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General Partnership withdrawal Business Contracts

Discussion in 'Business & Corporate Matters' started by TN121417, Nov 23, 2021.

  1. TN121417

    TN121417 Law Topic Starter New Member

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    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 But that is no longer valid, as the company was sold.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.
     
  2. Zigner

    Zigner Well-Known Member

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    You agreed to it.
     
  3. TN121417

    TN121417 Law Topic Starter New Member

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    That is correct. Would you mind addressing my actual question concerning withdrawal from the partnership?
     
  4. Zigner

    Zigner Well-Known Member

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    The problem is that you don't just want to leave...you want to get money out.
     
  5. TN121417

    TN121417 Law Topic Starter New Member

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    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?
     
  6. Zigner

    Zigner Well-Known Member

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    I'm not even convinced that a dissolution/liquidation would entitle you to anything. Refer to the partnership agreement and speak to an attorney.
     
  7. adjusterjack

    adjusterjack Super Moderator

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    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.
     
    army judge likes this.
  8. TN121417

    TN121417 Law Topic Starter New Member

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    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.

    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.
     
  9. Zigner

    Zigner Well-Known Member

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    Keep your appointment - don't listen to random internet strangers.
     
    TN121417 likes this.
  10. army judge

    army judge Super Moderator

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    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!
     
    TN121417 likes this.
  11. TN121417

    TN121417 Law Topic Starter New Member

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    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:
    The above is from section 601(1), which is referenced in the below:
    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:
    Finally, Section 807(b) referenced above says this:
    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:
    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.
     
  12. Zigner

    Zigner Well-Known Member

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    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.
     
  13. TN121417

    TN121417 Law Topic Starter New Member

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    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.
     
  14. PayrollHRGuy

    PayrollHRGuy Well-Known Member

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    I hope this is something you learn from.
     
  15. army judge

    army judge Super Moderator

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    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".
     
  16. adjusterjack

    adjusterjack Super Moderator

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    Oh well, that's what you signed up for.
     
  17. TN121417

    TN121417 Law Topic Starter New Member

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    These comments are perfectly reasonable absent the full history and context of the situation which I did not disclose here.
     
    Last edited: Dec 11, 2021

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