Financial Rights and Obligations and Liability Flashcards
What is the rule generally regarding the sharing of profits and losses?
Unless otherwise agreed, profits and losses are shared equally among the partners (by number).
What is a Partners Liability to Third Parties?
The R.U.P.A. generally provides that each partner is an agent of the partnership for the purpose of its business. The authority of a partner to bind the partnership when dealing with third parties roughly follows agency law.
- Tort — Partnership is liable for loss or injury caused to a person as a result of the tortious conduct of a partner acting in the ordinary course of business of the partnership or with authority of the partnership.
- Contracts — Partnership is liable for all contracts entered into by a partner in the scope of partnership business or with actual authority or apparent authority of the partnership
Actual Authority: Actual authority is the authority a partner reasonably believes they have based on the communications between the partnership and the partner. It can come from the partnership agreement or a vote of the partners.
Apparent Authority: The R.U.P.A. provides that a partner is an agent of the partnership, and that a partner has apparent authority to bind the partnership to transactions within the ordinary course of the partnership’s business or business of the kind carried out by the partnership (unless 3rd party is aware that the partner lacks actual authority to act).
What are the 2 Main Limits on Apparent Authority?
A partnership will not be bound by a partner’s act if:
- The partner lacked actual authority
- The person with whom the partner dealt either knew or received notification of such fact
What is the Liability of the Partners?
Each partner is jointly and severally liable for ALL obligations of the partnership. BUT the plaintiff must first try to recover from the partnership’s assets before seeking to recover from your personal assets.
Are Partners allowed to Limit Liability to Third Parties?
NO! Partners CANNOT LIMIT a third party’s rights without the third party’s consent.
What is the Liability of Admitted Partners?
A newly admitted partner is NOT personally liable for partnership obligations that arose before their admission. They can only lose the amount of their investment in the partnership.
What is the Liability of Dissociating Partners?
An outgoing or dissociated partner remains liable for obligations arising while they were a partner unless there has been payment, release, or novation. An outgoing partner can also be liable for acts done after dissociation.
When does a Partner Have Knowledge of a Fact?
- Partner has Actual Knowledge of the Fact
- Partner is Notified of the Fact OR
- Partner has Reason to Know of the Fact Based on the Surrounding Circumstances
