(c) As provided by Section 21.
(d) Whenever other circumstances renders it just and reasonable.
TERMINATION OF THE PARTNERSHIP.—A partnership is terminated either by act of the partners, or by law. Under the first heading, we may mention such things as the partnership being terminated by the accomplishment of the object for which the same was formed, or by the termination of the time during which the partnership was to exist, or by mutual consent of all parties concerned. Under the head of termination by operation of law, we have such topics as the death of a partner, the insanity of a partner, or the bankruptcy of a partner, and a dissolution by a court, as for example, where it is absolutely certain, in the opinion of the court, that the business cannot be successfully continued longer. In such a case, although some of the partners may not wish to wind up the affairs of the business, the court may order it done in the interest of all parties concerned.
OWNERSHIP OF FIRM PROPERTY AND CREDITORS' RIGHTS.—The firm property is owned by all the partners jointly, but the interest of each individual partner is not an interest in each piece of firm property, but a right to have an accounting and to receive on the accounting such share of the assets as belong to him when all debts due from him to the firm and all liabilities to the outside world are settled. Consequently, a creditor of an individual partner cannot seize or attach or levy on firm property, because that firm property does not belong, nor does any part of it belong, to his debtor. The creditor must file a bill in equity asking that the partner's share be determined, and that on an accounting so much as is found due to the debtor partner be applied to discharge that partner's indebtedness.
THE DIVISION OF ASSETS.—Upon final dissolution, the question of division of assets comes up, and the Uniform Partnership Act gives us the general rule as to how the firm's assets are divided. Section 40 of the Act reads:
In settling accounts between the parties after dissolution, the following rules shall be observed, subject to any agreement to the contrary:
(a) The assets of the partnership are:
I. The partnership property,
II. The contributions of the partners necessary for the payment of all the liabilities specified in clause (b) of this paragraph.
(b) The liabilities of the partnership shall rank in order of payment, as follows:
I. Those owing to creditors other than partners,
II. Those owing to partners other than for capital and profits,
III. Those owing to partners in respect of capital,
IV. Those owing to partners in respect of profits.
(c) The assets shall be applied in the order of their declaration in clause (a) of this paragraph to the satisfaction of the liabilities.
(d) The partners shall contribute, as provided by Section 18 (a) the amount necessary to satisfy the liabilities; but if any, but not all, of the partners are insolvent, or, not being subject to process, refuse to contribute, the other partners shall contribute their share of the liabilities, and, in the relative proportions in which they share the profits, the additional amount necessary to pay the liabilities.
(e) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in clause (d) of this paragraph.
(f) Any partner or his legal representative shall have the right to enforce the contributions specified in clause (d) of this paragraph, to the extent of the amount which he has paid in excess of his share of the liability.
(g) The individual property of a deceased partner shall be liable for the contributions specified in clause (d) of this paragraph.
(h) When partnership property and the individual properties of the partners are in the possession of a court for distribution, partnership creditors shall have priority on partnership property, and separate creditors on individual property, saving the rights of lien or secured creditors as heretofore.
(i) Where a partner has become bankrupt or his estate is insolvent, the claims against his separate property shall rank in the following order:
I. Those owing to separate creditors,
II. Those owing to partnership creditors,
III. Those owing to partners by way of contribution.
LIQUIDATION OF PARTNERSHIP.—When a partnership is dissolved, it is common for the business to require liquidation, and frequently one or more of the partners are what are called liquidating partners. If a partnership is dissolved by death, for instance, the surviving partners have a right to be liquidating partners and liquidate the business. That means they may carry on existing contracts; they may dispose of the stock on hand to the best advantage. If this requires incidental purchases of new goods, they may be made, but in general, new business cannot be undertaken. The function of a liquidating partner is to satisfy existing contracts, reduce the property of the firm to cash, and then distribute it to those who are entitled to receive it.
LIMITED PARTNERSHIP.—Statutes, as we have learned, in many States permit the formation of limited partnerships, the object of which is to enable one or more partners to avoid unlimited liability for debts. Partners in a general partnership are each liable, individually, for the full amount of the firm's indebtedness. If one partner is thus compelled to pay more than his share, he may seek redress by demanding contribution from his fellow partners, and if they are not solvent, he will not be able to secure reimbursement. If there is one solvent partner, for instance, and two other partners, both of whom become insolvent, the result will be that the first partner will have to pay the debts of the firm and will have no redress except such as he may be able to get from the insolvent estates of his two partners. Now, in a limited partnership a limited partner does not stand to lose any more than the amount of money he actually puts in the firm. In order to create a limited partnership it is necessary to sign a certificate prepared for the purpose and stating the facts, file it in the office of the Secretary of State or other official, and also publish it so that the public may be informed of the circumstances and credit may not be given by the world at large to the firm on the assumption that the limited partner is a general partner. He puts a specified amount of money in the firm and that money may be reached by creditors of the firm, but they cannot hold him further liable. A good definition of a limited partnership follows: A limited partnership is one which consists of one or more persons called general partners and also one or more persons called special partners. Every general partner is an agent for the partnership in the transaction of its business and has authority to do whatever is necessary to carry on such business in the ordinary manner. Every general partner is liable to third persons, jointly and severally, with his general co-partners for all of the obligations of the partnership. A special partner may only advise as to the management of the partnership and he is liable for the obligations of the partnership only to the amount of capital invested by him therein.
SILENT PARTNERS.—A silent partner must not be confused with a member of a limited partnership. A silent partner is a general partner who takes no part in the active management of the business and frequently is a secret partner. A member of a limited partnership can never be a secret partner, since the terms of a limited partnership must be published. A member of a limited partnership should take no part in the management of the business, or he may render himself liable as a general partner. The limited partnership law requires, moreover, that he must have exactly complied with the law by making out, filing and publishing a certificate. The statutes of the State should be consulted on this point and closely adhered to.