Deck 31: Dissolution of a Partnership

Question 1

How are partnership assets distributed after dissolution?

Answer 1

Partnership Dissolution:
A partnership will automatically be dissolved in the event of expiration of the partnership term, agreement among the parties, bankruptcy of a partner, or court order. Partners have the option to purchase the interest of the partner who is leaving, or has died so that the partnership may continue.In order to dissolve or terminate a partnership if the agreement does not specifically outline the process, the following steps must be taken:
1. Notify government agencies, state and federal, of dissolution for tax purposes.
2. File a liquidation notice that will end the relationship between the state and the partnership.
3. Contact creditors to ensure that debts are resolved.4. Notify vendors, suppliers and customers to ensure that contractual obligations are satisfied.5. Prepare an accounting of the partnership assets and liabilities.
6. Distribute partnership assets with creditors paid first and partners second.Liability of partners for contracts and torts during the partnership does not end with the dissolution of the partnership.
Partnership assets are distributed to creditors first, and then partners receive the percentage of investment at dissolution if any monies remain after creditors are paid.

Question 2

Clark Brevig and Joan McCormick executed a written partnership agreement reflecting their respective 75/25 percent interests in Brevig Land, Live Lumber. McCormick worked as a landsperson and made financial contributions to the partnership. She also maintained the partnership's books and records. Brevig had responsibility for the day-to-day operation of the ranch. Brevig and McCormick made management decisions together. McCormick obtained an additional 25 percent interest in the partnership. Brevig and McCormick's relationship deteriorated as a result of disagreements about the management of the ranch, and particularly its debt load. Cooperation between Brevig and McCormick regarding the operation of the ranch and obtaining loans needed to fund the ranch ceased. McCormick sued Brevig and the partnership. Should the court order dissolution of the partnership?

Answer 2

The court should order dissolution of a partnership if any activity that proves to be detrimental to the business is carried out by any one member in the partnership. Irreconcilable discord is one of the main factors that will directly lead to misconduct.
In the present scenario CB and JM got into a partnership agreement unanimously and then their relation started worsening due to some issues pertaining to the ranch which was under authority of the CB specially the problem was concerning the loan of the debt. As they are able to lead to any sought of cooperation then the court should be able to give the verdict for the partnership to be dissolved.

Question 3

If there is no dissolution date for the partnership, what rights does a withdrawing partner have?

Answer 3

Dissolution of Partnership
It refers to the process pertaining to which the partnership firm existence comes to an end. It includes closing of book of accounts, settlement of liabilities, and disposal of assets. After making settlement for the liabilities that are outside to the firm, the remaining amount is distributed to the partners in lieu of their investment. Any kind of deficit or surplus will be shared amongst the partners in accordance with their shares in partnership.
In this case, partners are allowed to dissolve the partnership by having a mutual agreement at any time, if no specific date exists for the dissolution of partnership. Thus if there is no specific dissolution date for the partnership agreement then the partner is allowed to withdraw at his own wish and will without any of the liability arising out of the agreement. After the accounts of creditor are cleared, the withdrawing partner is entitled to receive any repayment pertaining to loan of partnership, undistributed profit and his vested capital.

Question 4

The Gast Peters (G P) partnership, composed of attorneys William Gast and Paul Peters, merged with Schmid, Mooney Frederick (SM F). The merger agreement required pending contingent fee cases to be valued by G P and SM F on the date of merger with percentages of the fees apportioned between the firms. The percentages of the fees would become "vested" in G P and SM F. When Gast and Peters left SM F, two cases, Yager and Stenson, had not been concluded. Gast worked on Yager with his new firm, Gast, Ratz Gutierrez (GR G), and received a fee of $97,892. According to the merger agreement, 60 percent of the fee, or $58,735, was to go to G P and 40 percent to SM F. But Gast and GR G paid only 24 percent, $23,494, to G P. Peters kept the Stenson file when he left SM F. G P was entitled to 88.75 percent, or $74,032, of the Stenson fee, and SM F issued a check for that amount to G P. Peters deposited the check in a G P account and told Gast that since they each shared equally in G P, he was taking 50 percent, or $37,016. Peters said he was withholding $17,620 from Gast's 50 percent share because Peters had been underpaid by that amount from the Yager fees. Gast sued, asserting that he was entitled to the $17,620. Peters alleged that dissolution of G P had not relieved Gast of his obligation to properly account for profits of the firm, which he did not do when disbursing the Yager fees. Who is correct?

