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Dissociation and Dissolution

The RUPA made other significant changes with respect to the dissolution of a partnership and winding up of partnership affairs. Under the UPA, if a partner withdraws from the partnership, an event occurs that ends the partnership, the partners agree to end the partnership, or any of a number of situations occurs, the partnership dissolves. When dissolution occurs, the partnership’s business generally ends, the affairs of the business wind up, and partnership property is sold. Partnership agreements, even before the enactment of the RUPA, often provide a method whereby the withdrawing partner’s interests are purchased and the partnership continued. In the absence of such an agreement, the remaining partners may continue the partnership’s business, but the resulting business is considered a completely new partnership.

The RUPA altered this situation, providing that when certain events occur, such as a partner’s withdrawal from the partnership, the partnership is not necessarily dissolved. The RUPA introduced dissociation, whereby a partner can be dissociated from a partnership without the partnership ending. If a partner dissociates from a partnership, the partnership will not necessarily dissolve. The remaining partners can instead purchase the interests of the dissociating partner and continue partnership business.

When a partnership is dissolved, it enters into a stage called winding up. Both the UPA and the RUPA provide rather detailed provisions for winding up the affairs of the partnership. One restriction is that partners who have wrongfully caused the dissolution of the partnership or have wrongfully dissociated from the partnership cannot participate in the winding up process. The most significant part of the winding up process is the liquidation of partnership assets and payment of partnership creditors. When the assets are liquidated, creditors who are not also partners are generally paid first. If a partner is also a creditor of the partnership, he or she is then reimbursed. Once each of the creditors is reimbursed, partners may recover their capital contributions. Finally, if assets remain, the partners will receive their share, in accordance with a partnership agreement or according to the provisions of the UPA or the RUPA.

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