1. By Richard A. Mann & Barry S. Roberts
Business Law and the Regulation of Business Chapter 31: Formation and Dissolution of General Partnerships By
Richard A. Mann
&
Barry S. Roberts

2. Topics Covered in this Chapter
I. Choosing a Business Association
A. Factors Affecting the Choice
B. Forms of Business Associations
II. Formation of General Partnerships
A. Nature of Partnership
B. Formation of a Partnership
III. Dissolution of General Partnerships
A. Dissolution
B. Winding Up
C. Continuation After Dissolution

3. Definition of Partnership
An association of two or more persons to carry on as co-owners a business for profit.

4. Entity Theory
Partnership as Legal Entity – an organization having a legal existence separate from that of its members; the RUPA considers a partnership a legal entity for nearly all purposes.
Partnership as Legal Aggregate – a group of individuals not having a legal existence separate from that of its members; the RUPA considers a partnership a legal aggregate for few purposes.

5. Types of Partnerships
Term Partnership – partnership for a specific term or particular undertaking.
Partnership At Will – partnership in which the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking.

6. Formation
Partnership Agreement – it is preferable, although not usually required, that the partners enter into a written partnership agreement.
Tests of Partnership Existence – the formation of a partnership requires all of the following:
Association two or more persons with legal capacity who agree to become partners
Business for Profit
Co-ownership includes sharing of profits and control of the business

7. Sample Partnership Agreement
THIS PARTNERSHIP AGREEMENT is entered into this _______ day of ________________ 19_____,
between the following persons whose names and addresses are set forth below:
The above partners hereby agree that upon the commencement date of this partnership they shall be
deemed to have become partners in business. The purposes, terms and conditions of this partnership
are as follows:
1. NAME-The firm name of the partnership shall be
2. PRINCIPAL PLACE OF BUSINESS - The principal place of the partnership shall be
3. PURPOSE-The business of the partnership is set forth below and includes any other business
related thereto.
4. TERM-The partnership shall commence on ____________, 19______, and shall continue for an
indefinite time.
5. CAPITAL CONTRIBUTION: DISTRIBUTION OF PROFITS AND LOSSES
Capital Contribution
Percentage Distribution of Profit and Loss
Agreed Upon Cash Valuation of Contribution
Specific Contribution
Name of Partner

8. Sample Partnership Agreement (cont.)
A division of profits and losses shall be made at such time as may be agreed upon by the partners and at the
close of each fiscal year. The profits and losses of the partnership shall be divided between the partners
according to the above schedule of “Distribution of Profits and Losses.”
6. CONTROL-The partners shall have the exclusive control over the business of the partnership and each
partner shall have equal rights in the management and conduct of the partnership business. Any
differences arising as to the ordinary matters connected with the partnership business shall be decided by
a numerical majority of the partners. Any act beyond the scope of this partnership agreement or any
contract which may subject this partnership to liability in excess of ___________________ DOLLARS
shall be subject to the prior written consent of all the partners.
7. DISSOLUTION-In the event of retirement, expulsion, bankruptcy, death, or insanity of a general partner,
the remaining partners have the right to continue the business of the partnership under the same name by
themselves, or in conjunction with any other persons they select.
IN WITNESS WHEREOF, the parties hereto have signed this partnership agreement on the day and year
first written above.
________________________________ PARTNER
Source: “West’s Book of Legal Forms,” by Robert D. McNutt, Copyright  1981 by West Publishing Co. Reprinted with permission.

9. Formation
Partnership Capital – total money and property contributed by the partners for use by the partnership.
Partnership Property – sum of all of the partnership's assets, including all property acquired by the partnership.
Partner’s Interest in Partnership – includes the partner’s transferable interest and all management and other rights.

10. Tests for Existence of a Partnership
Two or more persons with capacity? No
Yes
Business for profit?
No Partnership No
Yes
Co-ownership: profit sharing, loss sharing, control? No
Partnership
Yes

11. Partnership Property Compared with Partner’s Interest
Definition
Tenant in partnership
Share of profits and surplus
Possession
For partnership purposes, not
individual purposes
Intangible, personal property
right
Assignability
NO: unless all other partners
assign their rights in the
property
YES: but the assignee does not
become a partner
Attachment
YES: but only for a claim
against the partnership
YES: by a charging order
Inheritance
NO: goes to surviving
partner(s)
YES: passes to the personal
representative

12. Dissociation and Dissolution of General Partnerships Under RUPA
Definition of Dissociation – change in the relation of partners caused by any partner's ceasing to be associated in carrying on of the business; may be wrongful or rightful (see next 2 slides).
Effect of Dissociation – terminates dissociating partner’s right to participate in the management of the partnership business and duties to partnership.