Question 5

Does the purchaser of a partner's interest in a partnership become a partner by the purchase? Explain.

Question 6

Beierling conceived a plan to develop educational software for teachers. After sharing her idea with Katie Urbain and Maureen Clinesmith, the three women formed a partnership. The partnership planned to stream online games into classrooms through paid subscriptions. Clinesmith initially loaned the partnership $10,000 and the three decided to receive equal portions of the profit, after the repayment of Clinesmith's loan. After several months, the partnership began to have problems. Clinesmith and Beierling told Urbain that she was no longer a partner and blocked her access to the partnership e-mail account. They dissolved the partnership, which never made a profit. While winding up the affairs of the partnership, Clinesmith assessed the value of partnership's limited assets and assumed ownership of the assets, since they were less than the $10,000 loan she made to the partnership. Urbain sued Clinesmith and Beierling, stating that the partnership was wrongfully dissolved and that she was entitled to damages. Was she correct?

Question 7

What should the expulsion clause of a partnership agreement contain?

Question 8

Ronald Bendalin and Eldon Youngblood formed YB Partnership to provide loan preparation services to the mortgage banking industry. The partnership agreement contained a "service commitment" provision requiring Bendalin to provide his normal services to the partnership for ten years. The tenyear service commitment was required for Bendalin to receive his entire portion of the partnership's reserve fund. A separate paragraph of the partnership agreement stated that the partnership would continue until there was a bankruptcy and unanimous consent among the partners to dissolve the partnership. Bendalin withdrew from the partnership prior to fulfilling the ten-year service commitment. YB Partnership filed suit, claiming that Bendalin's withdrawal was wrongful, because it breached the ten year-term of the partnership. Did Bendalin wrongfully withdraw from the partnership?

Question 9

Does the temporary incapacity of a partner justify a court decree dissolving the partnership?

Question 10

Brothers Rudy and Richard Corrales formed RC Electronics (RCE), a partnership that repaired and sold computer tape drives. They were the only partners of RCE. Rudy managed day-to-day business operations, while Richard helped secure financing and contributed business advice. After several lucrative years, Richard discovered that Rudy had formed a competing business that provided the exact same services as RCE. After Richard inquired about the other business, Rudy cut off all communications with Richard. Richard withdrew from the partnership and then sued Rudy and RCE for breach of fiduciary duty, misappropriation, and an accounting. Should the partnership be ordered to pay Richard damages?

Question 11

When is it unnecessary to give notice of dissolution to customers and creditors?

Question 12

Why does the bankruptcy of a partner usually cause a partnership to automatically be terminated?

Question 13

What is the potential liability if notice of dissolution is not given to third persons who have done business with the partnership?

Question 14

Robert and James Matteson owned Matteson Communications, a partnership that sold and serviced two-way radios. James performed the service, installation, and repair work, and Robert handled customer service and sales. The business was conducted out of James's home. James owned 55 percent, and Robert owned 45 percent of the business. James told Robert he wanted to leave the business and retire, but they could not agree on dissolution. He sent Robert a notice of dissolution subject only to winding up, but he also said he did not want the business to shut down and offered a settlement. With James's approval, Robert transferred all the business property from his home and continued operation of the business as a limited liability company. James sent Robert a formal notice of dissolution demanding a wind-up of the partnership but died a month later. His estate sued Robert. What should the court order?

Question 15

How is a partnership dissolved when its primary business activity becomes illegal?

Question 16

Must all partnership activity cease after a partnership dissolves?

Question 17

Brothers Max and Robert Coleman were partners in a shipping business named Coleman Properties. After two decades of business, Robert committed suicide. Robert's widow, Debbie, attempted to recover her deceased husband's partnership interest. Debbie demanded that Max wind up the partnership's business and distribute the assets. Instead, Max changed the partnership name and continued to operate the business using partnership assets. Debbie sued Max for the "redemption value" or "buy-out value" of Robert's interest in the partnership. Max argued that Debbie was only a transferee of the partnership interest, not a partner, and was not entitled to the buy-out value of the partnership. Max claimed that Debbie was only entitled to the balance in Robert's capital account at the time of his death. What was Debbie entitled to receive?