Partnership - Partnership Dissolution

Question 1

What is the definition of dissolution?

Answer 1

In the absence of an agreement, a general partnership dissolves upon express notice at the will of any single general partner, then it will dissolve.

Question 2

What is the time between dissolution and termination known as?

Answer 2

The remaining partners liquidate the assets to satisfy any creditors, then finish the wind up.

Question 3

Prior to termination and during the wind up, what are general partners liable on?

Answer 3

Old business: The partnership and the partners are liable on all transactions entered into before wind up. Must satisify all ceditors who existed at the time wind up began.
New business: Retain liablity on brand new transactions until actual notice of dissolution is given to creditors or until 90 days after filing a statement of dissolution with the state.

Question 4

What is the priority of distribution upon dissolution and wind up?

Answer 4

1a. must Creditors;
1b. must Partnership loans;
2. must Partners contributions;
3. if applicable Profits shared equally between the partners OR losses distributed equally.

Question 5

What is the general rule regarding priority and dissolution of the partnership?

Answer 5

Each partner must be repaid his or her loans and capital contributions, plus that partner’s share of any profits or minus that partners share of any losses.

Question 6

Hypo: 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 the amount be distributed if:

1. partnership owes $600,000 to creditors;
2. Partner A loaned the partnership $100,000;
3. partner B made capital contributions of $200,000?

Answer 6

1. partnership pays all outside creditors first, so $600,000 to creditors goes first.
2. Then, Partner A gets his $100,000 loan.
3. then partner B gets his $200,000 capital contribution.
4. The remaining $100,000 profit is split between A and B equally. So each gets $50,000.

Question 7

Hypo: A and B dissolve the AyeBee Partnership. In winding up, they liquidate the partnership assets and have a total of $700,000 to distribute. How should the amount be distributed if:

1. partnership owes $600,000 to creditors;
2. Partner A loaned the partnership $100,000;
3. partner B made capital contributions of $200,000?

Answer 7

1. Partership pays outside creditors first, so $600,000 to creditor first;
2. Then partner A gets his $100,000 loan.
   Now the partnership is out of money though.
3. Partnership is liable to Partner B for full repayment of $200,000.
4. So, the individual partners are on the hook for the 200K. it is shared equally, So, A must pay $100,000 and B must pay $100,000.