Taking the Partnership Apart Flashcards
1
Q
In a partnership and things seem to be going well and then one of the partner’s decide they are done, and they want to leave for whatever reason.
How does this process proceed? 3 distinct steps:
1. ?
2.
3.
A
- Trigger - Event of Dissociation
2
Q
In a partnership and things seem to be going well and then one of the partner’s decide they are done, and they want to leave for whatever reason.
How does this process proceed? 3 distinct steps:
1.
2. ?
3.
A
- Effect
(a) Business not dissolved; continues
(b) Dissolution –> Winding Up –> Termination
3
Q
In a partnership and things seem to be going well and then one of the partner’s decide they are done, and they want to leave for whatever reason.
How does this process proceed? 3 distinct steps:
1.
2.
3. ?
A
- Resolution
(a) Buy out the dissociated partner
(b) Wind up and Termination
4
Q
________ ____ __________ would trigger the process and begin everything involved in taking the partnership apart.
A
Event of Dissociation
5
Q
Event of Dissociation would ______ the process and begin everything involved in taking the partnership apart.
A
trigger
6
Q
Once we have an ____ ____ ______, we have a little bit of a choose your own adventure. We have to determine the effect of the _____ ____ ______.
A
event of dissociation
event of dissociation
7
Q
- Effect
(a) ?
(b)
A
(a) business not dissolved; continues
8
Q
- Effect
(a)
(b) ?
A
(b) dissolution –> Winding up –> Termination
9
Q
- Resolution
(a) ?
(b)
A
(a) Buy out the dissociated partner
10
Q
- Resolution
(a)
(b) ?
A
(b) Wind up and termination
11
Q
If the business will continue after the ______ ___ _______, then we must buy out the dissociated partner.
A
event of dissociation
12
Q
If the business will continue after the event of dissociation, then we must ______ _____ the ______ ________.
A
buy out the dissociated partner
13
Q
If the partnership is to be dissolved, we must begin the ______ _____ and _______ process.
A
winding up
termination
14
Q
Events of Dissociation RUPA § 601(1)
1. ?
2.
3.
4.
5.
6.
7.
A
- Notice of express will to dissociate
15
Q
Most common way to dissociate
A
Notice of Express Will to Dissociate
16
Q
most common way to dissociate - break up letter - we are going our own way. Perhaps a disagreement between the partners and the partners no longer wish to carry on or maybe it is because someone is going to move on with their own endeavors and no longer wants to be in a partnership.
A
Notice of express will to dissociate
17
Q
Events of Dissociation RUPA § 601(1)
1.
2. ?
3.
4.
5.
6.
7.
A
- Event stated in the partnership agreement
18
Q
The partnership agreement provides events that are events of dissociation and the occurrence of any of the events will result in dissolution and winding up of the partnership. It could be that the partnership has been performed for a specific purpose and once that purpose has become complete there is no need for the partnership to continue. The partnership agreement may specify these events of dissociation.
What does this refer to?
A
Event stated in the partnership agreement
19
Q
Events of Dissociation RUPA § 601(1)
1.
2.
3. ?
4.
5.
6.
7.
A
- Expulsion pursuant to the partnership agreement or by vote of the partners (in some circumstances)
20
Q
There are also provisions in RUPA that allow for _________ of a partner either because of circumstances or procedure established in the partnership agreement or by vote of partners to expel a partner.
A
explosion
21
Q
Events of Dissociation RUPA § 601(1)
1.
2.
3.
4. ?
5.
6.
7.
A
- Expulsion by judicial order (in some circumstances)
22
Q
Events of Dissociation RUPA § 601(1)
1.
2.
3.
4.
5. ?
6.
7.
A
- Bankruptcy or insolvency of a partner
23
Q
Events of Dissociation RUPA § 601(1)
1.
2.
3.
4.
5.
6. ?
7.
A
- Death or incapacitation of a partner
24
Q
Events of Dissociation RUPA § 601(1)
1.
2.
3.
4.
5.
6.
7. ?
A
- If the partner is an entity - Termination of the entity
25
You cannot be in a partnership with someone who is _______ or ________.
deceased or incapacitated
26
under whatever law governs the termination of the entity is an _____ ____ _____.
event of dissociation
27
The _______ ____ ______: A partner has the power to dissociate at any time, rightfully or wrongfully, by express will pursuant to section 601(1). RUPA § 602(a).
