Chapter 32 Partnerships Flashcards
Partnership
Define
a partnership is an association of two or more persons who carry on as co-owners of a business for profit, whether or not they intend to form a partnership
In determining if a partnership exists, the courts consider these facto
Profit: intend to make a profit
Sharing profits: No matter what their arrangement, if two people do not share the profits of their business, they are not partners.
Sharing losses
Management of the business
Oral or written agreement
. Partnership by estoppel
is concerned with the opposite situation
Perception is key
a person does not want to be considered a partner because he wishes to avoid the liability of the partnership.
The twist that partnership by estoppel applies in situations where the participants are not, in fact, partners but are held to be liable as if they were.
Estoppel applies if:
Participants tell other people that they are partners ( even though they are not.)
A third party relies on this assertion; and
The third party suffers harm.
The Partnership and Outsiders
UPA, the rules governing the liability of the partnership to outsiders are mandatory.
In contrast, many of the rules governing the relationship among partners are default provisions, meaning that the partners can change these rules if they desire.
Liability of the Parnership to Outsiders
(Authority)
Every partner is an agent for the partnership. Therefore, the partnership is liable if a partner acts with one of these three types of authority:
Actual authority. A partnership is liable for any act of a partner that it authorized
Implied authority. A partnership is liable for any act of a partner that is reasonably necessary to carry out an authorized transaction
Apparent authority. A partnership is liable for an unauthorized act of a partner if the partner appears to be conducting the business of the partnership or even business of the same type.
(Ratificationn Information, and Tort Liability)
-If the partnership accepts the benefit of the unauthorized transaction or fails to repudiate it, the partnership has ratified it
-As agent, a partner has a duty to pass on all relevant information to the partnership. Under the UPA, whatever one partner knows, the partnership is deemed to know.
-A partnership is responsible for the intentional and negligent torts of a partner that occur in the ordinary course of the partnership’s business or with the actual authority of the partners.
Paying the Debits of the Partnership
All partners are personally liable for all debts of the partnership
Joint and Several Liablity,
means that a creditor can sue the partnership and the partners together, or in separate lawsuits, or in any combination.
- Partners have joint and several liability for partnership obligations.
- Also note that creditors cannot go after an individual partner’s assets until all the partnership’s assets are exhausted.
Liability of Incoming Partners
A partner is personally liable only for obligations the partnership incurred while he was a partner. His liability for debts incurred before he became partner is limited to his investment in the partnership
Financial Rights
(Sharing Profits, Sharing Losses, Payment of Work Done)
Share Profit: Partners share profits equally unless they agree otherwise
Share Loss: Partners share losses according to their share of profits unless they agree otherwise.
Pmt Work Done: Partners are not entitled to any payment beyond their share of profits unless they agree otherwise.
Partnership Property: All partnership property belongs to the partnership as a whole, not to the individual partners.
Right to Transfer a Partnership Interest:Without the approval of the other partners, a partner cannot sell her share; she can only transfer her right to receive profits and losses
-Creditors can attach partnership profits through a charging order. A charging order is simply a court order granting a third party the right to receive a share of partnership profits.
Management Rights
(Right to Manage, Right to Bind the Partnership, Right to Vote, Right to Know, )
Right to Manage: Each and every partner has equal rights in the management and conduct of the business unless the partners agree otherwise
Right to Bind the Partnership: If a partner acts on behalf of the partnership with actual, implied, or apparent authority, the partnership is liable to third parties for the partner’s actions.
-If the actions are not authorized by the partnership, the partner still has the power to bind the partnership, but not the right.
-If the partner acts with actual or implied authority, then he has both the power and the right, which means that he is not personally liable to the partnership no matter how harmful his actions.
Right to Vote:Unless the partners agree otherwise, all partners have an equal vote, regardless of their contributions to the partnership.
Right to Know: The UPA requires that all partners have the right to ample information:
-Each partner has the right to inspect and copy the partnership’s books and records. This right is unconditional and does not depend on the partner’s purpose or motive.
All partners and the partnership:
* Must volunteer any information that might reasonably be necessary for other partners to exercise their rights and
* Have a duty to supply any other information that a partner reasonably requests.
Management Duties
(Duty of Care, Loyalty, Good Faith and Fair Dealing)
- Duty of Care:Partners are liable to the partnership for gross negligence, reckless conduct, intentional misconduct, or a knowing violation of the law. Partners are not liable for ordinary negligence
- Loyalty: Each partner must turn over to the partnership all earnings from any activity that is related to the partnership’s business.
-Taking a Business Opportunity.
A partner may not take an opportunity away from the partnership unless the other partners consent.
-Using Partnership Property.
A partner must turn over to the partnership any profit he earns from use of partnership property without the consent of the partners.
-Conflict of Interest.
A partner has a conflict of interest whenever the partnership does business with him, a member of his family, or a business partly or fully owned by him - Good Faith and Fair Dealing: Partners have an obligation of good faith and fair dealing to each other and to the partnership.
Terminating A Partnership
If the partners have not agreed how long their partnership will last, they have a partnership at will, and any of them may leave at any time, for any reason.
In a term partnership, the partners agree in advance how long it will last. At the end of the specified term, the partnership automatically ends.
- Dissociation
Rightful versus Wronful Dissociation.
A dissociation occurs when a partner leaves. However, a dissociation does not inevitably cause the termination of the partnership business.
* Definition: When one or more partners dissociate, the partnership can either buy out the departing partner(s) and continue in business or wind up the business and terminate the partnership.
Rightful:
Wrongful:
