Academic journal article Journal of Corporation Law

Pitfalls in Partnership Law Reform: Some United States Experience

Academic journal article Journal of Corporation Law

Pitfalls in Partnership Law Reform: Some United States Experience

Article excerpt

I. INTRODUCTION

This article addresses major pitfalls in partnership law reform based on the Revised Uniform Partnership Act (RUPA)1 experience. The two major pitfalls are a failure to learn from history and a failure to state clear, concise, and coherent principles. The best way to avoid these pitfalls is by properly harnessing available expertise and political support.

II. FAILURE To LEARN FRom HisToRy

There are numerous examples of a failure to learn from history. I begin with the "D word," RUPA's most notable failure to abandon a problematic approach.

A. Dissociation and Dissolution.

Prior to the Uniform Partnership Act (UPA),2 the term "dissolution" was considered extremely confusing. The UPA, which borrowed shamelessly from the English Partnership Act of 1890, tried to resolve the confusion in two ways. First, it defined what

dissolution was. Second, it stated what dissolution was not. Dissolution was defined as "the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business."3 According to the statute, dissolution was not the same as termination, which did not take place until the winding up of the partnership was complete.4

Seventy-five years later, as the RUPA project was getting under way, it was clear that the term "dissolution" was still causing great confusion. For years, I submitted Drafts to the Committee without the word "dissolution." There were two basic reasons for this. First, however beautiful the initiated may have regarded the dissolution construct, it simply caused too much confusion. Second, the word itself is inapt, whether you view partnerships as aggregates or as entities. The Oxford English Dictionary defines dissolution as "separation into parts or constituent elements; reduction of any body or mass to elements or atoms; destruction of the existing condition; disintegration, decomposition."5

When a partner is being bought out, there is no "atomization" or "disintegration" of the partnership. The partnership continues, but without the departing partner. Even if a departure causes the commencement of a winding up of the business, there is no immediate atomization or disintegration. The partnership continues, but toward a new purpose, the winding up of the business. The departure simply causes a contraction in scope. The old statutory definition had the basic concept correct, but chose the wrong word to carry the message. An inadequate statutory structure was then built upon the inapt word. The structure was inadequate because it failed to clarify the distinction between buyouts and windups.

For years, the Committee worked from drafts of new breakup provisions that did not contain the "D word." The Committee drafts also contained a new structure that had separate articles for buyouts and windups. The buyout, in particular, was defined with some specificity. Near the end of the project, certain members of an American Bar Association (ABA) Business Law Section subcommittee stated that a partnership act without the word "dissolution" would be so radical that it might not receive the imprimatur of the ABA, which in turn would make it more difficult for it to be adopted by the states. They did not want to change the new statutory structure or its new substantive rules, they simply wanted the word "dissolution" back in the statute. I was asked to add the word "dissolution" to the subsequent draft so the Committee could "see what it looks like." I added the word in such a way as to make clear that it was unnecessary. Thus, wherever the previous drafts had stated that an event caused a winding up, the next draft said that the event caused a "dissolution and winding up." I added the word "dissolution" as a obvious redundancy, so that it could easily be edited out, I thought, as soon as the scales fell from the eyes of the members of the Drafting Committee. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.