business associations Flashcards
1
Q
Agency
A
fiduciary relationship where one person (the agent) represents another (the
principal) in dealings with third persons. Common agency relationships include employer and employee,
corporation and officer, client and lawyer, and partnership and general partner
2
Q
Agency formation
A
an agency relationship is formed if (1) both parties agree to create the relationship (i.e.,
express or implied, oral, in writing, or through conduct) and (2) the principal has capacity to contract (e.g. is over age of majority)
but any person may be an agent.
an agency relationship is either actual or apparent. An agent is
authorized to do any acts the principal might do except for acts that the principal must do herself. An agent
may not engage in an act constituting fraud on the principal or disobey instructions unless doing so is clearly
in the principal’s best interest and there is no time to communicate with the principal
3
Q
Ratification
A
occurs when the principal accepts the benefits of the agent’s act and:
(1) The act is one the principal could have authorized at the time;
(2) The purported agent was acting on the principal’s behalf; and
(3) The principal had full knowledge of all the material facts at the time of ratification.
ratification of any part of a transaction will constitute ratification of the whole transaction
4
Q
Ratification’s effect on third parties
A
ratification is only effective as to a third party if it is done before the third party
withdraws from the transaction. Ratification will not be valid if it causes prejudice to a third
person without that person’s consent
5
Q
Recision of ratification
A
ratification may be rescinded if (1) the principal did not have full knowledge of the
material facts of the transaction, or (2) the consent did not comply with the contract’s requirements.
Prior to ratification, the third party may rescind or withdraw from the transaction for any reason.
6
Q
Actual agency authority
A
exists when the agent reasonably believes the agent has authority to act or refrain
from acting based on an express or implied agreement with the principal. May be Express or implied.
7
Q
Express actual authority
A
s the actual authority the principal stated to the agent explicitly
8
Q
Implied actual authority
A
is the agent’s authority (1) to do what is necessary, usual, or
proper in the ordinary course of business or to accomplish or perform the agent’s task and
(2) to act in a manner the agent believes the principal wishes the agent to act based on
the agent’s reasonable interpretation of the principal’s manifestations.
9
Q
Apparent agency authority
A
arises when (1) due to the principal’s representations, the third party reasonably
believes an agency relationship exists; and (2) the third party reasonably and in good faith relies on such representations.
10
Q
An agent’s delegation of authority
A
unless forbidden by the principal, an agent may delegate the agent’s powers where:
(1) The act to be done is purely mechanical;
(2) The agent cannot perform the act, but the subagent lawfully can;
(3) It is the usage or custom of the place to delegate such powers; or
(4) The principal specifically authorizes delegation.
* Limitations: an agent may not delegate any powers requiring the agent’s personal judgment
or discretion, and delegated authority cannot be further delegated.
11
Q
Termination of agency relationship
A
an agency relationship is terminated upon:
(1) Expiration of the agency’s term;
(2) Extinction of the subject of the relationship;
(3) The agent’s death, renunciation of the agency, or incapacity to act as an agent;
(4) The principal’s death, revocation of the agency, or incapacity to contract, unless (a) the power of the agent is coupled with an interest or (b) the principal has given the agent an express,
written durable power of attorney that will allow the agent’s authority to continue in the event
of the death or incapacity of the principal; or
(5) The agent breaches a fiduciary duty the agent owes to the principal
12
Q
Revocability of agency relationship
A
the principal may terminate, or the agent may withdraw from, the agency
relationship at any time, unless the agency relationship has become irrevocable.
13
Q
Notice of termination of agency relationship requirement
A
the principal must notify the agent that the principal is terminating the agency relationship unless the relationship is terminating upon expiration of its term or extinction of the subject of the
agency. However, express notice is not required if the agent knew or had reason to know the agency relationship was terminated.
14
Q
Termination of actual agency authority
A
an agent’s actual authority terminates upon termination of the agency relationship
or when the principal revokes the authority. Revocation of actual authority may be done in the same way that the actual authority was created, and the principal may change the actual authority.
15
Q
Apparent agency authority termination
A
an agent’s apparent authority persists until the third party receives notice of circumstances that make it unreasonable for the third party to continue to believe that the agent has authority.
