partnerships

Effects of Wrongful Dissociation on Dissociating Partner

A partner can withdraw or dissociate from a partnership at any time, even if the dissociation is wrongful, such as when it violates an express provision of the partnership agreement. A partner who wrongfully dissociates is liable to the partnership and the other partners for damages caused by the dissociation. In addition, a dissociated partner generally does not have the right to participate in the management or conduct of the partnership business and cannot participate in winding up the business.

Effects of Wrongful Dissociation on Partnership

Dissociation may, but does not necessarily, result in dissolution of the partnership and the winding up of its business. Wrongful dissociation creates a possibility of dissolution, if, within 90 days of dissociation, a majority of the remaining partners express a will to wind up the business. If dissolution results, the dissociated partner is not entitled to any payout until the end of the original term unless the partner can prove to the court that earlier payment would not cause undue hardship to the business.

Effects of Rightful Dissociation on Partner

Dissociation that complies with the provisions of the partnership agreement may also trigger dissolution, such as when it is an at-will partnership agreement with no definite term or when the partnership agreement so provides. If the dissociating partner's withdrawal is not wrongful, the partner is not liable for damages and would retain the right to participate in the dissolution and winding up the partnership.

Effects of Rightful Dissociation on Partnership

Once a partnership has been dissolved, but before the winding up of its business is complete, the partnership may choose to resume carrying on its business as if dissociation had never occurred. To do so, all partners (including any rightfully dissociated partners) must agree to waive the right to terminate the partnership within 90 days of dissociation. A person winding up the partnership business may preserve the business or property as a going concern for a reasonable time to maximize its value.

Dissociated Partner's Liability during Winding-Up Process

The partnership is not terminated until the partnership business is wound up. After dissolution, the partnership is bound by a partner's act that is appropriate for winding up the partnership. Each partner is liable to the other partners for his share of partnership liability incurred by such post-dissolution acts. Further, although a dissociated partner loses any right to participate in the business, his apparent authority to bind the partnership lingers after dissociation for up to two years.