Chapter 2-15 Dissolution of Partnership—Judicial Winding Up of Partnership

• Jurisdiction: United States

2-15 Dissolution of Partnership—Judicial Winding Up of Partnership

2-15:1 Overview

Under the since-repealed Texas Uniform Partnership Act, one partner could compel the dissolution and termination of a partnership. Today, the Business Organizations Code employs a less permissive method, generally requiring a majority-in-interest vote to wind up and terminate a partnership. This less permissive method of voluntary winding up is supplemented by a partner's ability to bring an action for the judicial winding up of partnership.

2-15:1.1 Related Causes of Action

Judicial Expulsion of Partner, Breach of Fiduciary Duty, Breach of Partnership Duty, Usurpation of Business Opportunity, Breach of Contract, Wrongful Withdrawal, Shareholder Oppression

MUST READ CASE

Dunnagan v. Watson, 204 S.W.3d 30 (Tex. App.—Fort Worth 2006, pet. denied)

2-15:2 Elements

(1) Application by a partner

• A partner must submit an application.⁴⁴⁴

(2) A judicial determination

• The court must determine that the grounds for winding up exist.⁴⁴⁵

(2)(a) The economic purpose of the partnership is likely to be unreasonably frustrated

• One possible ground for winding up is:

• The economic purpose of the partnership is likely to be unreasonably frustrated.⁴⁴⁶

(2)(b) Another partner has engaged in conduct relating to the partnership's business that makes it not reasonably practicable to carry on the business in partnership with that partner

• One possible ground for winding up is:

• Another partner has engaged in conduct relating to the partnership's business that makes it not reasonably practicable to carry on the business in partnership with that partner.⁴⁴⁷

• The wrongdoing partner's actions need not rise to the level of a breach of fiduciary duty.⁴⁴⁸
• The following conduct is sufficient to support a finding that it is not reasonably practical to carry on partnership business:

• When the purpose of a partnership was the operating of a horse racing track, a partner's:

• Refusal to contribute additional capital to obtain a racing license;
• Breaking through the ceiling of the partnership accountant's office to remove computer hardware;
• Testimony that the wrongdoing partner said he could not work with the remaining partners anymore.⁴⁴⁹

(2)(c) It is not reasonably practicable to carry on the partnership's business in conformity with its governing documents

• It is not reasonably practicable to carry on the partnership's business in conformity with its governing documents.⁴⁵⁰

2-15:3 Damages and Remedies

2-15:3.1 Winding Up and Termination

The court may order the partnership to wind up and terminate.⁴⁵¹

Winding up must be accomplished in a reasonably practical time.⁴⁵²

The assets of the partnership are to be applied toward the partnership's creditors' claims first.⁴⁵³

Whether a partner is entitled to a distribution or obligated to make a contribution depends on the final balance of that partner's capital account.⁴⁵⁴

To determine the balance of a partner's capital account:

• A partner's capital account is credited:

• That partner's share of the profits;⁴⁵⁵ an

...