Fundamental RUPA Rule
28
The Fundamental RUPA Rule: A ______ has the power to ________ at any time, rightfully or wrongfully, by express will pursuant to section 601(1). RUPA § 602(a).
partner
dissociate
29
The Fundamental RUPA Rule: A partner has the power to dissociate at ____ _____, rightfully or wrongfully, by express will pursuant to section 601(1). RUPA § 602(a).
any time
30
The Fundamental RUPA Rule: A partner has the power to dissociate at any time, ________ or ________, by express will pursuant to section 601(1). RUPA § 602(a).
rightfully or wrongfully
31
The Fundamental RUPA Rule: A partner has the power to dissociate at any time, rightfully or wrongfully, by ______ ______ pursuant to section 601(1). RUPA § 602(a).
express will
32
The Fundamental RUPA Rule:
A partner has the power to dissociate, at any time, rightfully or wrongfully, by express will pursuant to section 601(1). RUPA § 602(a).
33
The law is never going to require a parter to stay in a partnership when they no longer desire to do so. True or False.
True
34
The _______ ______ may not: (9) Vary the power to dissociate as a partner under Section 602(a), except to require the notice under Section 601(1) to be in writing. RUPA § 105(b).
partnership agreement
35
The partner has the absolute right to dissociate at any time rightfully or wrongfully and it is one of the default rules that the partners may not contract around in the _________ ____________.
partnership agreement
36
The partner has the absolute right to _________ at any time rightfully or wrongfully and it is one of the default rules that the partners may not contract around in the partnership agreement.
dissociate
37
A partner's dissociation is __________ only if: It is in breach of an express provision of the partnership agreement; or
wrongful
38
A partner's dissociation is wrongful only if: it is in breach of an ________ ________ of the partnership agreement; or
express provision
39
A partner's dissociation is wrongful only if: it is in breach of an express provision of the partnership agreement; or
In the case of a partnership for a _______ ______ or _______ _________, before the expiration of the term or the completion of the undertaking:
(i) the partner withdraws by express will, unless the withdrawal falls within 90 days after another partner's dissociation by death or otherwise.
(ii) The partner is expelled by judicial determination
(iii) The partner is dissociated by becoming a debtor in bankruptcy
definite term or particular undertaking
40
Example:
The partners of General Partnership X signed a loan agreement with First Bank that said, “the dissociation of any partner will be an event of default of the loan, causing the loan balance to accelerate and become immediately due in full.” Two years later, Prater Smith dissociated.
The answer to the question of whether Partner Smith can dissociate is?
Under rule RUPA 602(a), partner smith has the absolute right to dissociate rightfully or wrongfully.
41
Example:
The partners of General Partnership X signed a loan agreement with First Bank that said, “the dissociation of any partner will be an event of default of the loan, causing the loan balance to accelerate and become immediately due in full.” Two years later, Prater Smith dissociated.
The answer to the question of whether Partner Smith can dissociate is Under rule RUPA 602(a), partner smith has the absolute right to dissociate rightfully or wrongfully.
The answer to whether it was rightful or wrongful is?
Partner Smith’s event of dissociation was an event of default under the loan agreement but was not necessarily a wrongful dissociation under the partnership agreement.
Rather we would have to look and see if there is anything in the partnership agreement that makes the dissociation while the loan balance is still outstanding a wrongful dissociation.
There may be an argument that the agreement not to dissociate was implied, but that argument may fail.
42
If the dissociation was wrongful and the partner is wrongfully dissociated the dissociation is valid of course, however a person that wrongfully dissociates as a partner is liable to the __________ and to the ______ _______ for damages caused by the disassociation.
partnership
other partners
43
(c) A person that _________ __________ as a partner is liable to the partnership and to the other partners for damages caused by the dissociation. The liability is in addition to any debt, obligation, or other liability of the partner to the partnership or the other partners. RUPA § 602(c).
wrongfully dissociates
44
Wrongful Dissociation
(c) A person that wrongfully dissociates as a partner is liable to the partnership and to the other partners for damages caused by the dissociation. The liability is in addition to any debt, obligation, or other liability of the partner to the partnership or the other partners. RUPA § 602(c).
45
While they can dissociate, if the dissociation was wrongful meaning it was a breach of an ________ ________ of the _________ _________ the partner may be liable for damages.
express provision of the partnership agreement
46
________ of the _______ of _________
First the Partner’s right to participate in the management and conduct of the partnership end, except that a partner who has not wrongfully dissociated may participate in the winding up of the partnership business. RUPA § 603(b)(1)
Certain fiduciary duties end. RUPA 603(b)(2)
Does not discharge the partner from previously incurred debt or obligation. RUPA § 603(b)(3).
