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Question # 3124 | Blueprint Area: 5 E vii : Ownership Changes
Wind, who has been a partner in the PLW general partnership for four years, decides to withdraw from the partnership despite a written partnership agreement that states, “no partner may withdraw for a period of five years.” What is the result of Wind’s withdrawal?
A. Wind’s withdrawal automatically causes a dissociation of a partner from the partnership by operation of law.
B. Wind’s withdrawal has no bearing on the continued operation of the partnership by the remaining partners.
C. Wind’s withdrawal is not effective until Wind obtains a court ordered decree of dissolution.
D. Wind’s withdrawal causes a dissociation of the partner from the partnership despite being in violation of the partnership agreement.
Dissociation of a partner is a change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business. Under the Revised Uniform Partnership Act (RUPA), a partner’s withdrawal, death or bankruptcy does not automatically cause a dissolution of the partnership if remaining partners take certain actions. -Partners normally will make an agreement not to dissolve upon a change in partners. Partners that own majority of partnership can choose to continue general partnership within 90 days of partner’s withdrawal, death or bankruptcy. However, withdrawal, death, or bankruptcy by a partner or partners that leaves only one remaining will cause dissolution, since partnership must always involve at least two persons. Therefore, Wind’s withdrawal has no bearing on the continued operation of the partnership by the remaining partners. However, Wind may be liable to a breach of contract for not fulfilling to a 5-year term.Option(A) is incorrect because dissolution by law implies, dissolution due to the death of one partner, bankruptcy or when the partnership engages in illegal activity. Withdrawal of a partner is not considered an operation of law.
Option(C) is incorrect because Wind’s withdrawal is effective and is not contingent upon the dissolution of the partnership. The partnership will continue to exist even after his withdrawal.
Option (D) is incorrect because Wind’s withdrawal will not cause a dissolution of the partnership unless the other partners mutually agree to dissolve, or dissolution occurs due to contingencies such as expiry of the term or by court order.
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Why is D incorrect? Choice D says dissociation not dissolution, the partner would dissociate and the partnership would not dissolve. The answer key mentions dissolution which was not a word in answer D. I see how B also makes sense, but if it’s only a two person partnership it would have bearing, which to me makes D a better answer.
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