What occurs when a general partnership is dissolved?

When a general partnership is dissolved, partners remain liable for outstanding debts incurred by the partnership. This liability does not disappear simply because the partnership is no longer active. Each partner has joint and several liabilities for the debts and obligations of the partnership, meaning that creditors can seek repayment from any one partner or all partners, depending on the situation.

Even after the dissolution, partners must continue to settle any outstanding obligations, which may involve liquidating assets or negotiating with creditors to pay off debts. This concept is fundamental to partnership law, as it ensures that creditors can hold partners accountable for the obligations of the business, promoting fairness and responsibility in business dealings.

The other options suggest scenarios that do not accurately reflect the principles concerning the dissolution of partnerships. For example, debts are not automatically forgiven, and partners do not lose their liability for obligations solely due to dissolution. Likewise, dissolution does not create new partnerships spontaneously; it merely ends the existing partnership's existence and necessitates proper winding up of business affairs.