16
Q
Agency liability to third parties
A
an agent represents the principal for all purposes within the scope of
the agent’s authority, and all rights and liabilities that would accrue to the agent within the limits of that
authority will accrue to the principal. If an agent exceeds the agent’s authority, the principal will be
bound to the authorized acts that can be separated from the unauthorized acts
17
Q
Agency liabilty to third party for contract
A
a principal is bound to any contract the principal’s agent had authority to make,
unless the contract shows the parties had no intent to bind the principal
18
Q
Agency liability to third party for K - undisclosed principal
A
: if an agent acts on behalf of a disclosed principal, the disclosed principal
may enforce the contract against the third party. The agent is not a party to the contract and may not enforce the contract against the third party and will not be liable to the third party unless the agent and the third party agree otherwise.
19
Q
Partially disclosed or undisclosed principal
A
if an agent acts on behalf of a partially
disclosed or undisclosed principal, the agent is a party to the contract and will be able to
enforce the contract against the third party and will be liable to the third party unless the agent and the third party agree otherwise.
20
Q
Agency liability for K warranty of authority
A
if an agent purports to act on behalf of a principal, the agent gives an
implied warranty to all who deal with the agent in that capacity that the agent has the authority the agent purports to have. If the agent does not in fact have such authority to bind the principal, the agent is in breach of the warranty and may be sued on the warranty by a third party.
21
Q
Agency K liabiity, false statements
A
if the agent falsely represented that the agent had no principal, then the principal may not enforce the contract, and the third party may rescind.
22
Q
Agent personal liability for K
A
an agent is personally liable to third parties for a contract if:
(1) Credit is given to the agent personally in a transaction with the agent’s consent;
(2) The agent enters into a contract on behalf of the principal, knowing there is no authority to do so; or
(3) The agent commits any wrongful acts, including torts
23
Q
Tort liability for agent and principal
A
a principal is liable for the principal’s own tortious conduct. Similarly, an agent is liable
for the agent’s own tortious conduct, even if the agent committed it at the principal’s direction.
24
Q
Agent’s liabilty for Principal’s tortious conduct
A
: an agent is not liable for the principal’s
conduct unless the agent knew of and participated in the conduct.
25
Principal's liability for agent's tortious conduct
a principal is liable for the agent’s conduct if:
(1) The principal directed, authorized, or ratified the conduct;
(2) The principal delegated a nondelegable duty to the agent that the agent failed to perform
properly; (3) The principal withheld information from the agent, causing the agent’s misrepresentation;
or (4) The doctrine of respondeat superior applies
26
Coagent liability
are not liable for the acts of other coagents, but an appointing agent may be
liable for the negligent hiring of a coagent.
27
Subagent liability
: the principal, not the appointing agent, will be liable to third parties for any torts
committed by an authorized subagent. The appointing agent may be liable to the principal for the
acts of the subagent, and the appointing agent may be liable for negligent hiring of the subagent.
28
Respondeat superior
r: a principal may be held liable for the agent’s acts even if the agent’s acts
exceeded the agent’s authority or were contrary to the principal’s instructions
29
Negligent conduct liability
a principal is liable for an agent’s negligent conduct if: (1) there is an
existing agency relationship at the time of the agent’s act, (2) the agent committed a negligent
act or omission in violation of the agent’s duty, and (3) the tortious act or omission was
committed within the scope of the agent’s employment
30
Employer's vicarious liability for employee conduct
an employer is vicariously liable for an employee’s torts that are
committed within the scope of employment, but an employer generally is not vicariously
liable for the tortious acts of an independent contractor unless:
(1) The agent is hired to complete a nondelegable duty (i.e., a definite and affirmative
duty imposed by law due to the person’s relationship with others);
(2) The agent is participating in an inherently dangerous activity that creates a particular
or peculiar risk of harm to others even if special precautions are taken; or
(3) The tort is committed within the scope of control the employer had over the agent
31
Employee vs independentant contractor
an employer has authority over the result of the
employee’s work and the way the employee achieves that result. The following factors
make it more likely that the relationship is one of employer-independent contractor:
(1) The agent is engaged in a distinct occupation or business;
(2) The work typically is done by a specialist without supervision;
(3) The work requires a greater degree of skill;
(4) The agent supplies the tools to complete the work;
(5) The services are to be performed within a comparably brief period of time;
(6) The payment is by job, as opposed to the amount of time spent;
(7) The work is not a part of the regular business of the principal; or
(8) The parties did not intend to create an employer-employee relationship
32
Joint and several liability
a principal cannot be liable for the agent’s conduct if the agent
is not liable for the agent’s own conduct. However, if a verdict is silent as to an agent’s
liability, then the principal still may be held liable
33
Scope of employment
an act is within the scope of employment if:
(1) The act was required by the employer or incidental to the employee’s duties; or
(2) The employee’s misconduct was reasonably foreseeable by the employer.