Effects of the Event of Dissociation
47
Effects of the Event of Dissociation
First the Partner’s right to participate in the __________ and ________ of the ___________ end, except that a partner who has not wrongfully dissociated may participate in the winding up of the partnership business. RUPA § 603(b)(1)
Certain fiduciary duties end. RUPA 603(b)(2)
Does not discharge the partner from previously incurred debt or obligation. RUPA § 603(b)(3).
management
conduct
partnership
48
Effects of the Event of Dissociation
First the Partner’s right to participate in the management and conduct of the partnership end, except that a partner who has not _________ _________ may participate in the winding up of the partnership business. RUPA § 603(b)(1)
Certain fiduciary duties end. RUPA 603(b)(2)
Does not discharge the partner from previously incurred debt or obligation. RUPA § 603(b)(3).
wrongfully dissociated
49
Effects of the Event of Dissociation
First the Partner’s right to participate in the management and conduct of the partnership end, except that a partner who has not wrongfully dissociated may participate in the ________ _______ of the ________ _______. RUPA § 603(b)(1)
Certain fiduciary duties end. RUPA 603(b)(2)
Does not discharge the partner from previously incurred debt or obligation. RUPA § 603(b)(3).
winding up
partnership business
50
Effects of the Event of Dissociation
First the Partner’s right to participate in the management and conduct of the partnership end, except that a partner who has not wrongfully dissociated may participate in the winding up of the partnership business. RUPA § 603(b)(1)
Certain_______ _______ end. RUPA 603(b)(2)
Does not discharge the partner from previously incurred debt or obligation. RUPA § 603(b)(3).
fiduciary duties
51
Effects of the Event of Dissociation
First the Partner’s right to participate in the management and conduct of the partnership end, except that a partner who has not wrongfully dissociated may participate in the winding up of the partnership business. RUPA § 603(b)(1)
Certain fiduciary duties end. RUPA 603(b)(2)
Does not discharge the partner from previously incurred _______ or ________. RUPA § 603(b)(3).
debt or obligation
52
Now that we have identified that there was an event of dissociation and considered whether the dissociation was rightful or wrongful next, we must consider what the effect of the dissociation is on the partnership. It can be one of two things. what are they?
Continue
Dissolution, Winding Up, and Termination
53
___________
A fundamental change of the relations among partners in a partnership where the partners shift from carrying on the partnership for profit to winding up the partnership business to be terminated.
Dissolution
54
Dissolution
A _______ ________ of the relations among partners in a partnership where the partners shift from carrying on the partnership for profit to winding up the partnership business to be terminated.
fundamental change
55
Dissolution
A fundamental change of the _____ ____ _______ in a partnership where the partners shift from carrying on the partnership for profit to winding up the partnership business to be terminated.
relations among partners
56
Dissolution
A fundamental change of the relations among partners in a partnership where the partners shift from carrying on the ________ ___ ________ to winding up the partnership business to be terminated.
partnership for profit
57
Dissolution
A fundamental change of the relations among partners in a partnership where the partners shift from carrying on the partnership for profit to ______ ________ the _______ _______ to be ________.
winding yp
partnership business
terminated
58
RUPA 801 gives us a complete list of the events of dissociation that cause dissolution. This is a complex statute, and these are just the highlights. They are the ones you might think of. !!
!!
59
Events of Dissociation Causing Dissolution (RUPA § 801)
1. ?
2.
3.
1. Notice of express will of a partner to withdraw as a partner
60
Events of Dissociation Causing Dissolution (RUPA § 801)
1.
2. ?
3.
2. An event or circumstance provided for in the partnership agreement
61
Events of Dissociation Causing Dissolution (RUPA § 801)
1.
2.
3. ?
