The last phase in the dissolution of a partnership or corporation, in which accounts are settled and assets are liquidated so that they may be distributed and the business may be terminated.
The dissolution of a corporation or a partnership culminates in the wind up of all legal and financial affairs of the business. State statutes govern the dissolution process for both types of business organizations, based on the need to insure that creditors, stockholders, and other interested parties receive a fair accounting of the liquidation and distribution of the business assets.
When a corporation announces that it will dissolve and end its legal existence, it is only the beginning of the end. Dissolution marks the end of business as usual, but corporate existence continues for the limited purpose of paying, settling, and collecting debts. Once this is done, the corporation may wind up and distribute the remaining assets.
A general partnership will dissolve when a change occurs in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business. In the absence of a contrary agreement by the partners, a dissolution involves reducing the partnership assets to cash, paying creditors, and distributing to partners the value of their respective interests, as well as the performance of existing contracts. Once this phase is completed, the partnership may wind up by distributing assets. Once the wind up has occurred, the termination of the partnership is complete.
A partnership contract that is silent as to the procedures for wind up and liquidation must defer to the provisions of the Uniform Partnership Act (UPA), which has been adopted by virtually all of the states. The same rules of winding up and liquidation apply to all partnerships, regardless of their nature or business. Section 37 of the UPA provides that unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of the last surviving solvent partner have the right to wind up the partnership affairs, provided, however, that any partner, his legal representative, or his assignee may obtain, for good cause, winding up by a court.