Dissolution and

Winding Up
Dissolution

The dissolution of a partnership is the

CHANGE in the relation of the partners
caused by any partner cease to carry
on the business together.
Winding Up

The actual process of settling the

business or partnership affairs after
dissolution.
Termination

All partnership affairs are completely

wound up and finally settles. End of
partnership life;
Effects of Dissolution
A. Authority of Partner to Bind
Partnership

General Rule: Authority is terminated

Exception:
1. Wind up partnership affairs;
2. Complete unfinished transaction.
B. Discharge of Liability

Dissolution does not discharge existing

liability of partner except by agreement
between:
1. Partner
2. Person/Partnership continuing the
business
3. Partnership Creditors
C. Settlement of Account Between
Partners

Order of application of Assets

1. Partnership Creditors
2. Partners as Creditors
3. Partners as Investors
4. Partners as Investor
D. When Business is continued
Causes of Dissolution

 Extrajudicial Dissolution
 Automatic Dissolution
 Judicial Dissolution
Dissolution Effected Without Violation of
Partnership Agreement

 Termination of the definite term or

undertaking.
 By the express will of any partner.
 By the express will of all partners.
 By expulsion of any partner.
Dissolution Effected in Contravention of
Partnership Agreement

 Dissolution may be for any cause or

reason ;
 Legal effects of dissolution;
 Power of dissolution always exists.
Involuntary Dissolution

 Business becomes unlawful.

 Loss of specific thing.
 Death of any partner.
 Insolvency of any partner or of
partnership.
 Civil interdiction
Judicial Determination as to
Dissolution
On application by a partner.

 Insanity
 Incapacity
 Misconduct and persistent breach of
partnership agreement
 Business can be carried on only at a
loss
 Other circumstances.
On application by a purchaser of a partner’s
interest
Effects of Dissolution on Authority of
Partner

 General Rule: Every partner is considered

the agent of the partnership with authority
to bind the partnership with authority to
bind the partnership as well as the other
partners with respect to the transaction of
its business
 In the event of dissolution, therefore,
terminates the actual authority of a partner
to undertake new business for the
partnership.
Qualification to the rule:

 In so far as the partners themselves

are concerned, the authority of any
partner to bind the partnership is
immediately terminated.
 With respect to third persons, the
partnership is generally bound by the
new contract. The innocent partner
can recover from the acting partner.
Where the dissolution is caused by the
act, death or insolvency of a partner,
each partner is liable to his co-
partners for his share of any liability
created by any partner acting for the
partnership as if the partnership had
not been dissolved unless:
1. The dissolution being by act of any
partner, the partner acting for the
partnership had knowledge of the
dissolution; or

2. The dissolution being by the death

or insolvency of a partner, the partner
acting for the partnership had
knowledge or notice of the death or
insolvency.
Effect of Dissolution on Partners’ existing
Liability

 The dissolution of a partnership does

not of itself discharge the existing
liability of a partner.
 The individual property of the deceased
partner shall be liable for all obligations
of the partnership incurred while he was
a partner
Liability of Estate of Deceased Partner

The individual property of the

deceased partner shall be liable for all
obligations of the partnership incurred
while he was a partner with
preference to his individual creditors.
Manners of Winding Up

 Judicially
- under control and direction
of the court upon cause shown by any
partner.
 Extrajudicially - w/o court intervention.
Persons Authorized to Wind up

 The partners designated by the

agreement.
 In the absence of such agreement, all the
partners who have not wrongfully
dissolved the partnership; or
 The legal representative of the last
surviving partner.
 The court in its discretion may also
appoint a receiver
Rules in Settling Accounts Between
Partners after Dissolution
1.Assets of the partnership
a.Partnership property
b.Contributions of the partners necessary
for the payment of all liabilities
2.Order of application of the assets
a.Partnership creditors
b.Those owing to partners other than for
capital and profits
c.Those owing for the return of the
capital contributed by the partners
d.Distribution as assets to the partners
Liquidation Necessary for the
Determination of the Partner’s share

 Share of the profits

 Share in the partnership
When Liquidation is not required

 No liquidation is necessary when there is

already settlement or an agreement as to
what shall he receive.
Liability of Persons Continuing the
Business of Dissolved Partnership
 The liability of the new or incoming partners
shall be satisfied out of partnership property
ONLY unless there is stipulation to the
contrary.
 Obligations to the debts of the dissolved
partnership of one or more third persons
who continue the partnership shall apply
only when the continuing partners
promise to pay such.
Rights of Retiring or of Legal Represent
ative of Deceased Partner
when Business is Deceased
 To
have the value of the interest of the retiring
partner or deceased partner in the
partnership ascertained as of the
date of dissolution.
 To receive thereafter, as
an ordinary creditor, an amount equal to the
value of his share in the dissolved
partnership with interest, or, at his option,
in lieu of interest , the profits attributable to
the use of his right.
Partner’s Right to Account of His
Interest
 Accrual Right - right to demand accounting of the
value of his interest.
Person liable to render an account

 The right of a partner or the one who

represents him as owner of his interest
to an account to a payment of the amount of
his interest, may be exercised as against:
1. The winding up partner
2. The surviving partner
3. The person or partnership continuing the business.
 Sharing of profits must be determined by taking into account all transactions
that the partnership had.
 losses is proportional, except industrial partners