Partnership DISSOCIATION AND DISSOLUTION OF A PARTNERSHIP Flashcards
What does the word disassociation refer to?
The term “dissociation” simply refers to a withdrawal. When a partner dissociates from a partnership, the partner withdraws or “bows out” of the partnership.
What are the 3 events of disassociation?
(1) a partner giving notice to the partnership of his desire to withdraw (dissociation by “express will”);
(2) a partner’s expulsion, death, or bankruptcy;
(3) an agreed-upon event; and
(4) the appointment of a receiver for a partner.
If there is an express term in the partnership agreement and it is breached leading to a disassociation what is the result?
A partner will be deemed to have wrongfully dissociated if the dissociation is in breach of an express term in the partnership agreement.
What is the result if a partner withdraws, is expelled, or becomes bankrupt before the end of the term of the partnership?
A dissociation is also wrongful in a term partnership if the partner withdraws, is expelled, or becomes bankrupt before the end of the term.
What is the partner who wrongfully dissociates liable for?
A partner who wrongfully dissociates is liable to the partnership for any damages caused by the dissociation.
What is an at will partnership?
“at-will partnership” is one where the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking. It is the default form of partnership. (Most partnerships are at-will.)
What is a term partnership?
A “term partnership” is the converse—it is a partnership where the partners have agreed, explicitly or implicitly, to remain partners for a definite term or until the completion of a
particular undertaking.
A partnership is formed with the agreement that it shall terminate after five years. what kind of partnership is this? Why?
It is a term partnership because the partners have agreed to remain partners for a definite term.
A partnership is formed to construct an office building. what kind of partnership is this? Why?
It is a term partnership because the partners have agreed to remain partners until a particular undertaking— the construction of the building—is completed. Alternatively, it is a term partnership because the partners have agreed to remain partners for a definite term—the time required to complete the construction of the building.
A partnership is formed to operate a linen supply business. Why?
It is an at will partnership because the partners have not agreed to remain partners for a definite term or until the completion of a particular undertaking. The partnership is simply conducting a business which may last indefinitely.
When a partner dissociates from a partnership, one of two statutory avenues is implicated. What are the two avenues?
- the partnership is dissolved and that
its business must be wound up. This means that the partnership business will be liquidated - the partnership continues in existence with the dissociated partner becoming entitled to a
buy out of his partnership interest.
When are Dissolution and winding up are required?
event in agreement requiring winding up, business becomes illegal, issuance of a judicial decree, unanimous consent of the partners in a term partnership, expiration of a term partnership
What are the 2 most important circumstances that require dissolution?
- In an at-will partnership, any partner who dissociates by express will may compel dissolution
and winding up. - In a term partnership, if one partner dissociates wrongfully, or if a dissociation occurs because of a partner’s death or bankruptcy, dissolution and winding up of the partnership are required only if,
within 90 days after the dissociation, one half of the remaining partners agree to wind up the partnership.
What happens If a partner’s dissociation does not result in a dissolution and winding up?
the partner is entitled to receive a buyout of his partnership interest. The remaining partners may continue the business.
What happens If a partner’s wrongful dissociation does not result in a dissolution and winding up?
the partner is entitled to receive a buyout of his partnership interest any damages will be offset against the buyout price. The remaining partners may continue the business.
What is the dissociated partner liable for?
- Generally, a dissociated partner remains liable for pre-dissociation partnership obligations (a
creditor can agree to release the withdrawing partner, however, from specific obligations). - He may also be liable for post-dissociation partnership liabilities incurred within two years after the dissociation (assuming that dissolution has not occurred).
How can a dissociated partner protect himself from ost-dissociation partnership liabilities?
He can protect himself by notifying creditors directly of his dissociation (effective immediately) or by filing a public statement of dissociation (becomes effective 90 days after filing). The partnership can
make the filing as well.
How long does a dissociated partner have apparent authority to bind the partnership?
A dissociated partner has apparent authority to bind the partnership for a period of time not exceeding two years after dissociation (assuming that dissolution has not occurred)
How can the partnership protect itself from the disassociated party using his apparent authority to bind the company?
The partnership can protect itself by notifying creditors directly of the dissociation (effective immediately) or by filing a public statement of dissociation (becomes effective 90 days after filing).
When dissolution and winding up occur, partnership assets must be applied to what first?
the discharge of partnership liabilities.
What if at dissolution If the partnership’s assets are insufficient to discharge the partnership liabilities?
Individual partners are required to contribute (“pay in”) in accordance with their loss shares.
What if at dissolution the partnership has excess assets after discharging the partnership liabilities?
If there are excess assets, they are distributable to the partners in cash in accordance with their profit shares.
What is the priority of distribution?
a. First, the partnership must pay all creditors. Creditors include “outside creditors” (e.g., trade creditors, lenders, suppliers) and “inside creditors” (e.g., partners who loaned money).
b. Second, the partnership must repay all capital contributions paid into the partnership by partners.
c. Third, profits or losses, if any.
A and B dissolve the AyeBee partnership. In winding up, they liquidate the partnership assets and have a total of $1 million to distribute. How should that amount be distributed if (1) the partnership owes $600,000 to trade creditors; (2) Partner A loaned the partnership $100,000; and
(3) Partner B made capital contributions of $200,000?
1 million dollar- 600k to outside creditors- 100k to the partner creditor-200k for capitol contribution= 100 k profit that goes to the partners equally (if there is the default rule