– Breaks: an employer may be liable for torts committed during breaks.
34
Frolic vs. detour
a principal will not be liable for the agent’s torts that are committed
during a frolic (i.e., substantial deviation or departure from the scope of employment),
but a principal may be held liable for an agent’s torts that are committed during
a detour (i.e., the main purpose of the activity is the employer’s business, but the
employee engages in an incidental personal act or slight delay).
35
Employer liability for acts during commutes
Commutes are considered outside the scope of employment unless:
(1) Such time is considered within the scope of employment (e.g., where travel time
and/or expenses are paid by the employer or such travel is required for the
employment); or
(2) The trip has an incidental benefit to the employer
36
Intentional conduct liability
an employer is liable for the employee’s intentional torts and malicious
acts only if the acts have a causal nexus to the employee’s work.
37
Principal's duties
a principal must:
(1) Perform the contract between the principal and agent;
(2) Pay the compensation agreed upon or that is reasonable for the agent’s performance;
(3) Deal with the agent fairly and in good faith;
(4) Not unreasonably interfere with the agent’s work;
(5) Provide the agent with necessary and reasonable information, including information
about risks of physical harm or pecuniary loss; and
(6) Indemnify the agent for conduct resulting from the good-faith and reasonable performance
of the agent’s duties
38
Agent's duties
duty of care and duty of loyalty
39
Agent's duty of care
) Act in accordance with any contract between the principal and agent;
(2) Act with the care, competence, and diligence normally exercised under the circumstances
or, where the agent has special skills or knowledge, normally exercised by agents with
such special skills or knowledge;
(3) Act within the scope of the agent’s actual authority;
(4) Obey all reasonable commands, except commands to engage in illegal or unethical conduct;
(5) Engage in good conduct and refrain from conduct that would damage the principal’s business;
(6) Maintain candor and inform the principal of any material information or information the
principal would reasonably want to know; and
(7) Keep the principal’s property and accounts in good order and not mingle the principal’s
property with another’s or give the appearance that the property belongs to the agent.
40
Agent's duty of loyalty
: the agent must act in the best interest of the principal. Can't engage in self dealing, engage with adverse parties, compete with principal, or use principal's confidential information and property
41
Agent's duty of loyalty self-dealing
occurs when an agent obtains a material benefit from a transaction engaged
in on the principal’s behalf, unless the principal knows and consents
42
Agent's duty of loyalty adverse parties
an agent may not engage with the principal on behalf of adverse parties
connected with the transaction. But an agent may act as a dual agent if both parties have
knowledge of and consent to the dual agency.
43
competition
an agent may not compete with the principal or usurp a business opportunity of the
principal. In CA, noncompetition agreements generally are not enforceable except (1) when a person
sells the goodwill of a business, (2) when a partner agrees not to compete in anticipation of the
dissolution of a partnership, or (3) as necessary to protect trade secrets.
44
Agent's duty of loyalty confidiental information and property
: an agent must not use the principal’s confidential
information or property for the agent’s own purposes or the purposes of a third party. The duty of
confidentiality continues after the employment relationship ends. However, a former employee may
use the skills learned from the former employer in future employment opportunities
45
General partnership formation
unlike other business entities, does not require a written agreement or a filing with the secretary of state. There are three ways to create a general partnership: by agreement, filing, estoppel
46
General partnership formation by agreement
requires (1) an agreement between two or more persons (2) to carry
on as co-owners of a business for profit. The parties’ intent to form, or not form, a general
partnership is immaterial. The agreement may be oral, written, or inferred from conduct.
o Sharing Profits: if profits are shared, there is a rebuttable presumption that a general
partnership was formed.
o Right to Manage and Control: if there is a right to manage and control the business,
even if it is unequal, it is more likely that a partnership was formed.
o Property Ownership: joint property ownership or sharing of returns from property or investments, alone, are insufficient to establish a partnership, but they are considered
when determining if a partnership was formed.
47
a general partnership may be created by filing a statement with the secretary
of state.
48
General partnership formation by estoppel
presenting oneself to another as a partner, either by words or conduct, or consenting to being represented by another as a partner.
o Liability: a purported partner is liable, as if that person were a general partner, to
any third party who (1) receives the representation, (2) relies on the representation,
and (3) enters into a transaction with the actual or purported partnership.
