1.1.3.4. Dissolution and Liquidation
There are several reasons why a limited partnership may be dissolved prior to its expiration date. First, it may be dissolved automatically upon the death, incompetency, or withdrawal of the last remaining general partner. The limited partners may be allowed a certain amount of time (usually 90 days) to elect a new general partner by majority vote, if the partnership agreement specifies. Failure to agree on and install a new general partner within that time frame will result in dissolution.
Second, an LP will dissolve when all its assets have been sold off, either because its business purpose has been completed or because of bankruptcy. Third, an LP may be dissolved if at least 51% of the limited partners and all of the general partners sign a consent to dissolve document. Fourth, it may be dissolved by court order, either because a general partner has been found to be of unsound mind or because the business is incapable of carrying on without a loss.
Dissolution is the process by which an organization winds up its affairs and is brought to an end. Termination occurs after the partnership is legally dissolved and ceases to exist. When a limited partnership dissolves, it must liquidate its assets and distribute them: first to its creditors, and then to its partners in proportion to their unit shares. Debts are settled in the following order:
• secured lenders
• other creditors
• limited partners
• general partners
The general partner or, if none remains, the limited partners must generally file a Certificate of Dissolution with the secretary of state. In some states a Certificate of Dissolution is only required if the dissolution has not been agreed upon by all of the members. Once dissolution has begun, the general partner relinquishes all his rights and duties except as necessary to wind up the affairs of the partnership.
To terminate the partnership once the dissolution is completed, a g