Question

Madonna, Sylvester Stallone, Hayden Christiansen, and Keanu Reaves formed a partnership to run an acting school. Their partnership agreement had no provision with respect to withdrawal or dissociation of a partner, but it did provide that the partnership was to have a 10-year term. Much to everyone's surprise, the acting school business was not as profitable as expected. After one year, Madonna withdrew from the partnership. The remaining partners continued running the partnership business. Madonna then made a written demand to the partnership to be paid for the value of her interest. What is the proper result under RUPA?

A. Madonna is entitled to cash equal to the fair value of her partnership interest, less any damages caused by her dissociation. The partnership must pay the buyout amount to Madonna within 120 days.

B. Madonna is entitled to cash equal to that amount she would get if the partnership were liquidated and its assets were sold at a price equal to the greater of liquidation value or the value based on a sale of the entire business as a going concern without Madonna as a partner. The buyout amount is reduced by any damages caused by Madonna's dissociation. The partnership must pay the buyout amount to Madonna within 120 days.

C. Madonna is entitled to cash equal to that amount she would get if the partnership were liquidated and its assets were sold at a price equal to the greater of liquidation value or the value based on a sale of the entire business as a going concern without Madonna as a partner. The buyout amount is reduced by any damages caused by Madonna's dissociation. The partnership is not obligated to pay the buyout amount to Madonna until the end of the 10-year term, unless Madonna can show that earlier payment would not cause undue hardship to the partnership.

D. Madonna is not entitled to anything, because her dissociation from the partnership was wrongful.

Answer 1

Under RUPA, Madonna is entitled to be bought out based on the value of her interest as if the partnership were liquidated. The payment amount is adjusted for any damages and is due by the end of the partnership's term unless payment could be made earlier without hardship.

Step-by-step explanation:

The student's question pertains to what happens under the Revised Uniform Partnership Act (RUPA) when a partner withdraws from a partnership that has a defined term but no specific provision for withdrawal or dissociation. According to RUPA, if a partner withdraws before the end of the term in a partnership that has a specific term and no provision for withdrawal, that partner may have triggered a wrongful dissociation. However, even in the case of wrongful dissociation, the dissociating partner is typically still entitled to be bought out.

Option C correctly describes Madonna's rights under the RUPA. Madonna is entitled to cash equal to the value of her interest in the partnership, as if the partnership were liquidated at the higher of liquidation value or value as a going concern without her. This buyout amount is subject to reduction by any damages caused by her dissociation. The partnership is not obligated to pay the buyout amount immediately but must do so by the end of the 10-year term, unless earlier payment can be made without causing undue hardship to the partnership.