49
General partnership rights
general partners have both economic (e.g., share of profits and losses, right to receive
distributions) and governance rights (i.e., management, consent, information, and judicial intervention),
subject to an agreement otherwise.
50
General partnership rights to profits
each partner is entitled to an equal share of the partnership’s profits. But partners may
decide to divide profits in a manner other than equally.
51
general partnership right to losses
each partner is charged with contributing to partnership losses in proportion to the
allocation of profits the partner otherwise would take
52
General partner idenminification
a partner is entitled to indemnification for liabilities incurred and reimbursement
for payments made by the partner in the ordinary course of the partnership’s business.
53
general partner right to reimbursement
a partner is entitled to reimbursement for capital the partner advanced to
the partnership beyond the partner’s agreed-upon contribution
54
General partner right to management and control
each partner has equal rights in the management and control
of the partnership business unless the partners agree otherwise.
o Decision-Making: unless modified by the partnership agreement, decisions in the ordinary course of business are decided by a majority of the partners, and all other decisions require unanimous consent (i.e., matters that modify the partners’ fundamental understandings).
55
general partner right to compensation
n: a partner is not entitled to compensation for services performed for the
partnership, except for reasonable compensation for services rendered in winding up the
partnership’s business. A partnership agreement may provide for salaries for the partners.
56
General partner transfer and use of property
artners may use or possess partnership property only on
behalf of the partnership. However, a partner’s share of the partnership’s profits and losses and
the right to receive distributions are economic rights in the partnership that are the partner’s
personal property, and they are transferable
57
general partner right to transferrabilty
unless otherwise provided in the partnership agreement or by the partners’
consent, a partner may transfer the partner’s economic rights in the partnership but may not transfer a full
partnership interest of both economic and governance rights to a nonpartner. If a transfer is prohibited by
the partnership agreement, then the transfer is ineffective as to any person having notice of the restriction
at the time of the transfer.
58
Partnership property rights
: property acquired by a partnership is property of the partnership and not of
the partners individually.
* Presumptions: property purchased with partnership assets is presumed to be partnership property.
Property purchased in the name of one or more partners and without use of partnership assets is
presumed to be separate property (even if used for partnership purposes), provided that the instrument
transferring title does not indicate the person’s capacity as a partner or the existence of a partnership.
* Recovery of Improperly Transferred Property: generally, to recover improperly
transferred property, the partnership must prove that (1) the transferee knew or had received
a notification that the property was partnership property and (2) the person who executed the
instrument of initial transfer lacked authority to bind the partnership.
59
general partner fiducuiary duties
: partners owe the fiduciary duties of loyalty and care, to keep books and records, and good faith and fair dealing to each other and to the
partnership. Any person winding up the partnership business, including a personal or legal representative
of the last surviving partner, also owes these fiduciary duties.
60
General partner duty of loyalty
Absent alteration, authorization, or ratification, a partner's duty of loyalty includes duty to account, not to compete, to avoid adverse dealings, not to use partnership property improperly, not to appropriate partnership opportunities.
61
General partner duty to account
: any property, profit, or benefit derived by the partner while conducting
partnership business or winding up belongs to the partnership, and the partner holds such property or opportunity as a trustee for the partnership.
62
General partner duty not to compete
partner must avoid appropriating a business opportunity that
comes to the partner due to the partner’s relationship with the partnership, and that is an
opportunity in which the partnership would be expected to be interested.
63
General partner duty to avoid adverse dealings
en conducting partnership business, or during the windup process, partners must refrain from dealing with the partnership as, or on behalf of, a party
with an interest adverse to the partnership, absent informed consent by the other partners. But
proving that the transaction was fair to the partnership is a defense.
64
General partner duty to use partnership property not improperly
if a partner uses partnership property
for personal use without the other partners’ consent, the partner is required to disgorge or return any gain obtained from the improper use.
65
Duty not to appropriate partnership opportunities
a partner must not appropriate
partnership opportunities or improperly benefit from the partnership business or property
unless the partner has obtained authorization or ratification from the other partners or is
allowed by the partnership agreement.
66
partnership opportunity
: a fact-based inquiry looks at whether the opportunity
(1) is closely related to the partnership’s existing or potential line of business, (2) would
competitively benefit the partnership, and (3) is one the partnership has the financial
ability and experience to pursue.