Judicial Order
62
It seems that they are set up to be _________ if one partner leaves, but it really doesn’t have to be that way.
terminated
63
Any event _____ _______ in RUPA § 801 as an event of dissociation causing dissolution of the partnership does not cause dissolution of the partnership. RUPA § 701.
not listed
64
Most of the things we saw as being events of dissociation are included in 801 as events of dissociation causing dissolution. The moral of the story here is that this is something that needs to be addressed in the __________ __________. If the partners want to keep operating as a partnership after an event of dissociation they need to agree to that way before the event of dissociation occurs otherwise it is an event of dissociation that causes the dissolution, winding up and termination of the partnership business.
partnership agreement
65
If the partners want to keep operating as a partnership after an ________ ___ _________ they need to agree to that way before the ______ ____ _______ occurs otherwise it is an _______ ___ ________ that causes the dissolution, winding up and termination of the partnership business.
event of dissociation
event of dissociation
event of dissociation
66
Continuation after Dissolution RUPA § 802(a)
After dissolution, the partnership continues only for the purpose of _______ ______ its business. The partnership is terminated when the _________ _____ of its business is complete.
winding up
winding up
67
Once the partnership dissolves the focus of the partnership shifts, rather than continuing for profit the partnership continues only for the purpose of the ______ _____ process.
winding up
68
The partnership is terminated when the ________ ______ of its business is complete.
winding up
69
Imagine that we have a general partnership that operates a wedding venue, and we have events scheduled at the venue for 2.5 years into the future and we have an event dissociation today.
Maybe one of the partners wants to retire or maybe one of the partners dies or maybe someone is ready to go their own way. We have 2.5 years of business to do, contracts, vendors and we have to honor those.
What does this mean?
It will take us about 2.5 years to wind up our business. The partnership continues until its business is complete.
70
We have been talking about winding up and now we need to talk about what happens when we are ready to shut the business down. The last step after we wound up our business is that we have to _______ ___ _______.
settle our accounts
71
______ ____ _______ means that we have liquidated all of the assets and resolved everything, and we have turned the partnership into a pile of money. What happens?
Settlement of Accounts
72
Settlement of accounts means that we have _________ all of the assets and resolved everything, and we have turned the partnership into a pile of money. What happens?
liquidated
73
Settlement of accounts means that we have liquidated all of the assets and resolved everything, and we have turned the partnership into a pile of money. What happens?
First, we _________________________.
discharge any obligations to creditors
74
Remember when we talked about Henry and Sally when they bought the refrigerator and when they advanced money for payroll we talked about it as a loan or contribution. These loans have to get repaid in step 1 of ________ ___ _______.
settling the accounts
75
Settlement of Accounts (RUPA § 806)
1.Discharge obligations to ____________, including, to the extent permitted by law, ________ who are _______.
creditors
partners
creditors
76
Settlement of Accounts (RUPA § 806)
1.Discharge obligations to creditors, including, to the extent permitted by law, partners who are creditors.
2.Settlement of ______ _______ _______
partner capital accounts
77
Settlement of Accounts (RUPA § 806)
1.Discharge obligations to creditors, including, to the extent permitted by law, partners who are creditors.
2.Settlement of partner capital accounts.
a.Return __________ made and not previously returned.
contributions
78
Settlement of Accounts (RUPA § 806)
1.Discharge obligations to creditors, including, to the extent permitted by law, partners who are creditors.
2.Settlement of partner capital accounts.
a.Return contributions made and not previously returned.
b.Distribute any _______ according to rights to receive ________/_______.
surplus
distributions/ profits
79
Settlement of Accounts (RUPA § 806)
1.Discharge obligations to creditors, including, to the extent permitted by law, partners who are creditors.
2.Settlement of partner capital accounts.
a.Return contributions made and not previously returned.
b.Distribute any surplus according to rights to receive distributions/ profits.
c.If there is a _________: A partner shall contribute to the partnership an amount equal to any excess of the charges over the credits in the partner’s account. RUPA § 807(b).
deficiency
80
Settlement of Accounts (RUPA § 806)
1.Discharge obligations to creditors, including, to the extent permitted by law, partners who are creditors.
2.Settlement of partner capital accounts.
a.Return contributions made and not previously returned.
b.Distribute any surplus according to rights to receive distributions/ profits.
c.If there is a deficiency: A _______ shall contribute to the _________ an amount equal to any excess of the charges over the credits in the partner’s account. RUPA § 807(b)
partner
partnership
81
We pay off loans to all creditors including partners who are creditors then we settle the partner capital accounts and we go in a few steps.
Identify all the _________ that the partners have made to the extent the contributions haven’t already been returned through distributions we return the contributions to the partners.
