Partnership Dissociation & Dissolution

Question 1

What are the 6 ways a partner can become dissociated from the partnership?

Answer 1

(1) Oral/written notice of their express desire to withdraw
(2) The happening of an agreed upon event
(3) Expulsion by other partners
(4) Bankruptcy
(5) Death, incapacity or court order
(6) Termination of a business entity that is a partnership

Question 2

If a partner gives oral or written notice that they wish to withdraw from the partnership, what is the effect?

Answer 2

Disassociation AND it dissolves the partnership

Question 3

Once the partners dissociate from the partnership, will they remain liable for the obligations incurred BEFORE dissociation?

Answer 3

Yes

Question 4

Once the partners dissociate from the partnership, will they remain liable for the obligations incurred AFTER dissociation?

Answer 4

Yes, if they enter into a transaction and the other party:

— Reasonably believes that the dissociated partner was still a partner

AND

— Did not have notice of the dissociation

Question 5

If the partnership business continues after the dissociated partner leaves, the partnership must do what?

Answer 5

Buy out the dissociated partner’s interest.

Question 6

Absent an agreement, how can the partnership dissolve?

Answer 6

(1) Upon notice of one of the partners desire to dissociate
(2) A happening if an event that makes the partnership unlawful
(3) Judicial Decree

Question 7

What’s the next step after dissolution of the partnership?

Answer 7

Winding up. This requires the remaining partners to liquidate the assets to satisfy the partnership debts.

Question 8

Who is liable for contracts entered into during winding up?

Answer 8

All partners retail liability for all transactions entered into in order to wind-up old business by satisfying creditors who existed when winding-up began

For new business, the partners retain liability for transactions entered into during winding up, until:

 — Actual Notice of dissolution given to creditors 

 — 90 Days after filing a Statement of Dissolution with the State

Question 9

What is the priority for paying creditors once the partnership is wound-up?

Answer 9

1. Pay all creditors fully. Includes outside trade creditors and creditors who are partners
2. Capital contribution MUST be repaid.
3. Profits (less loses) are divided according to Agreement/equally

Question 10

Once the partnership had paid all creditors in order of priority, what happens?

Answer 10

It terminates