Chapter 1: Partnership Formation and Relationships Flashcards
What does NC abide by for partnerships and where is it codified?
Uniform Partnership Act of 1914 codified in Chapter 59 of the General Statutes of NC.
Revised Uniform Limited Partnership Act codified in Chapter 59, Article 5.
What is a partnership?
An association of 2 or more persons to carry on as co-owners of a business for profit.
Separate business entity
Can sue and be sued in its name
In NC “persons” are individuals, partnerships, corporations, limited liability companies (LLCs) and other associations.
How can a partnership be formed?
Do not have to file anything with the state
Can be formed even w/out intent
Sharing of profits is a key factor
Must be an act of business, not mere co-ownership
A partnership agreement is not necessary to form a partnership
Joint Venture
A special type of partnership formed to carry out a specific business venture
Partnership Agreement
Governs most interactions between the parties, but partnership law doesn’t require it to be in writing.
General rule for liability for partnership agreements
In general, partners are jointly and severally liable for the debts of the partnership.
Unlimited liability for partners
Joint and severally liable for partners tortious acts if commited in the ordinary course of the business
Partners by Estoppel
non-partners may be liable under partner by estoppel theory: (1) Representation that the person is a partner (explicit or implicit); (2) Consent to the representation by the purported partner; (3) Reasonable reliance by third party; and (4) damages as a result of reliance.
Binding acts of 1 partner on the entire partnership
A partner is an agent of the partnership and can generally bind the partnership in the ordinary course of business.
If the counterparty has actual knowledge the partner lacks authority to enter into the tx, the tx is not binding on the partnership.
Fiduciary duties owed by a partner to the partnership
Duty of loyalty and the duty of care:
Usurpation of partners business opportunities w/oin the scope of the partnerships business activities
Conflict of interest and self-dealing tx
Prohibits using partnership property for personal gain
Contractual duty of G/F and fair dealing also applies
How are profits and losses allocated in a partnership agreement?
Generally by the partnership agreement
If partnership agreement is silent, default rule is equal sharing
If there is a specification for sharing profits, then unless otherwise stated, losses are shared in the same manner as the profits.
Partner capital accounts
Each partner has a partnership account:
increased by: contributions & share of profits
decreased by: share of losses, distribution made to them
Upon liquidation, partners receive what is in their capital account.
Transfer of Partnership Interests
Capital accounts represent the partner’s interest in the partnership, not the underlying specific partnership property.
Each partner is a co-owner of the partnership property
Transfers of partnerships are generally transferable though restrictions are generally enforceable.
The transferee receives the economic rights, but is not entitled to participate in management
A judgment creditor of a partner may seek a chargin order against the partner; this allows the creditor to receive the distributions that would otherwise to to the creditor.
Default management rules
Each partner has equal management and voting rights
In the ordinary course of business, a simple majority vote prevails
Outside the ordinary course of business, a unanimous vote is required
A partner cannot sue a partnership, but can seek an accounting
May a partner transfer real property?
Yes, unless his authority is limited by a statement of partnership authority, filed w/ Secretary of State, puts transferee on notice that the partner lacks authority.
