Termination

Question 1

Events of dissociation

Answer 1

1. dissociation: when a partner withdraws from the partnership
2. there is a dissociation if:
   i. dissociation by express will: partner gives notice to partnership of desire to withdraw
   ii. a partner’s expulsion, death, or bankruptcy
   iii. occurrence of an agreed-upon event
   iv. appointment of a receiver for a partner.

Question 2

Wrongful dissociation

Answer 2

1. wrongfully dissociation: dissociation in breach of an express term in the partnership agreement
   i. ending term partnerships early: wrongful dissociation if the partner withdraws, is expelled, or becomes bankrupt before the end of the term
2. wrongfully dissociating partner is liable to partnership for damages resulting from the dissociation

Question 3

Consequences of dissociation to partnership

Answer 3

1. dissolution and liquidation: partnership is dissolved and its business is wound up (sold off, wound up, liquidate)
2. buyout: partnership continues in existence with the dissociated partner becoming entitled to a buyout of his partnership interest
3. the event of dissociation dictates which consequence occurs

Question 4

Dissolution and Liquidation

Answer 4

1. required limited circumstances:
   i. event in agreement requiring winding up
   ii. business becomes illegal
   iii. issuance of a judicial decree
   iv. unanimous consent of the partners in a term partnership
   v. expiration of a term partnership
2. dissolution and liquidation is also required:
   i. in an at-will partnership (most partnerships, no term or goal), if any partner who dissociates by express will can compel dissolution and winding up of the partnership
   a. i.e. a partner in an at-will partnership can voluntarily leave and force the partnership to dissolve and liquidate
   b. a partner in a term partnership (set goal or date) can’t dissolve it by leaving
   c. can contract around this rule
   ii. in a term partnership, if one partner dissociates wrongfully, or by death or bankruptcy, a 50% majority of the remaining partners can agree to dissolve and wind up the partnership within 90 days
3. i.e. can bring the partnership down if:
   i. leaving an indefinite partnership voluntarily, or
   ii. leaving a definite partnership wrongfully or involuntarily, and majority votes to stop

Question 5

Buyout and continuation

Answer 5

1. 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
2. remaining partners continue the business
3. if the dissociation is wrongful, any damages will be offset against the buyout price

Question 6

Consequences of dissociation to partner

Answer 6

1. may be entitled to buyout of partnership interest

2. may be liable for damages for wrongful dissociation

Question 7

Liability of dissociating partner

Answer 7

1. dissociated partner remains liable for outstanding obligations owed prior to dissociation
   i. but creditors can agree to release the withdrawing partner from specific obligations
2. dissociated partner may become liable for post-dissociation obligations incurred within two years after dissociation
3. can protect against post-dissociation liability by having the partner or partnership
   i. notifying creditors directly of the partner’s dissociation, or
   ii. filing a public statement of dissociation (becomes effective 90 days after filing)

Question 8

Apparent authority

Answer 8

1. dissociated partner has apparent authority for up to two years after dissociation
2. partnership can protect itself by:
   i. notifying creditors directly of the dissociation, or
   ii. filing a public statement of dissociation (becomes effective 90 days after filing)

Question 9

dissolution

Answer 9

1. partnership assets must be used to discharge liabilities of the partnership
   i. if partnership assets are insufficient, individual partners must contribute per their loss shares (follows how profit is distributed, unless otherwise agreed)
2. excess assets are distributable to the partners in cash per their profit shares

Question 10

Priority of distribution

Answer 10

• each level of must be fully satisfied with liquidation proceeds before beginning the next level

1. one: partnership must pay all creditors
   i. outside creditors: trade creditors, lenders, suppliers
   ii. inside creditors: partners who loaned money to the partnership
2. two: partnership must repay all capital contributions paid into the partnership by partners
3. three: leftover is profits or loss
   i. if there is not enough to satisfy step one or two, partners must contribute their share of the loss to cover it

Question 11

Right to wind up

Answer 11

1. partners who have not wrongfully dissociated may participate in the winding up of the partnership’s business