13. Dissociation & Dissolution under RUPA
Partnership at Will
Term Partnership
Dissociation
Dissolution
Dissociation
Dissolution
ACTS OF THE PARTNERS
Assignment of partner’s interest
Accounting
Withdrawal • *
Bankruptcy
Incapacity
Death
Expulsion of partner
Expiration of term
Event specified in agreement
Unanimous agreement to dissolve
*Dissolution will occur, if within 90 days of dissociation, at least half the remaining partners desire to wind up business.

14. Dissociation & Dissolution under RUPA
Partnership at Will
Term Partnership
Dissociation
Dissolution
Dissociation
Dissolution
OPERATION OF LAW
Illegality •
COURT ORDER
Judicial expulsion of partner *
Judicial determination of partner’s incapacity to perform duties
Judicial determination of economic frustration or impracticability
Application by transferee of partner’s interest if equitable
*Dissolution will occur, if within 90 days of dissociation, at least half the remaining partners desire to wind up business.

15. Wrongful Dissociation
Wrongful Dissociation – a dissociation that breaches an express provision of the partnership agreement or in a term partnership if before the expiration of the term or the completion of the undertaking (1) the partner voluntarily withdraws by express will, (2) the partner is judicially expelled for misconduct, (3) the partner becomes a debtor in bankruptcy, or (4) the partner is an entity (other than a trust or estate) and is expelled or otherwise dissociated because its dissolution or termination was willful.

16. Rightful Dissociation
Rightful Dissociation – all other dissociations are rightful including the death of a partner in any partnership and the withdrawal of a partner in a partnership at will.

17. Causes of Dissolution Dissolution by Act of the Partners –
Partnership at will: withdrawal of a partner;
Term partnership: (1) the term ends, (2) all partners expressly agree to dissolve, or (3) a partner’s dissociation is caused by a partner’s death or incapacity, bankruptcy or similar financial impairment, or wrongful dissociation if within 90 days after dissociation at least half of the remaining partners express their will to wind up the partnership business;
Any partnership: an event occurs that was specified in the partnership agreement as resulting in dissolution.

18. Causes of Dissolution
Dissolution by Operation of Law – a partnership is dissolved by operation of law upon the subsequent illegality of the partnership business.
Dissolution by Court Order – a court will order dissolution of a partnership under certain conditions.

19. Effects of Dissolution
Upon dissolution a partnership is not terminated but continues until the winding up is completed.
Authority – a partner's actual authority to act for the partnership terminates, except so far as may be appropriate to wind up partnership affairs; apparent authority continues unless notice of the dissolution is given to a third party.
Existing Liability – dissolution does not in itself discharge the existing liability of any partner; partners are liable for their share of partnership liabilities incurred after dissolution.

20. Causes and Effects of Dissolution
Partnership Dissolution
Act of Partners
Operation of Law
Court Order
Continuation
Wrongful Dissolution Expulsion Agreement of Parties
Winding Up
Limited Power
Distribution of Assets
Termination

21. Liability of Incoming and Retiring Partners
Partnership Debts Arising:
Limited Liability
Unlimited Liability
No Liability
Admission of New Partner
Notice of Retirement

22. Winding Up
Completing unfinished business, collecting debts, and distributing assets to creditors and partners; also called liquidation.
Winding Up Required – unless all of the partners, including any rightfully dissociating partner, waive the right to have the partnership’s business wound up and the partnership terminated.
Participation in Winding Up – any partner who has not wrongfully dissociated may participate in winding up the partnership’s business.

23. Distribution of Assets
The assets of the partnership include all required contributions of partners; the liabilities of a partnership are to be paid out of partnership assets in the following order: (1) amounts owing to nonpartner and partner creditors and (2) amounts owing to partners on their partners’ accounts.

24. Non-dissolving Dissociations
Partnership at Will – a partner’s death, bankruptcy, or incapacity, the expulsion of a partner, or the termination of an entity-partner results in a dissociation of that partner but does not result in a dissolution.

25. Non-dissolving Dissociations
Term Partnership – if within 90 days after any of following causes of dissolution occurs, fewer than half of the remaining partners express their will to wind up the partnership business, then the partnership will not dissolve: a partner’s dissociation by death, bankruptcy or incapacity, the distribution by a trust-partner of its entire partnership interest, the termination of an entity-partner, or a partner’s wrongful dissociation.

26. Continuation After Dissociation
The remaining partners have the right to continue the partnership with a mandatory buyout of the dissociating partner; the creditors of the partnership have claims against the continued partnership.

27. Power to Bind the Partnership
A dissociated partner's actual authority to act for the partnership terminates; apparent authority continues for two years unless notice is given to a third party.
Dissociated Partner’s Liability to Third Persons – a partner’s dissociation does not of itself discharge the partner’s liability for a partnership obligation incurred before dissociation; a dissociated partner is liable for a partnership obligation incurred within two years after a partner dissociates unless notice of the dissolution is given to a third party.

28. Liability of Incoming and Retiring Partners
Partnership Debts Arising:
Limited Liability
Unlimited Liability
No Liability
Admission of New Partner
Notice of Retirement