(Paralegal) Can you “inherit” a partnership? (Discussion)

Case Study:

Shark, Shyster, and Bloodthirsty were partners in a Miami law firm. Shyster, who was in failing health, advised the partners that she wanted to retire and that she had assigned her full interest in the partnership to her son Shawn. Shawn was a Florida bar-licensed attorney with numerous years of professional experience. Shark and Bloodthirsty did not permit Shawn to attend management meetings or inspect the books. Shawn believes, as the assignee of his mother’s partnership interest, he was entitled to do both. Is Shawn correct?

Discussion:

This is nearly a carbon copy situation as presented in our weekly class reading assignment. In the Legal Problem example presented to us, Ordonez, Healey, Upton and Kopp were partners in an accounting firm in San Diego. Ordonez was in poor health and assigned her full and complete interest in the partnership to her son, Walter, who was qualified and experienced. Healey, Upton and Kopp did not allow Walter to attend management meetings or inspect the books. Walter felt he had a right to be treated as a full partner, but Ordonez, knowingly or not, dissolved the partnership by retiring. Walter can be awarded the value of Ordonez’ partnership interest or Healey, Upton and Kopp can make a new partnership agreement naming Walter as a partner, but Walter can not just step into his mother’s shoes if Healey, Upton and Kopp choose not to make him a full partner. It is not an inherited position.

Shyster, when she retires, will effectively dissolve her partnership with Shark, Shyster, and Bloodthirsty. Shawn’s qualifications or his mother’s desire for him to take over in her position are irrelevant if Shark and Bloodthirsty choose not to legally include Shawn as a full partner.

This makes sense: If there is no legal “Agreement of Partnership” document specifically citing Shawn as heir to the position that Shark & Bloodthirsty agreed to, it would not be feasible to force partners to accept heirs of prior partners as new, full partners.

To re-frame the situation: we don’t do this if one employee (assume that the employee is an accountant) who has been hired by a company retires even if s/he suggests an equally qualified son or daughter; the son or daughter still has to be legally hired by the company that the parent is retiring from, and the company will probably hire a different accountant; the son or daughter certainly wouldn’t count on “inheriting” Mom or Dad’s job.

The Shark, Shyster, and Bloodthirsty partnership agreement was made with Shawn’s mother, not Shawn, and dissolved when she stepped down. Shawn is entitled to whatever assets or value her partnership is worth, but is not entitled to simply inherit her “job” as partner.

References: 

BUS2038_S02 online reading. Retrieved from http://frameset.next.ecollege.com/(NEXT(a971485782))/Main/AllMode/DynaTreeHybrid/DynaTreeView.ed#

Beesley, C (U.S. Small Business Administration). (2012, April 30). Exiting or Dissolving a Business Partnership – Your Options and the Process Explained. Retrieved from http://www.sba.gov/community/blogs/community-blogs/business-law-advisor/exiting-or-dissolving-business-partnership-%E2%80%93-yo

Addenda:

Some good case studies here:
http://lawschool.mikeshecket.com/ba/partnershipoutline.htm

See also Pennsylvania’s law re: partnerships, for comparison: § 8363.  Liability of persons continuing the business. Retrieved from http://www.legis.state.pa.us/WU01/LI/LI/CT/HTM/15/00.083.063.000..HTM

And how it is handled by Canadian law (it’s very similar): http://www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/00_96348_01#section45

And relevant law in the UK: http://www.dwt.co.uk/commercial/partnership-dissolution.html

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