Partnerships: changes and termination

Question 1

Disassociation and dissolution

Answer 1

Although a partnership may dissolve when a partner disassociates, disassociation need not necessarily cause dissolution—unless so specified in the partnership agreement or if the partnership is at will.

But dissolution may result if, within 90 days of dissociation:

• if the dissociation was wrongful, a majority of the remaining partners express a will to wind up the business; or
  
  • if the dissociation was rightful, all partners, including rightfully disassociated ones, waive the right to terminate the partnership.

Question 2

Winding up

Answer 2

A dissolved partnership continues only to “wind up” its business.

A person winding up the partnership business may preserve the business or property as a going concern for a reasonable time to maximize its value.

Question 3

Disassociation: at-will partnerships

Answer 3

Partner withdrawal in an at-will partnership, unless agreed otherwise, causes the dissolution of the partnership and a right to cash payment for the pro rata share of the withdrawing partner’s interest, after satisfying any creditor claims.

Question 4

Wrongful disassociation: effects

Answer 4

A partner who wrongfully dissociates is liable to the partnership and the other partners for damages caused by the dissociation.

A wrongfully dissociated partner generally does not have the right to participate in:

• the management or conduct of the partnership business; or
• winding up the business.

If dissolution results, the dissociated partner is not entitled to any payout until the end of the original term unless the partner can prove to the court that earlier payment would not cause undue hardship to the business.

Question 5

Rightful disassociation: effects

Answer 5

If the dissociating partner’s withdrawal is not wrongful, the partner:

• is not liable for damages and
• would retain the right to participate in the dissolution and winding up the partnership.

Question 6

Winding up: creditors

Answer 6

Creditors have priority over partners with respect to the partnership’s assets.

Creditors may include partners who made loans to the partnership.

Question 7

Liability of a disassociated partner

Answer 7

Although a dissociated partner loses any right to participate in the business, her apparent authority to bind the partnership lingers after dissociation for up to two years.

Thus, regardless of the characterization of her dissociation, the dissociated partner will be liable for partnership debts incurred during the winding-up.