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Phil‟s death may terminate the business‟s major asset. If the business had operated as a corporation,
Phil‟s death would likely have been irrelevant (other than to him and his loved ones); the corporation,
not Phil, would have been party to the contract.
Partnerships
Consistent with the general partnership‟s status as a collection of individuals, not an entity separate
from its owners, a partnership is deemed dissolved upon the death, incapacity, bankruptcy,
resignation, or expulsion of a partner. This is true even if a partner‟s resignation violates the express
terms of the partnership agreement. Those assets of the partnership that may be assigned devolve to
those partners who are entitled to ownership. Those who thus retain ownership may continue the
business as a new partnership, corporation, or LLC with the same or new partners and investors or
may liquidate the assets at their discretion. The sole right of any partner who has forfeited direct
ownership rights (e.g., by violating the partnership agreement) is to be paid a dissolution distribution,
after the partnership‟s liabilities have been paid or provided for.
Corporations
Corporations, in contrast, normally enjoy perpetual life. Unless the charter contains a stated
dissolution date (extremely rare), and as long as the corporation pays its annual fees to the state, it will
go on until and unless it is voted out of existence by its stockholders. The death, incapacity,
bankruptcy, resignation, or expulsion of any stockholder is entirely irrelevant to the corporation‟s
existence. Such stockholder‟s stock continues to be held by the stockholder, is inherited by his or her
heirs, or is auctioned by creditors as the circumstances demand, with no direct effect on the
corporation.
Limited Partnerships
As you may have guessed, the hybrid nature of the limited partnership dictates that the death,
incapacity, bankruptcy, resignation, or expulsion of a limited partner will have no effect on the
existence of the limited partnership. The limited partner‟s partnership interest is passed in the same
way as a stockholder‟s stock. However, the death, incapacity, bankruptcy, resignation, or expulsion of
a general partner does automatically dissolve the partnership, in the same way as it would in the case
of a general partnership. This can be extremely inconvenient if the limited partnership is conducting a
far-flung enterprise with many limited partners. Thus, in most cases, the partners agree in advance in
their limited partnership agreement that upon such a dissolution the limited partnership will continue
under the management of a substitute general partner, chosen by those general partners who remain. In
such a case, the entity continues until it is voted out of existence by its partners in accordance with
their agreement or until the arrival of a termination date specified in its certificate.