Agency & Partnerships

Question 1

When and how is a partnership formed?

Answer 1

When 2 or more co-owners carry on a business for profit

Question 2

What are the two types of partnerships?

Answer 2

(1) At-Will: There is no agreement to continue. A partner my disassociate rightfully at any time.

(2) Term: Lasts for a specified duration or the term necessary to complete a specified project, task, or goal.

Question 3

What is disassociation from a partnership and when does it occur?

Answer 3

Disassociation occurs when a partner no longer associates with the partnerships and is no longer involved with the carrying on of business.

Question 4

When does disassociation from a partnership occur?

Answer 4

Disassociation occurs when a partner expressly communicates their intent to withdraw as a partner.

Question 5

What is wrongful dissociation?

Answer 5

Wrongful Dissociation: When dissociation either (1) the partnership is for a term or specific time or project which has not been completed OR (2) breaches a partnership agreement.

Question 6

What happens because of a partner disassociating?

Answer 6

When a partner of an at-will partnership disassociates, upon such notice, the at-will partnership must be dissolved and wound up.

Question 7

In what event does actual authority to enter into contracts relating to matters outside the course of ordinary business exist?

Answer 7

For actual authority to exist to enter into contracts outside the normal course of business, there must unanimously consent from all the partners.

Question 8

What is an agency agreement?

Answer 8

Agency agreement occurs when both the principal and the agent agree (manifest intent) that the agent may act on behalf of the principle.

Question 9

What is actual authority?

Answer 9

Actual authority is the authority an agent reasonably believes they have based on communications and dealings with the principal. Actual authority can be express or implied.

Implied actual authority can occur when, for example, the principal gives the agent a title of “buyer.” It would be implied that the agent is allowed to buy items for the principal.

Question 10

What is apparent authority?

Answer 10

Apparent authority is the authority a 3rd party reasonably believes is vested in the agent based on the “holding out” of the agent by the principal.

Question 11

What procedure must a creditor take to go after the individual partners personally?

Answer 11

(1) The creditor must first assert a claim against the partnership.

(2) If the creditor cannot recover from the partnership, they may then pursue the partners individually. Then, the creditor must secure a judgment against the partnership AND the partners.

Question 12

What is the assumption when someone receives profits from the partnership?

Answer 12

The assumption is that the person receiving profits is a partner, but this assumption can be rebutted. For example, if someone is only receiving profits to repay a loan from the partnership, the assumption is rebutted.

Question 13

Is each partner an agent of the partnership?

Answer 13

Yes, each partner is an agent of the partnership unless the partnership agreement specifies otherwise.

Question 14

When will a partnership be bound by a post dissolution contract? What is the exception?

Answer 14

Post dissolution contracts entered into by a partnership, or a member of a partnership are binding only when the contract is appropriate for the purposes of winding up the business.

Exception: The partnership may still be bound by a post dissolution contract, even when not appropriate for winding up, if and only if, the contract is (1) with another party who has no notice of the dissolution, and (2) the partnership would have been bound by the same contract prior to dissolution.

Question 15

How do partners share profits and losses in the absence of a partnership agreement?

Answer 15

In the absence of a partnership agreement to the contrary, profits are shared equally among the partners and losses are split in the same proportions as profits. “Losses follow profits.”

Question 16

When may a partner claim contribution from other partners?

Answer 16

A partner may claim contribution when that partner (or partners) pay the entire amount of a partnership debt. In such cases, the partner (or partners) who paid may require contribution from other partners for their pro rata share of the payment.

Question 17

What is the most important factor in determining whether an employee, agent, or other providing services is an independent contractor?

Answer 17

The most important factor is whether the principal has the right to control the method and manner of the individual’s work.

Question 18

What is the general rule of agency liability? I.e., when is the principal liable for the actions of an agent?

Answer 18

For a principal to be liable for a contract with a 3rd party, the agent must have had authority (actual or apparent) to enter into the disputed contract OR the principal must ratify the contract.

Question 19

Is a principal liable for the acts of an independent contractor?

Answer 19

The general rule is that a principal is not liable for the acts of an independent contractor, including torts. There are exceptions.

Question 20

What is the exception to the general independent contractor rule?

Answer 20

The principal may still be liable for the acts of an independent contractor if the principal holds out (maintains an appearance) that the independent contractor is an employee of the principal, AND the injured party relies on this holding out.

Question 21

Aside from receiving profits, what is the next most important factor in determining whether someone is a partner?

Answer 21

Courts will look at the extent of that person’s activity that is within the scope of the partnership carrying-on of business.

Question 22

What is the significance of an absence of an agreement to share losses?

Answer 22

Absence of an agreement to share losses is potential evidence that the parties involved did not intend to form a partnership.

Question 23

May partners unilaterally transfer their interest or their management authority in a partnership?

Answer 23

Partners may transfer their interest with respect to profits and losses unless a valid partnership agreement specifies otherwise.

Partners generally may not transfer their management authority.

Question 24

With respect to transfer, what is the characterization of profits and losses.

Answer 24

Profits and losses are considered “personality.”

Question 25

When an interest in profits are transferred to a 3rd party, what are they actually receiving?

Answer 25

The right to distributions that would otherwise go to the transferor.

Question 26

Does a non-partner (3rd party) become a partner when a current partner’s interest is transferred to them?

Answer 26

NO. A transferee does not become full partner by receiving an interest in profits and losses. The transferee does not receive management authority, cannot make management decisions, and may not demand to inspect the books of the partnership.

Question 27

What is the assumption when property is titled in the partnership’s name?

Answer 27

Property titled in the partnership’s name is assumed to be the property of the partnership.

Question 28

When does a partner have the right to use partnership property?

Answer 28

Only when used for partnership purposes unless there is an agreement otherwise.

Question 29

When may an agent be held personally liable for a contract they enter into on behalf of the principal?

Answer 29

When the principal is unidentified and/or undisclosed to the 3rd party.

Question 30

Who may form a partnership?

Answer 30

Individual or a company

Question 31

Who is a person for partnership purposes?

Answer 31

Anyone or anything with legal capacity to contract

Question 32

Agent’s duty of loyalty

Answer 32

• The agent cannot usurp a business opportunity.
• The agent cannot take in secret profits
• The agent cannot compete in competing businesses with the principal.