67
general partner duty of care
artners must refrain from engaging in grossly negligent or reckless conduct,
intentional misconduct, or a knowing violation of law. (NOT simple negligence)
68
Duty to keep books and records
a partnership must keep its books and records, if any, at its chief executive office. All partners (and their agents and attorneys) have the right to inspect and access the books and records pertaining to the time period during which they were
partners.
69
General partner duty of good faith and fair dealing
partners owe each other and the partnership the
obligation of good faith and fair dealing.
70
General partnership's liabilty to third parties for conduct in ordinary course of partnership
ny act by a partner in the ordinary course of the
partnership business binds the partnership, and the partnership may be held liable for the act, unless (1)
the partner did not have authority for the act, and (2) the person the partner was dealing with had notice
that the partner lacked authority. The standard agency principles governing authority and liability apply.
71
Partnership liabilty to third parties for acts outside ordinary course of business
a partner who acts outside of the partnership’s
ordinary course of business does not bind the partnership to third parties unless the partner acted
with the appropriate authority (i.e., expressly granted by the partnership or implied by the partner’s
apparent authority).
72
General partnership tort liability
a partnership is liable for loss or injury caused to a person as a result of a
wrongful act or omission, or other actionable conduct, of a partner acting in the ordinary course
of business of the partnership or with authority of the partnership.
73
GEneral partner's liability to third parties
General partners and dormant partners are jointly and severally liable for all obligations of the partnership. A new partner will only be liable for obligations incurred after they are admitted as a partner.
Dissociated partners are still liable for obligatiosn incurred before dissociation unless the obligation is materially changed without their consent.
) Purported Partners: liability as a purported partner requires (1) the third party to reasonably rely
upon the partner’s representation when transacting with the partnership, and (2) an affirmative act
by the purported partner. If both requirements are met, the purported partner’s liability is the same
as if that person were a partner.
74
GEneral partnership indemnificaiton and contribution
a partner who has paid more than the partner’s share of a
partnership obligation is entitled to indemnification from the partnership. If the partnership is unable to
indemnify the partner, the other partners must contribute as necessary to satisfy the partnership’s liability.
Indemnification is made in proportion to the partner’s share of profits and losses.
75
General partnership judgments
a judgment against a partnership is not a judgment against a partner individually and
may not be satisfied from a partner’s assets unless (1) the partner was individually named and served
in the action against the partnership or in a later action, and (2) there is a judgment against the partner
individually. Generally, a judgment creditor of the partnership must first exhaust partnership assets
before enforcing a judgment against a partner’s individual assets.
76
General partnership dissociation
(1) express will with notice; (2) partnership agreement; (3) expulsion (based on agreement, judicial determination, or unanimous vote); (4) acting/failing to act in special situations by becoming debtor in bankrupcy, executing an assignment for benefit of creditors, or seeking appointment of a trustee for all or substantially all of their property; (5) death, incapacitation -appointment of guardian, judicial determination of incapability to perform; (6) distribution of entire transferable interest; (7) termination
77
Wrongful dissociation
a partner who wrongfully dissociates from a partnership is liable to the
partnership and to the other partners for damages caused by the dissociation.
78
unlimited term idssociation
where the partnership is for an unlimited term, a partner’s dissociation is
wrongful only if it breaches an express provision of the partnership agreement.
79
Definite term dissociatiomn
where the partnership is for a definite term or particular undertaking, a
partner’s dissociation is wrongful if, before the term expires or the undertaking is completed,
the partner:
(1) Withdraws by express will, unless the withdrawal occurs within 90 days after another
partner’s dissociation by death, bankruptcy, or judicial determination of inability to
perform partner duties;
(2) Is expelled by judicial determination;
(3) Is dissociated by becoming a debtor in bankruptcy; or
(4) Is expelled or otherwise dissociated because the partner willfully dissolved or terminated
(e.g., if the partner is an entity)
80
effects of dissociation -dissolution or mandatory buyout
partner’s dissociation triggers either: (1) dissolution
of the partnership; or (2) the continuation of the partnership’s business with a mandatory
buyout of the dissociating partner.
81
Management and control
a partner’s dissociation immediately eliminates that partner’s
right to participate in the management and control of the partnership. But if the partner’s
dissociation was rightful and resulted in the partnership’s dissolution, then the partner may
participate in winding up the partnership.
82
Effect of dissocciation on authority
the dissociated partner retains the authority to bind the partnership in transactions
with a third party who (1) has no notice of the dissociation and (2) reasonably believes the partner
is still associated with the partnership. The transactions must take place within two years of the
dissociation. The dissociated partner will be liable to the partnership for these transactions.
