What must happen to the assets upon the dissolution of a partnership or LLC?

Upon the dissolution of a partnership or an LLC, the assets must be distributed equitably among the members or partners. This process involves liquidating the entity’s assets and settling any outstanding debts or obligations first. Once debts are cleared, the remaining assets are then distributed according to the agreed-upon terms in the partnership agreement or, in the absence of such terms, in accordance with state law.

The equitable distribution ensures fairness among the partners or members based on their respective rights and interests in the partnership or LLC. This might not necessarily correspond to the size of each member's investment since equity takes into consideration various factors including the contributions made, profit-sharing ratios, or any specific agreements established at the outset of the partnership.

By contrast, options like auctioning off the assets or keeping them until further notice do not comply with the standard legal principles governing the dissolution process, which prioritize the fair and prompt distribution of assets to resolve the partnership's or LLC’s obligations and entitlements. Thus, the requirement for equitable distribution is fundamental to ensuring that all parties involved receive their rightful share in an orderly and just manner upon dissolution.