Business Contracts General Partnership withdrawal

TN121417

New Member
Jurisdiction
Tennessee
I am a general partner in a TN partnership which contains 4 partners in total and with one partner serving as the "Managing Partner".

The Managing Partner structured the agreement as such that he has sole authority over all distributions/profits from the partnership.

The agreement has provisions for dissolution/winding up, as well as transfer or purchase of interest rights...but it does not have any provisions for a single partner voluntarily *withdrawing* from the partnership.

With that being the case, if I desire to withdraw from the partnership, provided I follow TN law with written notice, will I be entitled to the proceeds for my current percentage interest in the partnership's assets?

The reason I want to withdraw from this partnership is because there is no ongoing business concern. The company that our partnership was involved with has been sold. Now the Managing Partner is sitting on the proceeds of that sale and intends to maintain complete control over all of it, with distributions to other partners being based solely on his whims as the Managing Partner. I have no power to gain access my percentage ownership of the partnership's assets beyond what the Managing Partner allows.

Theoretically the Managing Partner could decide to gamble away all the partnership's assets and I could be stuck with nothing.

The main original reason for the restrictions on distributions of profits/interest was to prevent undue harm to the company as a result of such distributions. But that is no longer valid, as the company was sold. The only income the partnership generates now is passive investment income. So my withdrawal from the partnership would not damage the other partners at all. The other partners will still have their share of the assets, and there is no ongoing business we're involved in that my departure and withdrawal of assets would threaten.

Thanks in advance for any insight.
 
That is correct. Would you mind addressing my actual question concerning withdrawal from the partnership?
The problem is that you don't just want to leave...you want to get money out.
 
While I would rather have obtained a direct answer to my question, I think I understand what you're trying to say. I can disassociate with the partnership, but as the partnership still exists with the agreement that states the Managing Partner retains control over asset/cash distribution, my withdrawal wouldn't automatically entitle me to my interest in the assets. In other words, the only way I would be paid for my interest apart from the Managing Partner's consent would be a dissolution/liquidation scenario.

Is this a correct interpretation of your comments?
 
While I would rather have obtained a direct answer to my question, I think I understand what you're trying to say. I can disassociate with the partnership, but as the partnership still exists with the agreement that states the Managing Partner retains control over asset/cash distribution, my withdrawal wouldn't automatically entitle me to my interest in the assets. In other words, the only way I would be paid for my interest apart from the Managing Partner's consent would be a dissolution/liquidation scenario.

Is this a correct interpretation of your comments?
I'm not even convinced that a dissolution/liquidation would entitle you to anything. Refer to the partnership agreement and speak to an attorney.
 
If the other two partners are in the same boat I suggest the three of you pool your resources and hire an attorney to enforce compensation if the managing partner is wrongfully withholding it.
 
I'm not even convinced that a dissolution/liquidation would entitle you to anything. Refer to the partnership agreement and speak to an attorney.
The partnership agreement does say that the liquidated assets are paid out to the partners, after payment to creditors and such (which we don't have any). Standard fare really. But dissolution can only occur with either the Managing Partner's consent or unanimous consent from all partners.

If the other two partners are in the same boat I suggest the three of you pool your resources and hire an attorney to enforce compensation if the managing partner is wrongfully withholding it.
Thanks for the reply. So even though the agreement states he has all the control, it's possible to make an argument that it is "wrong" for him to exercise that control? Doesn't sound like that would hold up, but I'm no legal guru.

I've made an appointment with a local attorney for next week. Hopefully I can get a good enough idea of my options in the half hour consult for $50. But I can still cancel it if there's a solid majority opinion here that I have no recourse.
 
I've made an appointment with a local attorney for next week. Hopefully I can get a good enough idea of my options in the half hour consult for $50. But I can still cancel it if there's a solid majority opinion here that I have no recourse.
Keep your appointment - don't listen to random internet strangers.
 
