What ‘Winding Up’ a Dissolved Business Partnership Means
Anyone entering a partnership should contact a business dispute lawyer to understand what winding up means for the parties involved. Partnerships are a longstanding method by which people come together to create a business in which all the partners share ownership. In North Carolina, partnership is defined under the Uniform Partnership Act (UPA) as “an association of two or more persons to carry on as co-owners a business for profit.”1 Partners are co-owners to the extent that they share in the liabilities and profits of the partnership, but they often have an equal share in the voting and management of the partnership business. So, what happens when a business dispute causes one or more parties to decide to end their ownership role?
What Is ‘Winding Up’ in Partnerships?
Ending a business partnership initiates the ‘winding up’ process of the working relationship, which refers to settling debts, selling assets, and distributing funds to the co-owners and shareholders. Different forms of ownership may dissolve differently. Owners should contact a business dispute lawyer for guidance on their responsibilities under North Carolina law.
Dissolving a Partnership Under the UPA
Under the UPA, when one partner definitively expresses their intention to leave the partnership, the entire partnership is dissolved.2 Because the original partnership entity was the agreement between all of the co-owners, if one co-owner leaves, the partnership no longer involves the same parties and therefore can no longer exist. Under North Carolina’s adoption of the UPA, a dissolution is “the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.”3 Under the UPA, such a dissolution does not terminate the partnership; it continues until the affairs have been wound up.4
Case Law On Winding Up a Partnership
Dissolving a business agreement does not require winding up the partnership in the same ways as corporations and closely held LLCs. Under a case from the North Carolina Business Court, Hardin v. Lewis,5 if one partner effects a dissolution by expressly leaving the partnership, the other partners may continue as before, and their continuance constitutes a new partnership over the assets and liabilities. The previous partnership must still go through winding up the affairs, but this does not necessarily require liquidating the assets of the business. Instead, under the Business Court’s new interpretation, relying on case law from other jurisdictions as well as language from the North Carolina Supreme Court, a partnership may wind up by ascertaining the interest held by the leaving partner, compensating that partner for their interest, and otherwise carrying on as before, only now as a reconstituted partnership entity.6
This is good news for partnerships that are operating without a formal partnership agreement and are instead operating under the provisions of the North Carolina UPA. Instead of going through business litigation and a liquidation process that could unnecessarily interfere with operations, the partnership can continue as a new entity and compensate the leaving partner as appropriate under law.
If you are involved in a partnership or business ownership dispute, contact the lawyers at Miller Law Group for a consultation regarding your rights and responsibilities.
