Transferability and Dissolution

Question 1

Transferability of Partner’s Interest

Answer 1

Absent an agreement to the contrary, a partner may transfer his interest in the profits and losses of the partnership (including the right to receive distributions) to a third party. Upon transfer of such interests, the transferee does NOT automatically become a partner nor does the partnership terminate or dissolve.

Question 2

Liability of a Transferee

Answer 2

A transferee does NOT become liable for the obligations of the partnership incurred before or after the transfer, because he is not a partner. However, a transferee may become a partner if the other partners unanimously consent. If the transferee becomes a partner, he will be liable for the obligations of the partnership incurred AFTER his admittance pursuant to the normal rules of agency and partnership.

Question 3

Liability During Dissolution

Answer 3

Dissolution of a partnership does NOT immediately terminate the partnership. Rather, the partnership enters a “winding up” phase, which continues until the winding up of the partnership’s affairs is completed.

During the winding up phase, a partner’s actual authority to bind the partnership is limited to actions that are necessary to wind up the partnership’s affairs. However, a partner may still have apparent authority to bind the partnership so long as the other side does not have notice of the partnership’s dissolution

Question 4

Dissolution Causes (3)

Answer 4

There are three main causes of dissolution:

(1) Actions taken by the partners (e.g., disassociation, partners agree to certain causes for dissolution, etc.);
(2) Operation of law (e.g., it becomes illegal to continue the business of the partnership); OR
(3) Court order (e.g., a court may grant a judicial dissolution if it is no longer reasonably practicable to continue the operation of the partnership business).

Question 5

UPA affect on dissolution

Answer 5

Uniform Partnership Act (UPA). Under the UPA, any change in partner membership automatically triggers dissolution of the partnership UNLESS there is an agreement to the contrary. Thus, absent an agreement to the contrary, every partner generally has the power to dissolve the partnership at any time by withdrawing from the partnership. However, if the dissolution is wrongful, the remaining partners may hold the dissolving partner liable for damages.

Question 6

RUPA effect on dissolution

*apply RUPA unless told otherwise

Answer 6

Revised Uniform Partnership Act (RUPA). RUPA provides a basis for continuing the partnership despite a partner’s withdrawal from the partnership where the remaining partners may buy out the withdrawn partner’s interest instead of winding up the partnership business. Under RUPA, absent an agreement to the contrary, the“disassociation”(occurs when a partner ceases his association with carrying on the partnership business) of a partner does NOT automatically trigger dissolution UNLESS either of the following exceptions apply:

(1) At-Will Partnerships. Any member of an at-will partnership can disassociate at any time automatically triggering dissolution and liquidation.

(2) Will of the Parties. A partnership will automatically dissolve upon the occurrence of an event that the partners specified would cause dissolution in the partnership agreement (e.g., a partnership created for a specific term or undertaking).

Question 7

What is a Term Partnership and how may it be dissolved under RUPA?

Answer 7

A term partnership is a partnership that exists for a specified duration of time or until a specified event occurs. Under RUPA, a term partnership may be dissolved before its term expires if:

(1) At least half of the partners express their will to wind up the business within 90 days after a partner’s disassociation by death, declaring bankruptcy, becoming incapacitated, or wrongful disassociation; OR
(2) ALL of the partners agree to amend the partnership agreement by expressly agreeing to dissolve the partnership.