Fiduciary Duties and Property Issues

Question 1

Fiduciary Duties

Answer 1

Each partner owes four fiduciary duties to the partnership:
- duty of loyalty
- duty of care
- duty of disclosure
- duty of obedience

• also owe duties of loyalty + care to each other

Question 2

Duty of Loyalty

Answer 2

Requires each partner to:
1) account to the partnership for any benefit derived by the partner in conducting the partnership business, using the partnership’s property, or appropriating a partnership opportunity
2) refrain from dealing w/ the partnership in the conduct of its business as (or on behalf of) a party having an interest adverse to the partnership AND
3) refrain from competing w/ partnership in conduct of its business

Question 3

Duty of Care

Answer 3

• requires each partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law

Question 4

Duty of Disclosure

Answer 4

• duty to provide complete + accurate info concerning the partnership
• STATUTORY duty, not fiduciary

RUPA provides each partner + the partnership shall furnish to a partner:
1) without demand, any info concerning the partnership’s business + affairs reasonably required for the proper exercise of partner’s rights + duties AND
2) on demand, any other info concerning partnership’s business + affairs (except to extent unreasonable or improper under the circumstances)

Question 5

Duty of Obedience

Answer 5

• requires the partner to obey all reasonable directions of the partnership + not act outside the scope of his or her authority

Question 6

Elimination of Duties

Answer 6

• CAN’T eliminate duties of loyalty or care
• can eliminate duty of disclosure

Question 7

Property - Classifications

Answer 7

• either partnership capital or partnership property

Question 8

Partnership Capital

Answer 8

• the property or money contributed by each partner for purpose of carrying on the partnership’s business

Question 9

Partnership Property

Answer 9

• everything the partnership owns, including both capital and property subsequently acquired in partnership transactions

Question 10

Property Deemed to Be Partnership Property

Answer 10

• titled property = partnership property if acquired in partnership’s name or partner’s name where apparent from the doc hat they’re acting for a partnership

Question 11

Property Presumed to Be Partnership Property

Answer 11

• property is rebuttably presumed to be partnership property if purchased w/ partnership funds, regardless of in whose name title is held
  -> partnership funds includes partnership’s credit in addition to its cash

Question 12

Property Presumed to Be Partner’s Separate Property

Answer 12

Property rebuttably presumed to be partner’s separate property if:
1) held in name of one or more partners
2) instrument transferring title gives no sign that they’re acting for a partnership AND
3) partnership funds weren’t used to acquire the property

Question 13

Untitled Property - Common Law Criteria

Answer 13

Following tend to indicate property = partnership property:
- acquisition of the property with partnership funds
- use of the property by the partnership in conducting the partnership’s business
- entry of the property in the partnership books as a partnership asset
- close relationship between the property and the business operations of the partnership
- improvement of the property with partnership funds
- maintenance of the property with partnership funds

Question 14

Partnership’s Rights in Partnership Property

Answer 14

• totally unrestricted (b/c partnership owns the property)

Question 15

Partner’s Rights in Partnership Property

Answer 15

• partner = NOT a cow-owner of partnership property -> has NO transferrable interest in partnership property
• just has right to use the partnership property for partnership purposes

Question 16

Partner’s Ownership Interest in the Partnership

Answer 16

• called a “partnership interest”
• partnership interest = the personal property of the partner
• BUT there are restrictions on what partner can do w/ it

Question 17

What is a partnership interest comprised of?

Answer 17

1) management rights
-> right to participate in management of the business, to obtain info about the partnership, and to be recognized as a partner AND

2) financial rights -> right to partner’s share of any profit distributions made by the partnership

Question 18

To What Extent is a Partnership Interest Transferrable?

Answer 18

• CAN’T unilaterally transfer management rights (unless otherwise agreed)
  -> can’t make transferee a partner
  -> default rule for admission of new partners: need UNANIMOUS vote of existing partners
• but you CAN unilaterally transfer financial rights (unless otherwise agreed)
  -> transferee doesn’t become a partner, just gets right to receive profit distributions from partnership that would’ve otherwise gone to the partner