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Partnership: Ending It (When is a "buy out" possible? (CONSENT,…
Partnership: Ending It
When can a partner dissociate?
If the partnership is "at will," then at any time.
If the partnership is "for a term," then the partner must fulfill the term.
Purpose
Debt obligation
Entity was formed to repay financing.
Pay regular costs
Common hope that the earnings will pay for expenses does not establish a "definite term or particular undertaking."
Page v. Page
.
Legal Effect
If the partner leaves early, then she engages in "wrongful conduct."
UPA § 602(b)
.
When can an entity dissolve?
LIQUIDATION
If the partnership is "at will," then a dissociation forces an auction, supervised by a judge.
UPA § 601(1)
.
Partners of either type of partnership may ask the court for dissolution.
UPA §801(5)
.
Is it reasonably practicable to continue operations?
McCormick v. Brevig
.
When is a "buy out" possible?
CONSENT
Departing partner agrees to a "buy out."
LEGAL VIOLATION
"Wrongful Conduct."
Partners Expel
If there is a legitimate business purpose, then the partners can agree to a "buy out."
UPA § 601(3)
.
Like a breach in the partnership agreement.
Bohatch v. Butler & Binion
.
Court Expels
If a partner engages in "wrongful conduct," then the court can order a "buy out."
UPA § 601(5)
Engages in wrongful conduct that materially affects the business.
Willfully commits a material breach of the partnership agreement.
Makes it impracticable to carry on the partnership.
Drashner v. Sorenson
.
Legal Effect
Wrongful partner may have to pay damages for breach and / or wait to receive the partnership interest until after the term ends.
But, the partnership interest is never forfeited!
EQUITABLE GROUNDS
Court Allows
Sole proprietor may move to "buy out" a financier.
Nicholes v. Hunt.