General Partnership Dissolution

Question 1

Def: dissolution

Answer 1

• dissolution is a change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business
• may occur pursuant to the partnership agreement, but mutual assent of ALL partners, by the proper expulsion of a partner, by operation of law, or by court order
• In NY, a general partnership dissolves AUTOMATICALLY BY OPERATION OF LAW (i) in the event that the partnership business becomes illegal; (ii) a partner dies; (iii) a partner withdraws; or there is a bankruptcy of a partner or the partnership

Question 2

The real end of the partnership is called:

Answer 2

TERMINATION

Question 3

Def: Winding Up

Answer 3

Period between dissolution and termination in which the remaining partners liquidate the partnership’s assets to satisfy the partnership’s creditors.

Question 4

Partnership’s Liability @ Dissolution for OLD BUSINESS

Answer 4

The partnership, and therefore all individual general partners, retain liability on ALL transactions entered into to wind up old business by satisfying creditors who existed when winding up began.

Question 5

Partnership’s Liability @ Dissolution for NEW BUSINESS

Answer 5

The partnership and therefore its individual general partners retain liability on brand new business transactions during winding up until ACTUAL NOTICE of dissolution is given to known creditors AND until PUBLICATION NOTICE is given to all potential creditors

NOT: the authority of a partner to act for the partnership ceases only when he received knowledge or notice of the partner’s death

Question 6

Priority of Distribution

Answer 6

Each must be fully satisfied before beginning the next:
1- Outside creditors: non-partner 3rd party trade creditors
2- Inside creditors: partners who have loaned money to the partnership
*3- Capital Contributions by partners must be paid: partnership is liable to its own partners for the full repayment of their capital contributions
4- profits & surplus, if any, shared equally among the partners UNLESS an agreement states otherwise

Question 7

So what do partners get at termination?

Answer 7

Repaid his loans + capital contribution + share of profits

OR

Repaid his loans + capital contribution - share of losses

Question 8

Continuance of Business AFTER Dissolution (aka when do you NOT have to wind up post-dissolution)

Answer 8

The remaining partners have a right to continue the partnership business after dissolution if:
1- a partner dissolves the partnership in contravention of the partnership agreement; OR
2- a partner is expelled from the partnership according the the terms of the partnership agreement; OR
3- THE PARTNERSHIP AGREE to continue the partnership

NOTE: if there is a continuation w/o a settlement of the missing partner’s share, he may receive EITHER the value of his share + interest from the date of dissolution OR a share of the profits attributable to the use of his property in the partnership for that period