83
effect of dissociation on fiduciary duties
a partner’s duty not to compete with the partnership terminates upon
dissociation. However, the partner’s duty to account, duty to avoid adverse dealings, and duty of
care will continue as to matters that arose and events that occurred before the partner’s dissociation
84
effect of dissociation on liability
a dissociated partner remains personally liable for obligations incurred prior to
dissociation unless there is an agreement to the contrary or a material change to the terms of
the obligation without the dissociated partner’s consent
85
Effect of dissociation on indemnification
a dissociated partner whose interest is being purchased is entitled to
indemnification from the partnership for all partnership liabilities, whether incurred before or
after the dissociation, except those incurred by an act of the dissociated partner.
86
General partnership circumstances resulting in dissolution
(1) express will; (2) term expiration or completion of undertaking; (3) agreed-upon event; (4) unlawfulness; (5) judicial decree
87
Dissolution by express will
in a partnership at will, dissolution occurs upon the express will to dissolve and
wind up of at least half of the partners, including any who rightfully dissociated within the 90 days
prior. In a partnership for a definite term or undertaking, dissolution occurs by express will if all
partners vote or consent to wind up the partnership business.
88
general partnership dissolution by definite term/undertaking
in a partnership for a definite term
or specific undertaking, dissolution is triggered when the term expires or the undertaking
is completed. Unless the partners with a majority interest, including rightfully dissociated
partners, agree to continue the partnership, dissolution also will occur within 90 days after a
partner’s dissociation by (1) death; (2) bankruptcy or other financial hardship; (3) distribution
of the partner’s interest to a creditor, trustee, receiver, or liquidator; or (4) termination (if the
partner is an entity).
89
general partnership dissolution agreed-upon event
: dissolution occurs upon the happening of an event designated by the
partnership agreement to cause dissolution.
90
general partnership dissolution unlawfulness
dissolution is triggered upon the occurrence of an event that makes it
unlawful for all or substantially all of the partnership business to continue, unless the illegality
is cured within 90 days after notice to the partnership of the event.
91
judicial decree disolution of general partnership
dissolution will occur by judicial decree upon a partner’s successful
application on one of the following grounds:
(1) The conduct of all or substantially all of the partnership business is unlawful;
(2) The partnership’s economic purpose is likely to be unreasonably frustrated;(3) Another partner has engaged in conduct relating to the partnership business that makes it not
reasonably practicable to carry on the partnership business with that partner; or
(4) It is not otherwise reasonably practicable to carry on the partnership business in
accordance with the partnership agreement.
92
general partnership rescision of dissolution
a partnership may rescind its dissolution by the affirmative vote or consent of all partners, including any rightfully dissociating partner. The partnership agreement may vary this default rule,
including the requirement of unanimous consent.
93
General partnership winding up and termination
after dissolution, the partnership continues solely for the purpose of winding up its business.
Winding up usually entails the time necessary for the partners to complete any remaining partnership
business, collect on debts, pay creditors, and distribute any remaining assets to the partners.
94
Eligible participation in winding up general partnership
persons eligible to participate in and conduct the winding up of the partnership include:
(1) Any partner who has not dissociated or whose rightful dissociation caused the partnership’s
dissolution;
(2) The legal representative of the last surviving partner; and
(3) A party appointed and supervised by the court upon a showing of good cause by any partner,
partner’s legal representative, or transferee.
95
Compensation for winding up general partnership
a partner who participates in winding up the partnership business is entitled to
reasonable compensation for the partner’s services
96
general partnership liabilities during wind up
: a partnership is bound by a partner’s act after dissolution that (1) is appropriate for winding
up the partnership business; or (2) would have bound the partnership before dissolution, and the other
party to the transaction did not have notice of the dissolution. A partner with knowledge of the dissolution
who incurs a partnership liability that is not appropriate for winding up the partnership business is liable
to the partnership for any damages that may arise from the liability.
97
Distribution of general partnership assets in winding up
in winding up, the partnership’s assets must first be applied to discharge any
obligations to creditors, including partners who also are creditors. Any surplus will be applied to the
amount distributable to the partners.
98
general partnership profits after winding up
if the profits exceed the losses, the partners will receive a distribution in the amount
of the difference.
99
general partnership losses after winding up
if the losses exceed the profits, the partners must contribute the amount of the difference to the partnership. If there are insufficient funds to settle the partnership’s debts, the partners
may be assessed the deficiency and a partner must contribute in proportion to the partner’s
share of the loss. If a partner pays more than that share, that partner has a right to contribution.
