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Shvoong Home>Law & Politics>Dissolution & Winding up of Partnership Summary

Dissolution & Winding up of Partnership

Book Summary   by:ArthurMaverick     Original Author: Arthur Maverick
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DISSOLUTION   AND WINDING UP

There is a change in the relation of the partners caused by dissolution in which the partners cease to be associated in the carrying on of the business, winding up when there is a process of settling the business or partnership affairs after dissolution; and termination when all partnership affairs are completely wound up and finally settled which signifies the demise of the partnership life.

The provisions on account of dissolution are clear in Article 1830 in which case any partner may cause the partnership dissolution any time without the consent of his co-partners at his sole pleasure, or for any reason which he deems sufficient by expressly withdrawing even though the partnership was entered into for a definite term or particular undertaking, dissolution , however, is a contravention of the agreement.

Dissolution may be caused involuntarily when the business itself becomes unlawful.   The formation of a partnership must always have a lawful object.   There are many situations that may constitute valid reasons for dissolution of a partnership which are subject to dispute or difference of opinion to make a judicial dissolution necessary.   This may be applied by a partner by reasons of : insanity, incapacity, misconduct and persistent breach of partnership agreement, in such a case business can be carried on only at a loss and other circumstances.

                The authority of a partner is not deemed terminated as it affects his co-partners, except in two instances namely: the cause of dissolution is the act of a partner and the acting partner had knowledge of such dissolution; and the cause of the dissolution is the death or insolvency of a partner and the acting partner had knowledge or notice of the death or insolvency.   This aims to protect the remaining partners who might continue to act for the partnership as a going concern, not having actual knowledge of the dissolution, and discards the fiction that everybody is presumed to have knowledge of   death or insolvency.

Upon dissolution   of the partnership as between themselves, the powers of one partner to act and bind the others is effectively terminated, but as regards the third persons who subsequently extend credit on the knowledge that the partnership is still existing, the authority of a partner continues.  

The law, for the protection of innocent   third persons, imposes upon partners, the duty of giving notice of the dissolution of the partnership.   Dissolution of a partnership does not discharge the existing liability of a partner.

Winding up of the dissolved partnership may be done judicially and extra judicially, upon the directions of the proper court   upon cause shown by any partner extra judicially by the partners without court intervention:   Partners dissolved by the agreement;   partners who have not wrongfully dissolved the partnership; and the legal representation of the last surviving partner are authorized to wind up the affairs of the partnership.  

However, the deceased’s estate is not liable for any subsequent debts or losses incurred by the surviving partners who continued the business properly applied to discharge partnership liabilities, if any, depends on whether the dissolution is caused without violation of the partnership agreement, or in violation of the partnership agreement.

The contract is voidable if one is induced by fraud or misrepresentation to become a partner, however, until the partnership contract is annulled by a proper action in court, the partnership relations exist and the defrauded partner is liable for all obligations to third persons

Changes in the relation of the partners result in dissolution of the partnership.   However, the rights of creditors persist in the change of membership and its business is continued by a former partner, either alone or with new partners without liquidation of partnership affairs.   The creditors of the dissolved partnership becomes the creditors of the new partner    or partnership continuing the business.   This is to protect the rights of the old creditors to the partnership property as against the separate creditors of the partners.

However, the liability of the new or incoming partners shall be satisfied out of partnership property only unless there is a stipulation to the contrary. (Art 1826)   Under paragraph 1 no. 4 of Art 1840, applies only when the third person promises to pay the debts of the partnership; otherwise, creditors of the dissolved partnership have no claim on the partnership continuing the business or its property unless the assignment can be set aside as a   fraud on creditors in par. 4.

Some rights of the general partners after dissolution are specific, these are: the right to demand an accounting of the value of his interest   accruing to any partner or his legal representative after dis

Published: September 25, 2008   
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