When Can Partnerships Continue?

The following question was posed by one of your classmates:

Question:

When can partners continue the partnership after dissolution and when must they wind up?

Answer:

The simple answer is that under traditional partnership rules and the 1914 version of the Uniform Partnership Act (UPA), barring one exception described below, any partner leaving triggers dissolution. The Note in your textbook at pages 259-60 captures the essence of how this operates. Under the 1997 version of the UPA, the revised UPA (RUPA), provides that the partnership will often continue if a partner wrongfully dissolves (at least, as long as the remaining partners wish to do so.)

Here's a little more detail: Under the UPA, partners leaving a partnership at any time trigger dissolution, whether rightful or wrongful, except for UPA § 38(2), which permits the partners who did not wrongfully dissolve to continue in the partnership for an agreed term as long as all remaining partners agree and post a bond guaranteeing payment to the wrongfully dissolving partner at the end of the term. Note that a partnership can also continue on with the agreement of all the partners by buying the partnership property, although this is technically a successor partnership continuing the business. However, the issues really revolve around the liability of the departing partner, and not the viability or validity of a future partnership made up of some of the partners.

In contrast, RUPA § 601 permits "dissociation" prior to dissolution. Dissociation is when a partner ceases to be associated with the partnership in the carrying on (i.e, not winding up) of the business. Dissolution and winding up may or may not follow. Under RUPA, there are options beyond dissolution and winding up to keep the current partnership structure. RUPA § 801 provides for UPA-like dissolution of an at-will or post-term partnership and the dissociating partner is liable only for obligations “appropriate for winding up the partnership business” or acts that would otherwise have been binding as to parties who are not on notice of the dissolution. However, if the dissociation does not lead to a dissolution and winding up, § 701 is the relevant provision, and the departing partner is entitled only to a buyout of his or her interest in the partnership. See § 603(a). If a partner wrongfully dissociates under RUPA, the partnership would otherwise continue, and the remaining partners may agree to continue the partnership if they wish to do so. See RUPA § 802(b). For our purposes, know that RUPA default rules provide greater latitude for continuing the partnership and may provide a wrongfully departing partner a right to a buyout, instead of dissolution and liquidation of the partnership.

Read the above in conjunction with the cases we discussed and your class notes, and hopefully this will help.