2020 Georgia Code
Title 14 - Corporations, Partnerships, and Associations
Chapter 8 - Partnerships
§ 14-8-40. Settlement of Accounts Between Partners After Dissolution

In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any agreement to the contrary:

1. The assets of the partnership are:
   1. The partnership property;
   2. The contributions of the partners specified in paragraph (4) of this Code section;
2. The liabilities of the partnership shall rank in order of payment, as follows:
   1. Those owing to creditors other than partners;
   2. Those owing to partners other than for capital and profits;
   3. Those owing to partners in respect of capital;
   4. Those owing to partners in respect of profits;
3. The assets shall be applied in the order of their declaration in paragraph (1) of this Code section to the satisfaction of the liabilities;
4. Except as provided in subsection (b) of Code Section 14-8-15:
   1. The partners shall contribute, as provided by paragraph (1) of Code Section 14-8-18, the amount necessary to satisfy the liabilities; and
   2. If any, but not all, of the partners are insolvent, or, not being subject to process, refuse to contribute, the other partners shall contribute their share of the liabilities, and, in the relative proportions in which they share the profits, the additional amount necessary to pay the liabilities;
5. An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in paragraph (4) of this Code section;
6. Any partner or his legal representative shall have the right to enforce the contributions specified in paragraph (4) of this Code section, to the extent of the amount which he has paid in excess of his share of the liability;
7. The individual property of a deceased partner shall be liable for the contributions specified in paragraph (4) of this Code section;
8. When partnership property and the individual properties of the partners are in possession of a court for distribution, partnership creditors shall have priority on partnership property and separate creditors on individual property, subject to the rights of lien or secured creditors;
9. Where a partner has become bankrupt or his estate is insolvent the claims against his separate property shall rank in the following order:
   1. Those owing to separate creditors;
   2. Those owing to partnership creditors;
   3. Those owing to partners by way of contribution.

(Code 1981, §14-8-40, enacted by Ga. L. 1984, p. 1439, § 1; Ga. L. 1995, p. 470, § 7.)

- Pursuant to Code Section 28-9-5, in 1995, a colon was substituted for a comma at the end of the introductory language of paragraph (4).

Note to Uniform Partnership Act This section sets forth rules governing settlement of the partners' accounts on dissolution. Since liabilities include partner capital contributions under paragraph (2), the effect of paragraphs (1)-(4) is that the burden of partnership debts to third parties is shared by the partners in proportion to their profit shares, rather than partly according to their capital contributions. Paragraphs (5)-(7) provide for enforcement of the partners' contribution obligation. Paragraphs (8)-(9) state the "dual priority" or "jingle" rule pursuant to which partnership creditors have priority as to partnership assets and individual creditors as to individual assets.

Prior Georgia Law Prior O.C.G.A. §§ 14-8-45 and14-8-46 were generally consistent with paragraph (4) in requiring the partners to contribute toward losses. However, there was no provision stating clearly how property was to be distributed upon dissolution. Prior O.C.G.A. § 14-8-47, which applied in cases of dissolution caused by death, required only "a fair appraisement and division" of the assets. Prior O.C.G.A. § 14-8-45, which provided that "partners shall have equal interests" in partnership assets, was variously interpreted by the courts. Compare Bryan v. Maddox, 249 Ga. 762, 295 S.E.2d 60 (1982) (each partner entitled to equal share regardless of amount of capital contributions) with Jackson v. Jackson, 150 Ga. App. 87, 256 S.E.2d 631 (1979) (method of apportionment was a jury issue). Prior O.C.G.A. § 14-8-69 was inconsistent with paragraphs (8) and (9) in giving individual creditors only a limited priority with respect to an individual partner's assets. See the Comment to § 14-8-36.

Official UPA This section is the same as the official version.

Cross-References Determination of partnership property: § 14-8-8. Partners' liability for partnership obligations: § 14-8-15. Partners' profit and loss shares: § 14-8-18(1). Partners' right to indemnification by partnership: § 14-8-18(2). "Dual priorities" rule with respect to the individual property of a deceased partner: § 14-8-36(d). Rights where partnership dissolved for fraud: § 14-8-39.

JUDICIAL DECISIONS

Editor's notes.

- In light of the similarity of the statutory provisions, decisions under former Code Section 14-8-45, in effect prior to the 1984 repeal and reenactment of this chapter, are included in the annotations to this Code section.

- The right of a partner to recover net capital contributions to the partnership upon dissolution was subject to an agreement limiting returnable equity to profits realized upon the initial investments of the parties. Hayden v. Sigari, 220 Ga. App. 6, 467 S.E.2d 590 (1996).

- When partners continued operating plaintiff's business after dissolution without distributing plaintiff's share to plaintiff, then the plaintiff was additionally entitled to a one-third share of profits earned until final accounting. Bryan v. Maddox, 249 Ga. 762, 295 S.E.2d 60 (1982) (decided under former § 14-8-45).

When defendants failed in their duty to wind up business and account to dissolving partner, they were subject to plaintiff's right to choose interest on plaintiff's share of assets, or plaintiff's share of profits earned while defendants wrongfully withheld plaintiff's assets. Bryan v. Maddox, 249 Ga. 762, 295 S.E.2d 60 (1982) (decided under former § 14-8-45).

- Jury verdict that partners each owned 50% of the business was binding on court-appointed receiver. The receiver was empowered only to maintain the property and to carry out the jury verdict. The receiver was not empowered to alter the jury verdict. Rhodes v. Hoke, 262 Ga. 5, 412 S.E.2d 825 (1992).

RESEARCH REFERENCES

Am. Jur. 2d.

- 59A Am. Jur. 2d, Partnership, § 507 et seq.

- 68 C.J.S., Partnership, §§ 232 et seq., 467 et seq.