Transcript Chapter 44: Creation and Termination of Partnerships Comprehensive Volume, 18 Edition

Comprehensive Volume, 18th Edition
Chapter 44: Creation and
Termination of Partnerships
Definition
A partnership is a relationship:
created by the voluntary association of two
or more persons
to carry on as co-owners a business for
profit.
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Partnership Agreement
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A partnership agreement governs the
partnership during its existence and may also
contain provisions relating to dissolution.
The partnership agreement will generally be
in writing; this may be required by the statute
of frauds.
The existence of a partnership may be found
from the existence of shared control in the
running of the business and the fact that the
parties share profits and losses.
The sharing of gross returns, as opposed to profits,
is very slight evidence of a partnership.
Partnership Property
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Partners hold title to firm property by
tenancy in partnership.
A creditor of a partner cannot proceed against
any specific item of partnership property but
must obtain a charging order to seize the
debtor-partner’s share of the profits.
An assignee of a partner’s interest does not
become a partner without the consent of the
other partners and is entitled only to a share
of the profits and the assignor’s interest upon
dissolution.
Dissolution of Partnership
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A partnership may be dissolved by the parties
themselves in accordance with the terms of
the partnership agreement, by the expulsion
of a partner, by the withdrawal of a partner,
or by the bankruptcy of the firm or one of the
partners.
A court may order dissolution of a
partnership upon the petition of a partner
because of the insanity, incapacity, or major
misconduct of a partner.
Dissolution (cont’d)
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Dissolution may be decreed because of
lack of success, impracticability, or
other circumstances that equitably call
for dissolution.
Dissolution ends the right of the
partnership to exist as a going concern.
Notice of dissolution, except dissolution
by operation of law, must be given.
Winding Up
Dissolution is followed by a winding-up
period and the distribution of assets.
After the firm’s liabilities to nonpartners have
been paid, the assets are distributed among
the partners as follows:
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(1) refund of advances,
(2) return of contributions to capital, and
(3) division of remaining assets in accordance with
the partnership agreement or, if no agreement is
stated, division of net assets equally among the
partners.