Partnerships: Termination Flashcards
Disassociation
A change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business
Disassociation does not necessarily cause a dissolution and winding up of the partnership business.
When is a partner ‘disassociated’?
A person is disassociated as a partner when:
(1) the partner expresses the will to disassociate;
(2) an event agreed in the partnership agreement occurs;
(3) the partner is expelled pursuant to the partnership agreement
Wrongful Dissassociation
A person has the power to disassociate at any time, rightfully or wrongfully, by withdrawing by express will.
A partner’s dissociation is WRONGFUL only if:
(1) the dissociation is in breach of an express term of the partnership agreement; or
(2) the partnership is for a definite term or particular undertaking and the partner withdraws before the end of the term or completion of the undertaking
A person who wrongfully dissociates is liable to the partnership and other partners for damages caused by the disassociation.
Effect of Disassociation
Disassociation can be TRIGGERED by an event from RUPA § 801
If the event is not listed in RUPA § 801, then a buyout will occur pursuant to RUPA § 701 and the partnership business continues
What triggers dissolution of the partnership? (RUPA § 801)
The following circumstances trigger dissolution:
(1) In an at-will partnership, any partner who gives notice of his express will to withdraw
(2) In a term partnership, if all agree to dissolve OR if the term expires
(3) Dissolution occurs in a term partnership if, within 90 days after the wrongful dissociation of one partner, half of the remaining partners agree to wind up the partnership
(4) Upon an event agreed to in the partnership agreement
(5) Upon an event that makes it unlawful for all or substantially all of the business of the partnership to continue
(6) Upon application by a partner to a court for an order of judicial dissolution on the grounds that:
- the economic purpose of the partnership is likely to be unreasonably frustrated,
- another partner has engaged in conduct that makes it not reasonably practicable to carry on business with the partner, or
- it is otherwise not reasonably practicable to carry on the partnership business in conformity with the partnership agreement
(7) Upon the passage of 90 consecutive days during which the partnership does not have at least 2 partners
Dissociation Without Dissolution (RUPA § 701)
If there is dissociation without a dissolution:
(a) The dissociated partner’s interest is purchased by the partnership;
(b) The buyout price is based on the price if partnership assets sold at that time, and equal to the greater of:
(1) Liquidation value (value of selling all of the assets of the business)
(2) The value of the business as an operating entity
(c) Damages are deducted from the value of the dissociated partner’s interest;
(d) A partner who wrongfully dissociates is not entitled to payment until expiration of term or completion of undertaking
Dissolution Caused in Contravention of Agreement (UPA)
(a) Right to damages for breach
(b) Other partners may continue business
(c) Partner who causes dissolution gets:
(i) if business terminated, remaining cash less damage
(ii) if business continues, value of interest, less damage, but value of good will not considered
What is Partnership Property
Property acquired in the name of the partnership
Property acquired by one or more partners with a document transferring title that indicates the partner was acting in his capacity as a partner
Property purchased with partnership funds is presumed to be partnership property
How can a partner use partnership property?
A partner may use or possess partnership property only on behalf of the partnership.
A partner is not a co-owner of partnership property and has no interest in partnership property which can be transferred, either voluntarily or involuntarily
Partnership Reimbursement
A partnership shall reimburse a partner for any payment made by the partner in the course of the partner’s activities on behalf of the partnership, if the partner complied with this section and § 409 in making the payment
409: “A partner owes to the partnership and the other partners the duties of loyalty and care stated in subsections (b) and (c).”
Transferable Partnership Interest Definition
The right initially owned by a partner to receive distributions from a partnership, whether or not the person remains a partner or continues to own any part of the right. The term applies to any fraction of the interest, by whomever owned.
A transferable interest is personal property.
Absent a contrary provision in the partnership agreement or the consent of the partners, a ‘transferable interest’ is the only interest in a partnership that can be transferred to a person not already a partner.
Partner Transfers their Transferrable Partnership Interest
A transfer does not, by itself, cause a person’s dissociation or dissolution of the partnership business.
A transfer does not entitle the transferee to participate in the management or conduct of the partnership.
A transferee has the right to:
- Receive distributions to which the transferor would otherwise be entitled; and
- Seek a judicial determination that it is equitable to wind up the partnership business.
If the partnership dissolves and winds up, the transferee also has a right to receive specified information pertaining to the partnership from the date of dissolution.
Partnership Capital Account
An accounting for each partner that is a running balance reflecting:
- Their contributions (money + value of other property
- Their share of profits, less any distributions, and
- Their share of losses
Capital Contributions
As a matter of default, initial capital contributions are not required from partners.
Some or all partners may contribute only services.
Default: each partner is credited with an amount equal to the value of any other property contributed. The contributed capital itself belongs to the partnership and can be any property (real, intangible, etc.).
Compensation for Services
Unless otherwise agreed, a partner is not entitled to compensation for services.
BUT SEE Winding Up Exception
