BFV Perspectives, Georgia Business Disputes, | Sep 09, 2013

Partners’ Obligation to Act in the Utmost Good Faith Continues Throughout Dissolution Process

The dissolution of a partnership can involve acrimonious circumstances and can occur abruptly. It is not uncommon for one partner to try to gain an advantage during this process.  Even when two partners have resolved to end their professional relationship, however, Georgia law demands that they continue to act in the utmost good faith and affords a remedy for a breach of that standard.  Unequal division of assets or the use of procedural trickery can give rise to a claim for wrongful dissolution.

Dissolution can occur in a variety of ways, including by the express will or withdrawal of any partner.  Upon dissolution, the partners work to wind up the affairs of the partnership and the partnership is terminated when that process concludes.

Georgia law also provides a remedy for wrongful dissolutions. When dissolution is caused wrongfully either in contravention of the partnership agreement or as a result of other wrongful conduct of a partner, the non-offending partner has the right to sue the wrongfully-terminating partner(s) for money damages in addition to any other rights afforded under the partnership agreement.

The scope of a claim for wrongful dissolution was further defined in a recent decision by the Supreme Court of Georgia in Moses v. Jordan.  The Court articulated that partners owe each other the utmost good faith and listed a few examples.  “A partner may not freeze out a co-partner and appropriate the business to his own use.  A partner may not dissolve a partnership to gain the benefits of the business for himself, unless he full compensates his co-partner for his share of the prospective business opportunity.”

Underlying the decision in the Moses case is the idea that the partnership isn’t over just because the partners want to call it quits.  Partners continue to owe each other fiduciary duties until the affairs of the partnership are completely wound up.

BFV Perspectives, Georgia Business Disputes, | Sep 09, 2013