Law Test Notes

1 – Partnership Ownership Changes & Liquidations - Heading

Chapter 14: Partnership Ownership
Changes & Liquidations

3 – Partnership Dissolution - #1

• Dissolution is a legal termination
• UPA § 31 & 32:
– admission or withdrawal of Pr results in Pp dissolution • When act of dissolution occurs, Prs may
– continue business as new Pp or
– liquidate

2 – Partnership Dissolution - Heading

Partnership Dissolution

4 – Partnership Dissolution - #2

• Remember dissolution is not liquidation
• Dissolution – Pp legally ends
• Liquidation - winding up of the Pp’s business affairs 1

5 – Admission of Partner - Heading

Admission of Partner

6 – Admission of Partner - #3

• Assume new GP gives money/property directly to existing Pp
• New GP is promised a % of Pp capital
• When: promised share of capital = capital contribution
Then no problem
• E.g., Assume New Pr contributes $10K and is promised share of Pp capital = $10K:

D. Contribution (e,g, Cash)
C. New Partner, Capital

7 – Admission of Partner - #4

• When incoming Pr contributes property worth more than new Pr’s share of Pp’s capital  2 possible reasons:
– Pp’s net assets worth more than their BVs; or
– Pp is worth more than sum of its net assets
(GW)

$10,000
$10,000

8 – Admission of Partner - #5

• When an incoming Pr contributes property worth less than share of Pp’s capital  One of two reasons:
– Pp’s net assets are worth less than their BVs; or
– Incoming Pr is contributing more than the FMV of contributed net assets (GW)

2

9 – Admission of Partner - #6

• When FMV of new Pr’s contribution ≠ new Pr’s share of Pp capital  Pp can use on of two following methods:

– the Bonus method; or
– the GW method

• These methods are mutually exclusive

10 – Admission of Partner - #6

GW Method:
• Write up all Pp assets to FMV & recognize any Pp GW
• Then record assets being contributed by incoming Pr at FMV & recognize any GW