100
Termination of general partnership
once winding up has concluded, the partnership is terminated. Prior to termination,
any partner, including any rightfully dissociating partner, may stop the wind-up process and resume
the partnership business. Any liability incurred by the partnership or a partner after the dissolution and
before the termination was waived is resolved as if dissolution never occurred.
101
Limited liability partnership formation
to form a limited partnership, the parties must (1) file a certificate of limited partnership form
with the secretary of state, and (2) enter into a limited partnership agreement, which may occur either before
or after filing the certificate. Formation is complete when the secretary of state files the certificate
102
limited liabilty partnership limited partner
: a limited partner typically invests in the business without participating in
management, risks only the amount of the limited partner’s investment, and is not liable for the limited partnership’s obligations.
A person may become a limited partner (1) as provided for in the limited
partnership agreement, (2) as the result of a business converting to a limited partnership or two businesses merging and creating a limited partnership, or (3) with the consent of all partners.
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a general partner bears all the risk of the business, participates in management decisions, and may be held liable for all limited partnership obligations. A person may become a general partner in the same manner as a limited partner, as well as following the dissociation of the last general partner and by consent of all remaining limited
partners to avoid dissolution of the limited partnership.
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Limited partnership rights to profits and losses
a limited partnership’s profits and losses are allocated among the partners as
provided in the limited partnership agreement or, if not specified in the agreement, in the same manner
as the partners share distributions.
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Limited partnership rights management and control
the consent of all partners, both general and limited, is necessary to:
(1) Amend the limited partnership agreement; or
(2) Sell, lease, exchange, or otherwise dispose of all, or substantially all, of the limited partnership’s
property, with or without the good will, other than in the usual and regular course of the limited partnership’s activities.
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Limited partnership rights general partners
unless the limited partnership agreement states otherwise, each general
partner has equal rights in managing and conducting the limited partnership’s activities. Usually, the
general partner exclusively decides any matter relating to the limited partnership’s activities. If the
limited partnership has more than one general partner, the majority of general partners must agree.
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Limited partner right to management and control (none)
: the default rule is that limited partners possess no right to participate in the
management or control of the limited partnership, although the limited partnership agreement
may grant such rights.
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Limited partnership right to distribution
a distribution by a limited partnership must be shared among the partners based on the value
of each partner’s contributions to the limited partnership. A limited partnership may not make a distribution if:
(1) It would violate the limited partnership agreement;
(2) The limited partnership would then be unable to pay its debts as they become due; or
(3) The limited partnership’s total assets would then be less than the sum of its total liabilities and
the amount necessary to satisfy the rights of partners with superior rights upon dissolution and
winding up.
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Limited partnership right to contribution
a general partner’s or limited partner’s contribution may consist of tangible or
intangible property or other benefit to the limited partnership. A partner’s contribution obligation is
not excused by the partner’s death, disability, or other inability to perform personally.
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Limited partnership modification of a contribution
a limited partnership, by consent of all partners, may modify
a partner’s obligation to contribute or return money or other property paid or improperly
distributed. However, a limited partnership’s creditors that relied on the obligation and did not
have notice of any modification may enforce the original obligation
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Limited partnership right to information
partners have certain rights to the limited partnership’s information.
* General Partners: have the same rights to information as partners in a general partnership.
* Limited Partners: have the right to inspect, (1) for any reason, any records required to
be kept at the limited partnership’s office during regular business hours; and (2) information
regarding the limited partnership’s state of activities and financial condition
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limited partnership transferabilty
: a partner in a limited partnership (whether a general or limited partner) may transfer
economic rights, but in general the partner may not transfer governance rights such as management,
consent, and access to information.
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Transferee as limited partner
a transferee may become a limited partner if (1) the
partnership agreement so provides, or (2) all general partners and a majority in interest of the
limited partners consent. A transferee that becomes a partner with respect to a transferable interest
is liable for the transferor’s contribution obligations and liabilities relating to improper distributions,
unless the transferee did not know of them at the time the transferee became a partner.
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limited partnership partner death
if a partner dies, the deceased partner’s personal representative or other
legal representative may exercise the rights of a transferee and, for purposes of settling the
estate, may exercise the rights of a current limited partner
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Limited partnership general partner duties
a general partner owes the partnership and the other partners the
fiduciary duties of loyalty and care, comparable to those of a partner in a general partnership.
