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Example 6. Suppose that one year after the articles of partnershipfor HDJ Enterprises are signed, Holden (a partner) loses controlof a delivery truck and crashes into Thompson Industries’ laboratorybuilding. Boris Thompson is severely injured. Thompsoncould sue Holden’s partners even though they were not personallyinvolved in the accident.Dissolving a PartnershipA dissolution is a legal detachment. The dissolution of a partnershipis a change in the relationship of the partners that occurs when anypartner stops being associated with the business. Dissolution is not thesame as the termination of the business. When a partner dies or voluntarilywithdraws from the firm, the firm is dissolved. The firm also maybe dissolved by court decree. The partners then are no longer carryingon as co-owners of a business for profit. In contrast, dissolution occursat the moment that one partner ceases to be associated with the firm. Thebusiness operations, however, cannot be stopped on a moment’s notice.It takes time to close the firm’s affairs and formally bring the firm to anend. During this period, the partners are not carrying on business.Effects of DissolutionDissolution does not necessarily bring the business to an end. Otherpartners may want to continue in business together. If so, there must bean accounting of the old firm’s affairs. New financial arrangementsmust be made regarding the new firm. A new agreement must be drawnup regarding the conduct of the new firm. Public notice must usually begiven to relieve retiring partners from liability for any new debts.Distribution of AssetsUpon dissolution, an accounting of the firm’s financial affairs isnecessary to determine how the firm’s assets will be distributed ordivided. The firm’s liabilities are paid in the following order:1. Money owed to creditors other than partners2. Money lent by partners to the firm3. The original money paid into the partnership by each partner4. The surplus, if any, owed to the partnersExample 7. Suppose that one year after forming JAC Industries,Cecilia loans $50,000 to the business. If JAC Industries is dissolved,the firm’s creditors would be the first to be paid. Ceciliawould be next in line for payment. After Cecilia’s loan was repaid,the three partners could then recover their initial contributionsto the partnership.Chapter 27: Sole Proprietorship and Partnership 597