Chapter 2-16 Dissolution of Partnership—Wrongful Withdrawal of Partner

• Jurisdiction: United States

2-16 Dissolution of Partnership—Wrongful Withdrawal of Partner

2-16:1 Overview

A partner always has the power to withdraw from the partnership; however, he does not always have the right to do so. Upon withdrawal, the partner or the partnership may file suit to determine the extent of the partner's right to redemption or obligation for contribution. Although most of the rules discussed below are provided by statute, it is important to note that the partnership agreement will often have altered the statutory rules.

2-16:1.1 Related Causes of Action

Judicial Expulsion of Partner, Judicial Winding up of Partnership, Breach of Fiduciary Duty, Breach of Partnership Duty, Usurpation of Business Opportunity, Breach of Contract

MUST READ CASE

Bendalin v. Youngblood & Assocs., 381 S.W.3d 719 (Tex. App.—Texarkana 2012, pet. filed)

2-16:2 Elements

(1) An event of withdrawal

• The partner must withdraw from the partnership.⁴⁷⁰
• An event of withdrawal occurs on:

• Receipt by the partnership of notice of the partner's express will to withdraw as a partner on:

• The date on which the notice is received; or
• A later date specified by the notice;

• An event specified in the partnership agreement as causing the partner's withdrawal;
• The partner's expulsion as provided by the partnership agreement;
• The partner's expulsion by vote of a majority-in-interest of the other partners if:

• It is unlawful to carry on the partnership business with that partner;
• There has been a transfer of all or substantially all of that partner's partnership interest, other than:

• A transfer for security purposes that has not been foreclosed; or
• The substitution of a successor trustee or successor personal representative;

• Not later than the 90th day after the date on which the partnership notifies an entity partner, other than a nonfiling entity or foreign nonfiling entity partner, that it will be expelled because it has filed a certificate of termination or the equivalent, its existence has been involuntarily terminated or its charter has been revoked, or its right to conduct business has been terminated or suspended by the jurisdiction of its formation, if the certificate of termination or the equivalent is not revoked or its existence, charter or right to conduct business is not reinstated; or
• An event requiring a winding up has occurred with respect to a nonfiling entity or foreign nonfiling entity that is a partner;

• The partner's expulsion by judicial decree, on application by the partnership or another partner, if the judicial decree determines that the partner:

• Engaged in wrongful conduct that adversely and materially affected the partnership business;
• Wilfully or persistently committed a material breach of:

• The partnership agreement; or
• A duty owed to the partnership or the other partners under Sections 152.204-152.206; or

• Engaged in conduct relating to the partnership business that made it not reasonably practicable to carry on the business in partnership with that partner;

• The partner's:

• Becoming a debtor in bankruptcy;
• Executing an assignment for the benefit of a creditor;
• Seeking, consenting to, or acquiescing in the appointment of a trustee, receiver or liquidator of that partner or of all or substantially all of that partner's property; or
• Failing, not later than the 90th day after the appointment, to have vacated or stayed the appointment of a trustee, receiver or liquidator of the partner or of all or substantially all of the partner's property obtained without the partner's consent or acquiescence, or not later than the 90th day after the date of expiration of a stay, failing to have the appointment vacated;

• If a partner is an individual:

• The partner's death;
• The appointment of a guardian or general conservator for the partner; or
• A judicial determination that the partner has otherwise become incapable of performing the partner's duties under the partnership agreement;

• Termination of a partner's existence;
• If a partner has transferred all of the partner's partnership interest, redemption of the transferee's interest under Section 152.611; or
• An agreement to continue the partnership under Section 11.057(d) if the partnership has received a notice from the partner under Section 11.057(d) requesting that the partnership be wound up.⁴⁷¹

(2) That is wrongful

• The withdrawal must be wrongful.⁴⁷²

(2)(a) Breaches an express provision of the partnership agreement

• A wrongful

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