Essay Rules Flashcards
Limited Partnership (LP)
(1) Formed by 2+ persons (at least one general partner and at least one limited partner) (2) certificate of limited partnership must be filed with the state. A limited partner’s liability for partnership debts is limited to the amount of her capital contribution to the partnership.
General Partnership Formation
(1) Association of 2+ persons (2) agreement to carry on a for-profit business as co-owners (3) written agreement is not necessary. Key test: if there is profit-sharing, it is presumed to be a partnership, and persons who share in the profits are partners. Don’t need specific intent to form partnership.
Partnership Profits and Losses
Agreement controls. If there is no agreement/agreement is silent as to the division of the profits and losses, each partner is entitled to an equal share of the partnership profits and losses. When the agreement addresses only the division of partnership profits, partnership losses are shared in the same manner.
Liability for Partnership Obligations
As a separate entity, a partnership is subject to suit for its obligations. A partner is jointly and severally liable for all partnership obligations.
Partnership - winding up
Partnership that is dissolved only continues to exist to “wind up” its business. Creditors (incl partners who made loans to partnership) have priority over partners to the partnerships’ assets. Assets distributed to the partners second. Each partner’s account must be adjusted to reflect the profits/losses that result from the liquidation of the partnership assets. After adjustments, any partners with a negative account balance must contribute to the partnership to bring the account balance to zero.
Partner as agent of partnership
A partner is an agent of the partnership for the purpose of its business and can contractually bind the partnership when the partner acts with either actual or apparent authority. Actual authority includes both express authority and implied authority.
Actual Express Authority
Express authority can arise from the partnership agreement itself, an authorization of the partners, or a statement of authority filed with the state.
Actual Implied Authority
Implied authority is based on a partner’s reasonable belief that an action is necessary to carry out her express authority.
Apparent Authority
A partner’s act that was not authorized by the partnership may nevertheless bind the partnership under the principle of apparent authority. Apparent authority exists if the partnership holds a partner out as possessing certain authority/act of any partner for apparently carrying on in the ordinary course of the, thereby inducing others to reasonably believe that authority exists. The 3rd party must reasonably rely on the holding out. If partnership sends 3rd party notice that the partner doesn’t have authority and the 3rd party receives it, there will be no apparent authority.
Partner by estoppel
(Case 1: P does not exist but a person is treated as a partner of a purported P) (Case 2: P exists and a person who is not a partner of P is treated as a partner of P) May be treated as a purported partner if: (1) representation (oral, written, or implied by conduct) that a person is a
partner in a P (2) person makes or consents to the representation (3) third party rsbly relied on the representation, and (4) third party suffered damages as a result of that reliance
Principal
Typically an employer, such as a corporation or a partnership.
Agent
Acts on behalf of Pr, subject to control of Pr. A of a corporation is typically an officer/director/employee. Agent of a partnership is usu a partner/employee. An independent contractor can be an agent if they are subject to control over their physical conduct by the principal.
K Liability of the Principal
Pr is subject to liability on a K that the agent enters into on the principal’s behalf if the agent as the power to bind the principal. An agent has power to bind if he has actual express, actual implied, or apparent authority.
3rd Party Rsbl Belief
To determine whether 3rd party belief is rsbl, a court will consider trade customs and industry standards. Agent’s position will also be considered - if agent is appointed to a specific position (VP/treasurer), principal will be found to have made a manifestation that the agent has the customary level of authority possessed by a person in the agent’s position.
Ratification
Pr can ratify A’s act, even if A did not have the authority to act, and therefore be bound to contract with a 3rd party. Ratification requires: (1) express assent/conduct that indicated affirmation; (2) ratification must be timely (before 3rd party withdraws K); (3) Pr must have knowledge of the material facts involved in the original act
Principal’s tort liability
Pr can be vicariously and directly liable to a 3rd party who is harmed by a tort committed by A within the scope of the business/authority.
Principal’s direct liability to 3rd parties
Pr may be directly liable to 3rd party (1) if Pr authorizes/ratifies A’s conduct (2) is negligent in hiring/supervising; (3) delegates a non-delegable duty to A
Partner’s fiduciary duties
A partner owes the partnership and the other partners fiduciary duties of loyalty and care.
Partner - Duty of Loyalty
Partner is required to refrain from competing with the partnership business, advancing an interest adverse to the partnership, and usurping a partnership opp or using partnership prop to derive a profit without notifying the partnership
Partner - Usurping a partnership opp
If a business opp is presented to a partner that the business typically engages in, the partner must present the opp to the partnership. He can’t take the opp for himself without first informing the other partners and receiving their permission to do so.
Partner - duty of care
P is required to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.
Partnership - Management rights
Each partner has equal rights in the management and conduct of the partnership. A majority of the partners can make a decision as to an ordinary matter of business. All partners must consent to a matter outside the course of ordinary business.
Partnership - effect of judgment
Creditor must exhaust the partnership’s assets before taking the partners’ individual assets.
Partnership dissolution
Partnership at will is an open-ended partnership that does not have a fixed termination date or event. It is dissolved when a partner chooses to dissociate from the partnership by giving notice.
Gen Partnership - Indemnification
When a partner incurs a personal liability in the ordinary course of conducting partnership business, the partnership is required to indemnify the partner for such liability.
Gen Partnership - Tort Liability
A GP is liable for any torts committed by a partner or by an employee of the partnership in the ordinary course of the partnership business or with the authority of the partnership.