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Limited partnership limited partner duties
a limited partner generally does not owe any fiduciary duties to the limited
partnership or any other partner unless the limited partnership agreement provides otherwise.
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Limited partnership - general partner liability
a general partner is jointly and severally liable for all obligations of the
limited partnership. A general partner who consents to make, or a partner or transferee who knowingly
receives, an improper distribution is personally liable to the limited partnership for the amount of the
distribution that exceeded the amount that could have been distributed.
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Limited partnership limited partner liability
a limited partner enjoys limited liability protection and is liable for the
limited partnership’s debts only to the extent of the limited partner’s capital contribution. However, a
limited partner will be held liable as a general partner if:
(1) The limited party’s name appears in the certificate as a general partner and a third party
enters into a transaction with the limited partnership, believing in good faith that the person is
a general partner; or
(2) The limited partner participates in control of the business and the person knew of the partner’s
participation and reasonably believed that the limited partner was a general partner.
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error of status liability
: a general partner who erroneously, but in good faith, believes she is a limited partner will not
be held liable as a general partner if, once the partner learns of the error, the partner (1) files the appropriate
corrections with the secretary of state or (2) withdraws from the enterprise by filing an appropriate form with the
secretary of state. However, the partner will be liable as a general partner in any transactions before the filing
where a third party believed in good faith that the partner was a general partner
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Limited partnership general partner disociation
dissociation of a general partner in a limited partnership is substantially similar to
dissociation of a partner in a general partnership; the same rules apply.
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Limited partnership limited partner dissociation
a limited partner does not have a right to dissociate before the termination of the
limited partnership unless the limited partnership agreement states otherwise.
* Events That Cause Dissociation: are the same as a general partnership. However,
dissociation of a limited partner occurs upon conversion or merger if (1) the limited partnership
is not the converted or surviving entity; or (2) the limited partnership is the converted or surviving
entity but, as a result of the conversion or merger, the limited partner ceases to be a limited
partner
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limited partnership wrongful dissociation
a general partner who wrongfully dissociates or a limited partner who
dissociates prior to the termination of the limited partnership is liable to the limited partnership and to
the limited partners for any damages they incurred due to the wrongful dissociation
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Limited partnership dissolution events
(1) agreed upon event; (2) consent of all general partners and all LPs owning majority of rights; (3) dissociation of a general partner; (4) disocciaiton of last limited partner; (5) judicial decree
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Winding up of limited partnership
if a dissolved limited partnership does not have a general partner, the limited partners
owning a majority of the rights to receive distributions may appoint a person to wind up the partnership’s
activities, or a court may appoint a person to supervise the winding up if the limited partners have not
appointed someone within a reasonable time or upon a showing of other good cause.
Same liability and distribution of assets rules as general partnership
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Limited liabilty parntership
Limited liability partnerships (LLPs) function almost the same as general partnerships, but
with the benefit of limiting the partners’ personal liability for the partnership’s obligations, including those
incurred by other partners.
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Formation of limited liability parntership
: to become a registered LLP, one or more of the partners must execute a registration, and the
partnership must file the registration with the secretary of state and pay a fee. The registration must include:
(1) The partnership’s name (the last words or letters in the name must be “Registered Limited
Liability Partnership,” “Limited Liability Partnership,” “L.L.P.,” “LLP,” “R.L.L.P.,” or “RLLP”);
(2) The street address and, if different, the mailing addresses of the partnership’s principal office;
(3) The name and address of the agent for service of process; and
(4) A brief statement of the partnership’s business.
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Limited liabilty partnership rights and duties
: partners in a registered LLP have the same rights and duties as general partners in
a general partnership. To ensure an LLP can meet its liabilities and obligations, it must:
(1) Carry insurance covering a minimum statutory amount;
(2) Hold monies in a trust or escrow account at a minimum statutory amount;
(3) Personally guarantee monies or future payment; or
(4) Affirm that it is worth more than the amount set by statute
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Limited liability parntership distributions
: a registered LLP may not make any distributions if (1) doing so would underfund
the LLP, thereby making it unable to pay its debts; or (2) the LLP’s total assets would be less
than its total liabilities plus any amount necessary to cover liquidation. An action for improper
distribution must be brought within four years.
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Limited liability partnership liabilities
partners in a registered LLP remain liable for their own conduct, but they are not individually liable by way of indemnification, contribution, assessment, or otherwise, for any debts, obligations, or
liabilities of the partnership or another partner.
