Financial Rights and Obligations and Liability

Question 1

Profit Sharing & Losses

Answer 1

Profits are shared equally among the partners (by number), unless otherwise agreed.

Question 2

Liability to Third Parties

Answer 2

• Each partner is an agent of the partnership for the purpose of its business.
• The authority of a partner to bind the partnership follows agency law.

Question 3

Liability of Partnership in Tort

Answer 3

A 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 coruse of business or with authority of the partnership.

Question 4

Liability of the Partnership in Contract

Answer 4

A partnership is liable for all contracts entered into by a partner in the scope of partnership business or with actual or apparent authority.

Question 5

Actual Authority

Answer 5

• Actual authority can come from the partnership agreement or a vote of the partners.
• Majority vote is required to authorize ordinary business.
• Unanimous vote is requried to authorize extraordinary acts.
• Actual authority can also come from the Statement of Authority.
• Statement of Authority - document filed publicly limiting the partners’ authority to transfer real property.

Question 6

Statement of Partnership Authority

Answer 6

• In the statement of partnership authority, partners can grant or limit a partner’s authority to enter into land transactions.
• By filing this document, a partnership puts third parties on constructive notice about the scope of a partner’s authority in regards to land transactions.
• It needs to be filed with the Secretary of State and the County Recorder where the property is located.

Question 7

Apparent Authority

Answer 7

• Statutory authority (RUPA) provides that a partner is an agent of the partnership.
• A partner has apparent authority to bind the partnership to transactions within the ordinary course of business or business of the kind carried out by the partnership.
• Restrictions on apparent authority are NOT binding on third parties.

* Exception: If the third party is aware that the partner lacks actual authority, then the actions are not binding on the partnership.

Question 8

Notification of Authority

Answer 8

• Notification is effective either when it comes to the person’s attention or when it is duly delivered.
• Knowledge = subjective knowledge; what the person actually knew.
• What a person should have known about a partner’s authority based on circumstances is irrelevant.

Question 9

Liability of the Partners

Answer 9

• Each partners is jointly and severally liable for all obligations of the partnership.
• A plaintiff must first exhaust partnership resources before seeking to collect from an individual partner’s assets.
• Each partner is personally and individually liable for the entire amount of partnership obligations.
• Partners are entitled to indemnification from the partnership if one partner pays the whole of the obligation.
• Partners will NOT be criminally liable for the crimes of other partners unless the other partners participated in the commission of the crime.

Question 10

New Partners

Answer 10

• A partnership can admit a new partner upon a unanimous vote.
• A newly admitted partner is not personally liable for partnership obligations that arose before their admission to the partnership.
• An outgoing partner remains liable for obligations arising from when they were a partner unless there was a payment, release or novation.