Oak Street Design is a general partnership formed by Alex, Brooke, and Chen. The partnership agreement is silent regarding withdrawal of partners. After a disagreement over business strategy, Alex notifies Brooke and Chen that he is immediately withdrawing from the partnership and stops participating in the business. Brooke and Chen continue operating Oak Street Design under the same name and with the same clients. The partnership was formed for an indefinite term. No court order has been issued, and no agreement has been reached to wind up the business.

Based on the facts above, which of the following statements is the most accurate?

Question

Oak Street Design is a general partnership formed by Alex, Brooke, and Chen. The partnership agreement is silent regarding withdrawal of partners. After a disagreement over business strategy, Alex notifies Brooke and Chen that he is immediately withdrawing from the partnership and stops participating in the business. Brooke and Chen continue operating Oak Street Design under the same name and with the same clients. The partnership was formed for an indefinite term. No court order has been issued, and no agreement has been reached to wind up the business.

Based on the facts above, which of the following statements is the most accurate?

BlackTom AI · Accepted Answer

Question restatement: Oak Street Design is a general partnership formed by Alex, Brooke, and Chen. The partnership agreement is silent on withdrawal of partners. Alex immediately withdraws and stops participating; Brooke and Chen continue operating under the same name. The partnership is for an indefinite term; no court order to wind up; no wind-up agreement. The prompt asks which statement is most accurate given these facts.

Option 1: "Alex’s withdrawal constitutes a dissolution of the partnership, but Brooke and Chen may avoid winding up the partnership business by purchasing Alex’s partnership interest and continuing operations." This option asserts that withdrawal itself is a dissolution and would trigger winding up, yet incorrectly adds that Brooke and Chen can evade winding up by purchasing Alex’s interest and continuing. Under typical general partnership law, withdrawal by a partner generally causes dissociation, not dissolution of the partnership as an entity. Dissolution is a separate event that typically requires winding up if the partnership has no remaining members or if a written agreement governs dissolution. Purchase of a departing partner’s interest might permit continuation, but it does not logically negate the need to wind up if a formal dissolution event is triggered or if the partnership is no longer able to operate as a going concern. The statement blends dissociation with a mistaken path to avoid winding up, making it problematic as a most accurate description of the legal effect.

Option 2: "Alex’s withdrawal has no legal effect because the partnership agreement does not address partner withdrawal." This is incorrect because withdrawal of a partner from a general partnership typically does have legal consequences, such as dissociation, even if the agreement is silent. The absence of a clause addressing withdrawal does not eliminate the effect of withdrawal; standard partnership law still treats such withdrawal as dissociation, with attendant rights and duties and potential impact on the partnership’s continuance.

Option 3: "Alex’s withdrawal automatically dissolves the partnership under the agreement, requiring Brooke and Chen to wind up the partnership business." This option posits automatic dissolution by withdrawal. In many jurisdictions, dissociation does not automatically dissolve a general partnership unless certain conditions are met (e.g., the partnership has a term that ends, a vacancy, or the remaining partners elect to wind up). Since the term is indefinite and there is no court order or wind-up agreement, withdrawal typically does not automatically trigger dissolution, but rather causes dissociation with the remaining partners having options to continue or wind up.

Option 4: "Alex’s withdrawal constitutes a dissociation, but the partnership continues unless Brooke and Chen elect to dissolve and wind up the business." This option aligns with the general rule: withdrawal causes dissociation, but the partnership remains as a business entity unless the remaining partners elect to dissolve and wind up the affairs. Brooke and Chen’s continuation of operations under the same name and clients without a formal dissolution supports the notion that the partnership can continue after dissociation, subject to winding up if they choose to terminate or if certain events force dissolution.

In summary, Option 4 presents a coherent characterization: withdrawal is a dissociation, not an automatic dissolution, and the partners may continue business unless they decide to dissolve and wind up. Options 1 and 3 incorrectly conflate withdrawal with automatic dissolution or provide faulty pathways to avoid winding up. Option 2 incorrectly states withdrawal has no legal effect when, in fact, it does have dissociative consequences under partnership law. The nuanced distinction hinges on whether dissociation automatically ends the partnership or simply allows continuation by the remaining partners, which is consistent with the scenario where Brooke and Chen continue operations without a dissolution order.

ACCT:4300:0001 Fall25 Examination #3 (final exam) - Accounting Ethics and Law- Requires Respondus LockDown Browser

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ACCT:4300:0001 Fall25 Examination #3 (final exam) - Accounting Ethics and Law- Requires Respondus LockDown Browser

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Log in for full answers

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