Wind Up
A
- generally, all living partners have right to participate in the winding up of the partnership’s business except partners who have wrongfully dissolved the partnership + bankrupt partners
- if all partners have died, the legal rep of the last surviving partner may wind up
9
Q
Partner’s Power to Bind Partnership After Dissolution
A
- partners retain apparent authority to bind partnership to third party on new business even after an event requiring winding up
- can be bound after dissolution by an act of a partner appropriate for winding up the partnership’s business
- also liable for other acts if party w/ whom partner dealt lacked noticed of dissolution
- partnership can protect itself by notifying creditors directly of dissolution (effective immediately) or filing statement of dissolution w/ secretary of state (effective after 90 days)
10
Q
Power to Waive Dissolution
A
- any time before winding up of the partnership business is complete, the partners may decide to waive the dissolution + continue the partnership by unanimous vote of the partners who haven’t wrongfully dissolved
- such waiver doesn’t affect the rights of person who’ve relied on the dissolution before receiving notice of the waiver