Once we have returned the contributions if there is any ________, we distribute the surplus according to whatever rights the partners have to receive distributions of the profits.
contributions
surplus
82
Unfortunately, we may get this to this part of the process, and we don’t have enough money after liquidating all the partnership assets to discharge the obligations to creditors. In that event if there is a ________, a partner shall contribute to the partnership an amount equal to any excess of the charges over the credits in the partner’s account
deficiency
83
That means the _________ have to reach into their own pockets and pay off any applications that remain after all of the partnership assets have been liquidated.
partners
84
What does it mean to say that the partnership is terminated?
The partnership no longer exists as a legal entity
85
It no longer has the right to conduct business, it no longer can enter into transactions or contracts, the partnership is done it no longer exists.
What does this refer to?
The partnership is terminated
86
There is an important disclaimer here though. Even if we have had an event that causes the dissolution and winding up of the process at any time… This happens a lot with retirements. People want to get out, but they don’t want the partnership to shut down. They want it to prosper and continue and be successful. In these events when all the partners except any wrongfully dissociated partner who doesn’t get to vote, when they________ it the partnership resumes carrying on its business as if the dissolution had never occurred. We put the club back in the train the partnership resumes, and we carry on happily.
waive
87
(b) At any time after the dissolution of a partnership and before the winding up of its business is completed, all of the partners, including any dissociating partner other than a wrongfully dissociating partner, may _______ the right to have the partnership’s business wound up and the partnership terminated
waive
88
BUT…
(b) At any time after the dissolution of a partnership and before the winding up of its business is completed, all of the partners, including any dissociating partner other than a wrongfully dissociating partner, may waive the right to have the partnership’s business wound up and the partnership terminated. In that event:
The partnership _________________________________, and any liability incurred by the partnership or a partner after the dissolution and before the waiver is determined as if dissolution had never occurred.
resumes carrying on its business as if dissolution had never occurred
89
RUPA offers a way forward for the partnership to continue after an event of dissociation. If we are not going to dissolve, wind up and terminate we continue. What do we do with the dissociating partner if the partnership will continue?
All we have to know is that the partnership will buyout the partner send them on their way and the partnership continues.
90
RUPA 701(a) If a partner is dissociated from a partnership without resulting in a dissolution and winding up of the partnership business under Section 801, that means we either have an event of dissociation that does not result in dissolution or the dissolution is waived the partnership, not a third person, not a partner but the partnership shall cause the dissociated partner’s interest in the partnership to be purchased for a ______ _______.
buyout price
91
“________ ________”: the right, as initially owned by a person in the person’s capacity as 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. RUPA § 102(23)
Transferable Interest
92
_______ ________ generally refers to financial rights – not governance rights! RUPA § 503(a)(3) and (b)
Transferable Interest
93
Transferable Interest generally refers to _______ _______ not ________ ________! RUPA § 503(a)(3) and (b)
financial rights
governance rights
94
__________ ________ is personal property. RUPA § 502
Transferable Interest
95
Transferable Interest is _______ _______. RUPA § 502
personal property
96
_______ _______ are not, in and of itself, an event of dissociation. RUPA § 503(a)(2)
Transferable Interests
97
If a partner transfers a transferable interest, the transferor retains the rights of a _______ other than the transferable interest transferred and retains all the duties and obligations of a partner. RUPA § 502(f)
partner
98
If a partner dies, the partner’s ______ ________ is treated as a transferee as described here. RUPA § 505.
personal representative
99
Every partner has a transferable interest in the partnership. RUPA defines it as the right to receive ___________.
distributions
100
This _________ _______ is the partners financial rights not their governance rights. This transferable interest is personal property, and it can be transferred, it can be sold.
transferable interest
101
If a partner transfers their financial rights this is not in and of itself an event of dissociation. Transfer doesn’t cause the partnership to dissolve; it doesn’t require that the business be wound up and terminated. It carry’s on and the only time the partnership rules care is when it comes time to cut a check to someone, that person that is getting the transferable interest. If a partner transfers a transferable interest, they retain the rights of a partner other than that transferable interest. !!
!!
102
Essentially the governance rights. The right to be an agent, the right to participate in the management and conduct of the business’s affairs. The fiduciary duties these are things that cannot be transferred. We know that a new partner could only be admitted by unanimous consent or by a mechanism provided by the partnership agreement. It is not like the person who got the transferrable interest as a partner. It just means they have the right to the distribution. !!
!!
103
If a partner dies their personal representative is treated as a transferee. This is an event of dissociate that causes the dissolution unless everyone waives the right to have it wound up and terminated. The personal representative acting in their capacity as the estate becomes the one that is entitled to the distribution. !!
!!
