Also known as: dissolution of partnership · partnership dissolution · dissolve a partnership · dissolved partnership
Written by attorneys — see sources below.
The point in a partnership's existence when it ceases ordinary business operations and continues solely to wind up its affairs by discharging debts and distributing assets.
Diane Dawson and Dorothy Daniels operated Delta Dynamics as equal partners managing municipal bond portfolios. After the partners voted to dissolve, Dawson continued marketing to new institutional clients and opening fresh accounts. Daniels demanded that Dawson instead close existing positions and pay creditors. The court held that Dawson's new marketing exceeded the scope of winding up.
Darius Dixon and Destiny Davis formed a profitable partnership selling specialized equipment. Dixon notified Davis of his intent to dissolve and immediately began competing for the same customers using partnership contacts. Davis sued, claiming the dissolution was timed to seize partnership opportunities. The court examined whether Dixon exercised his dissolution power in good faith toward his partner.
George B. Page and H.B. Page formed an oral partnership in 1949 to operate a linen supply business in Santa Maria, California. Each partner contributed approximately $43,000 within the first two years to purchase land, machinery, and linen for the business. From 1949 to 1957 the partnership lost approximately $62,000. The partnership's primary creditor is a corporation owned entirely by plaintiff that holds a $47,000 demand note issued by the partnership. The business earned profits of $3,824.41 in 1958 and $2,282.30 in the first three months of 1959. Plaintiff then sought to end the partnership. Defendant testified that the partnership terms were intended to be similar to prior partnerships between the parties, under which the business would pay for itself. On cross-examination, however, defendant stated that there had been no discussion about continuing the business in the event of losses. The trial court determined that the partnership was for a term consisting of the reasonable time needed to repay the partnership's debts from profits. Plaintiff appealed from this judgment to the Supreme Court of California.
View caseDissolution marks the point when a partnership stops ordinary operations. Winding up is the subsequent process of settling debts and distributing assets. The partnership continues after dissolution only for winding up purposes.
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A dissolved partnership may discharge debts, liquidate positions, preserve assets for a reasonable time to maximize value, and distribute remaining property. It may not enter new long-term contracts or continue normal business operations.
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No. The partnership continues after dissolution solely for winding up. It retains authority to sue, be sued, collect receivables, pay creditors, and complete acts necessary to close its affairs.
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A dissociated partner who causes the partnership to incur obligations not appropriate for winding up is liable to the partnership and remaining partners for resulting damages. Proper winding up acts do not trigger this liability.
Court supervision is available on application by a partner or entitled person when needed to resolve disputes or appoint a winding up agent. It is not required in every case.
Supporting sources
…J., Carter, J., and Traynor, J. (concurring) Opinion of Justice Curtis This is an action in equity brought for the dissolution of a partnership and for the sale of the partnership assets in connection with the settlement of its affairs. On or about January 2, 1940, plaintiff and defendant entered into an oral agreement whereby…