Partnership Rules 2
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Termination in general
Two-step process: dissolution and winding up
Events causing dissolution and effect of dissolution
Effect of dissolution
- Express will of any partner in a partnership at will
- Expiration of its terms
- Mutual assent of ALL partners
- Expelling of a partner
- Illegal partnership activity
- Partner's death
- Court decree
: terminates all authority of any partner to act for partnership except to wind up partnership affairs
Partner's power to bind partnership after dissolution
: only for acts appropriate in winding up the partnership's affairs
: can also bind a partnership after dissolution by any transaction that would bind the partnership if dissolution had not taken place, provided the other party to the transaction had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution.
Liability of partner
: partnership not bound by acts of partners after dissolution where:
- Partnership dissolved due to illegality of purpose, unless act is appropriate for winding up
- Partner has become bankrupt
- Partner had no authority to wind up parntership affairs
Effect of dissolution on partner's existing liability
Dissolution does not discharge liability of partners, unless there is a valid agreement betwenn the partner, the creditor, and the person or partnership continuing the business.
Rights to contribution from copartners after dissolution
Where dissolution is caused by act, death, or bankruptcy of a partner, each partner is liable for share of liabilities unless:
- Dissolution is due to act of partner, and partner acting for partnership had knowledge of the dissolution
- Dissolution is due to death of partner, and partner acting for partnership had knowledge or notice of death.
- Liability is for debt for which the partner is not liable
Any partner not wrongfully dissociated may participate in winding up.
Any partner may seek judicial supervision for the winding up.
Person winding up may dispose of and transfer partnership property to discharge partnership liabilities.
Partner still bound for acts of partners not in line with winding up if other party to the transaction was unaware of dissolution.
Ends with statement of dissolution, and distribution of partnership assets.
Continuation of partnership after dissolution
After dissolution but before winding up is complete, if all partners agree to waive right to terminate, partnership may resule as if dissolution didn't occur.
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