Termination: Rightful, Wrongful, or Neither, and What are Implications?

During the course of a partnership, many unforeseen events may transpire.  Some of these events may ultimately lead to the dissociation of a partner or dissolution of the partnership.  The dissociation of a partner or dissolution of a partnership has huge ramifications.  Even more importantly is whether such actions were done rightfully, wrongfully, or neither, as that classification has an instant impact on the partners.  It is important to understand and recognize the difference.

The most beneficial type of dissolution is rightful dissolution.  This occurs when the dissolution is done without violation of the agreement between the partners.  For example, if the partnership has a definite term, the partnership does not dissolve within that term.  Rightful dissolution can occur, for example, with the express will of any partner in an at-will partnership, or through the express will of all partners who have not had their interests assigned or had them assigned to a charging order.  There are very few ramifications as among the rights between partners in a rightful dissolution.

The next type of dissolution is wrongful dissolution.  This is when the dissolution occurs in contravention of the agreement between the partners.  For example, it occurs when dissolution is caused by the express will of any partner at any time where the circumstances do not permit the dissolution.  The importance of wrongful dissolution is that if the partner causing the wrongful dissolution causes damages, he must then pay out damages and other penalties to the non-dissolving partners.  If the partnership is sold, he may not take part in any good will.

Finally, termination is neither rightful nor wrongful in certain circumstances.  For example, if any event makes it unlawful to carry on the business of the partnership, and the partnership must dissolve, it is neither wrongful nor rightful.  If a partner dies and the partnership cannot carry on due to the partnership agreement or the applicable statute, the dissolution will be neither wrongful nor rightful.  Dissolution will also be neither rightful nor wrongful if a decree of the court is issued dissolving the partnership.

There are three different types of dissolution: rightful, wrongful, and neither–the implications of which can be drastic.  If a partner caused a wrongful dissolution, he or she may be in debt to the partnership for damages caused.  Therefore, it is important to decipher whether the actions that caused a dissolution in a partnership are rightful or wrongful.  Consulting with the right legal team can help determine just that. Call the Trembly Law Firm at (305) 431-5678 today to schedule your consultation.