I've made an appointment with a local attorney for next week. Hopefully I can get a good enough idea of my options in the half hour consult for $50. But I can still cancel it if there's a solid majority opinion here that I have no recourse.

If it isn't worth spending fifty lousy bucks for REAL legal advice, because FREE information from STRANGERS is great, only you can decide which is better!
 
Yes, fair point. I'll spend the $50.

But, for what it's worth, this is what the Tennessee Revised Uniform Partnership Act (which is actually referenced in our partnership agreement) has to say about disassociation:
A partner is dissociated from a partnership upon the occurrence of any of the following
events:
(1) the partnership's having notice of the partner's express will to withdraw as
a partner or on a later date specified by the partner
The above is from section 601(1), which is referenced in the below:
(a) A partner has the power to dissociate at any time, rightfully or wrongfully,
by express will pursuant to Section 601(1).
(b) A partner's dissociation is wrongful only if:
(1) it is in breach of an express provision of the partnership
agreement;
There are some other bullet points in this section but they are not relevant. As far as what is supposed to happen when a partner disassociates:
(a) If a partner is dissociated from a partnership without resulting in a
dissolution and winding up of the partnership business under Section 801, the
partnership shall cause the dissociated partner's interest in the partnership to be purchased for a buyout price determined pursuant to subsection (b).
(b) The buyout price of a dissociated partner's interest is the amount that
would have been distributable to the dissociating partner under Section 807(b) if, on the
date of dissociation, the assets of the partnership were sold at a price equal to the
greater of the liquidation value or the value based on a sale of the entire business as a going concern without the dissociated partner and the partnership were wound up as of
that date. Interest must be paid from the date of dissociation to the date of payment.
Finally, Section 807(b) referenced above says this:
(b) Each partner is entitled to a settlement of all partnership accounts upon
winding up the partnership business. In settling accounts among the partners, the profits
and losses that result from the liquidation of the partnership assets must be credited and
charged to the partners' accounts. The partnership shall make a distribution to a partner
in an amount equal to any excess of the credits over the charges in the partner's
account. A partner shall contribute to the partnership an amount equal to any excess of
the charges over the credits in the partner's account.
So really, the only question is whether my disassociation violates the partnership agreement. I don't think it does. There is nothing in the agreement that I can find which says I cannot disassociate. It has restrictions against me transferring or selling my partnership interest to a third party, but it doesn't say anything about disassociation. The closest thing I've found that "may" be an issue is this:
Except as specifically provided in this Agreement, or as otherwise provided by and in accordance with law to the extent such law is not inconsistent with this Agreement, no Partner shall have the right to withdraw or reduce his or her contributions to the capital of the Partnership
It's quite clear and unmistakable that, so long as I am a partner in the partnership, I can't withdraw any capital. However, it doesn't make any reference as to my right to disassociate from the partnership, so I think there's an argument to be made that the capital withdrawal restriction is not applicable in the case of a disassociating partner.

Anyway, I guess we'll see what the attorney says. Just putting more info here for anyone potentially interested or possibly in a similar situation. I will come back here and update what I learn from the attorney for posterity's sake.
 
Your partnership agreement can modify many of the things mentioned in that act. Not all of them, but I don't see that the distributions can't be modified.
 
The attorney reviewed the agreement (he'll be sending me a bill). He said it is air tight. As long as the Managing Partner is alive, the other partners have no ability to gain access to the partnership's assets whatsoever.
 
The attorney reviewed the agreement (he'll be sending me a bill). He said it is air tight. As long as the Managing Partner is alive, the other partners have no ability to gain access to the partnership's assets whatsoever.

It would seem very helpful, should things go awry, if the attorney were to send you a written memorandum detailing her/his findings. Such memorandum are often referred to as a "lawyer letter" or written "legal opinion".
 
The attorney reviewed the agreement (he'll be sending me a bill). He said it is air tight. As long as the Managing Partner is alive, the other partners have no ability to gain access to the partnership's assets whatsoever.

Oh well, that's what you signed up for.
 
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