International Exports, L.P., is a limited partnership, with $100,000 in declared but unpaid profits. International's creditors include Friendly Credit Corporation for $5,000 and Gwen, one of International's limited partners, also for $5,000. When Harry, one of International's general partners, decides to retire, the other general partners vote to liquidate and dissolve the firm. The limited partners, who are not asked their opinions, want International to continue in business and file a suit against the general partners to compel this result. Can the court order International to continue? If not, what is the priority of the distribution of International's assets on its dissolution?
What will be an ideal response?
A court cannot order a partnership to continue in business if all of its general partners do not consent. Thus, the court in this problem could not order International to continue even if all of its limited partners outnumbered its general partners and wanted the firm to continue. The priority of the distribution of a limited partnership's assets on its dissolution is: first, creditors, including partner-creditors, for outstanding debts; second, partners and former partners for unpaid distributions of declared profit; third, partners for their capital contributions; and fourth, partners for the remaining assets, which would be undeclared profit, in proportion to their shares of distributions. Here, this would mean that on International's dissolution, Friendly and Gwen would be paid first. All of the partners would then receive their shares of the remaining $100,000 in declared but unpaid profit and next the amounts of their capital contributions. Any remaining assets would be divided among the partners according to their shares of the profit.
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