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CHAPTER 33
DISSOLUTION OF A PARTNERSHIP
Answers to Learning Objectives
1. Dissolution can occur by acts of the partners, court decree, or by operation of law. Dissolution by
acts of the partners includes agreement, withdrawal or alienation, and expulsion. by court decree
includes insanity, incapacity, misconduct of a partner, and futility. Dissolution by operation of law
includes death, bankruptcy, and illegality.
2. A court may order dissolution of a partnership when a partner is judicially declared insane or of
unsound mind. If a partner develops an incapacity that makes it impossible for the partner to
need be given when the dissolution is by operation of law or judicial decree.
Lesson Outline
1. If one member of a going partnership withdraws for any reason, the partnership relation is
dissolved, but the business may continue to operate for the purpose of winding up its affairs.
2. A partnership may be dissolved by act of the partners by:
a. Agreement. At the time the partnership agreement is formed, the partners may fix the time when
3. A court may issue a decree dissolving the partnership for:
a. Insanity of a partner.
b. Incapacity of a partner.
c. Misconduct of one member of a partnership.
d. Futility of the partnership.
4. A partnership may be dissolved by operation of law such as:
a. Death
b. Bankruptcy of one of the partners
c. Illegality of the type of business
Chapter 33 Dissolution of a Partnership
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c. When the partnership was dissolved by judicial decree.
d. When a dormant or a secret partner retired.
7. After the termination of a solvent partnership, the partners are entitled to distribution of the assets
remaining after creditors are paid as follows:
Comments on Cases
(p. 399) The court found only one reasonable interpretation of the expulsion provision in the partnership
agreement. That was that a majority of the limited partners and all the other general partners
(there were none) could remove Lois as general partner without her consent. Jarl Investments,
L.P. v. Fleck, 937 A.2d 1113 (Pa. Super. Ct.)
Answers to Questions
(Page 403)
1. Not all partnership activity ceases after a partnership dissolves since it continues to exist for the
limited purpose of winding up or cleaning up its outstanding obligations and business affairs and
distributing its remaining assets to creditors and partners.
5. The expulsion clause of a partnership agreement should spell out clearly the acts for which a
member may be expelled and the method of settlement for such a partner’s interest.
6. No, the temporary incapacity of a partner does not justify a court decree dissolving the partnership.
A temporary inability of one partner to perform duties constitutes one of the risks that the other
partners assumed when they formed the partnership.
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10. If notice of dissolution is not given to third persons who have done business with the partnership
every member of the old firm may be held liable for the acts of the former partners that are
committed within the scope of the business.
Answers to Case Problems
(Page 404)
1. Debbie was entitled to the redemption value of Robert’s interest in the partnership. The court
reasoned that if Robert had opted to withdraw from the partnership while he was alive, he would
have been entitled to the buy-out value of his interest in Coleman Properties. Robert’s widow, as
transferee of his interest, should be entitled to the same value. Coleman v. Coleman, 170 S.W.3d
231 (Tex. Ct. App.)
4. Peters. The G&P partnership had been dissolved but not wound up when the Yager fee was
received. During winding up the partners still had the obligation to properly account to the
partnership for any benefit received by the partnership. Gast v. Peters, 671 N.W.2d 758 (Neb.)
5. The partnership was dissolved when Maurice transferred his interest in NDP to Dennis. The court
said that “merely walking away from the partnership” as Maurice had done earlier did not dissolve
the partnership. Also, the filing of papers not signed or authorized by Maurice could not have given
notice of Maurice’s intention to dissolve NDP and they continued to act like partners by sharing
profits from the Laval Street property. The Cadle Co. v. Bourgeois, 821 A.2d 1001 (N.H.)