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Chapter 44: Creation and Termination of Partnerships

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. Partnership Agreement.

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Chapter 44: Creation and Termination of Partnerships

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  1. Chapter 44: Creation and Termination of Partnerships

  2. 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.

  3. Partnership Agreement • 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.

  4. Partnership Property • 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.

  5. Dissolution of Partnership • 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.

  6. Dissolution (cont’d) • 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.

  7. 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: • (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.

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