P A R T
9
Partnerships
Introduction to Forms of Business
and Formation of Partnerships
Operation of Partnerships
Dissolution & Winding Up
Limited Liability Companies &
Limited Partnerships
McGraw-Hill/Irwin Business Law, 13/e
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
C H A P T E R
39
PARTNERS’ DISSOCIATION AND
PARTNERSHIPS’ DISSOLUTION AND
WINDING UP
“Change is inevitable, but
it is in us to control its
content and directions.”
Indira Ghandhi , Indian Prime Minister,
speech (Jan. 8, 1967)
Learning Objectives
Dissociation
 Dissolution and winding up the partnership
business
 When the business is continued
 Partners joining an existing partnership

39 - 4
Dissociation
Revised Uniform Partnership Act (RUPA)
defines dissociation as a change in the relation
of partners caused by any partner ceasing to
be associated in carrying on the business:
 Partner’s retirement, death, or expulsion
 Bankruptcy filing
 Dissociation starts process of dissolution,
winding up (liquidation), and termination

39 - 5
Dissociation
A partner has power – but not necessarily a
right – to dissociate from partnership any
time (e.g., withdrawing)
 Nonwrongful dissociation does not violate a
partnership agreement and includes death of
a partner and partner’s withdrawal in
accordance with partnership agreement
 Wrongful dissociation takes many forms

39 - 6
Wrongful Dissociation
Withdrawal of partner that breaches express
provision of partnership agreement
2. Withdrawal of partner before end of term
for partnership or completion of the venture
3. Partner filing a bankruptcy petition or being
a debtor in bankruptcy
4. Judicial expulsion of partner by request of
partnership or another partner based on
expelled partner’s misconduct
1.
39 - 7
The Agreement
Partners may limit or expand
definition of dissociation and
wrongful events
 Dissolution may be next step
after partner’s dissociation,
but RUPA allows partnership
business to continue


39 - 8
Dissolution not automatic
Dissolution
RUPA provides a list of events that force a
partnership to be dissolved and wound up
 List may be altered by agreement
 Dissolution begins winding up process:


39 - 9
Orderly liquidation of the partnership assets
and the distribution of the proceeds to those
having claims against the partnership
Dissolution & Apparent Authority

Winding up partners have implied
authority to act to wind up partnership
business and apparent authority to conduct
business as before dissolution

To eliminate apparent authority to conduct
business in ordinary way, partnership
should notify third parties or file Statement
of Dissolution with secretary of state

See Paciaroni v. Crane
39 - 10
Distribution & Termination
After partnership assets sold during
winding up, proceeds distributed to those
with claims against partnership
 Remaining proceeds from sale of assets
distributed to partners according to net
amounts in their capital accounts
 Once assets distributed, termination of
partnership occurs automatically

39 - 11
If Business Continued
Partners may choose not to seek dissolution
and winding up after dissociation
 When partnership continues, partnership
must purchase dissociated partner’s
partnership interest
 New partners may be admitted according
to partnership agreement or RUPA

39 - 12
Test Your Knowledge

True=A, False = B



39 - 13
Dissociation is the orderly liquidation of the
partnership assets and the distribution of the
proceeds to those having claims against the
partnership.
When a partner dissociates, dissolution is the
required next step.
Winding up is a change in the relation of
partners caused by any partner ceasing to be
associated in the carrying on of the business.
Test Your Knowledge

True=A, False = B



39 - 14
In winding up, remaining proceeds from the
sale of assets will be distributed to partners
according to the net amounts in their capital
accounts
Winding up partners have apparent authority
to conduct business as before dissolution.
When a partnership continues, partnership
must purchase the dissociated partner’s
partnership interest
Test Your Knowledge

Multiple Choice

James was a partner in a three-person law
partnership without a partnership agreement.
Medical bills forced James to file for personal
bankruptcy. James has:
(a)
 (b)
 (c)
 (d)

39 - 15
Engaged in wrongful dissociation
Engaged in nonwrongful dissociation
Engaged in wrongful dissolution
Engaged in nonwrongful dissolution
Test Your Knowledge

Multiple Choice

Greg, Pat, and Oprah were partners in a
music store. Greg transferred his transferable
partnership interest to his nephew. Greg:
(a)
 (b)
 (c)
 (d)

39 - 16
Engaged in wrongful dissociation
Has exercised a partnership right
Engaged in nonwrongful dissociation
None of the above
Thought Questions

How would you deal with a partner who
was mismanaging the firm or committed
malpractice? How would you deal with a
partner who had a substance abuse problem?
39 - 17