General Flashcards
Partnerships
PARTNERSHIP:
“A partnership is an association of two or more persons to carry on as co-owners a business for profit.”
A partnership is formed as soon as two or more persons associate to carry on as co-owners a business for profit.
- regardless of whether persons subjectively intend to form Pship. we dont care about subjective intent.
- NO state filing or other formalities are required.
• Elements:
- two or more persons associate (persons can be individual, trust, corp, partnership, or other entity)
- to carry on as co-owners
- a business for profit
- we do care if they intended to carry on as co-owners a business for profit, (kindof - its just to ask if they meet the above definition).
ALSO Partnership by Estoppel
Formation requirements
Intent to carry on as co-owners a business for profit.
Agreement
Capacity
Legal Purpose
Consent of all partners
Proof of Partnership Existence: Intent
To determine whether a partner- ship exists, courts generally look to the intent of the parties to carry on as co-owners a business for profit.
Subjective intent irrelevant: The parties’ subjective intent to form a partnership is relevant.
If they INTENDED to carry on a business as co-owners, there is a partnership… even if they did not subjectively intend to be partners.
Partnership formation factors to IMPLY a partnership
Where INTENT is UNCERTAIN, Courts consider:
Sharing of PROFITS - raises a presumption of partnership, so a Person who receives profits is legally presumed to be a partner.
UNLESS the share was received as…
- payment of a debt,
- as wages or compensation for services rendered,
- as rent payment,
- as an annuity or other retirement benefit,
- as interest on a loan, or
- for the sale of goodwill of a business.
… then no legal presumption.
Presumption can be rebutted.
Real partner has no cap on profits they get.
Sharing of Gross returns: revenues of a business… sharing of gross returns does NOT presumptively make you a partner.
Right to participate in CONTROL of business.
- anything relevant to ownership is relevant, and most common thing associated with ownership is control.
- Does not need to be exercised.
Loss sharing
Can prove NO co-owner relationship by no sharing of losses.
- This can be used to rebut presumption of pship from profit sharing.
Other factors:
a) Title to property is held in joint tenancy or in common
b) The parties designate their relationship as a partnership
c) The venture undertaken by the parties requires extensive activity
(for example, if A and B each contribute $100,000 to buy a building of rental apartments that must be managed, it is more likely that they are partners than if they each contributed $100,000 to buy shares in a company that manages real estate)
Partnership in Writing?
- Writing: No writing is required to form a partnership… BUT Statute of Frauds does. if Pship was to last for more than one year, they must execute a writing.
Parternship by estoppel
If no Pship was formed in-fact, partnership liability may still be imposed to protect reasonable reliance by third parties.
R: If person holds out as partner and reasonable reliance by a third party.
Both are liable - the person who holds themsleves or another out as a partner is liable, and the person who lets the other hold them out as partner is liable if they consent to the holding out.
Liability of Person Held Out as Partner:
• When a person by words or conduct represents HIMSELF as a partner or consents to being represented by another as a partner, he will be liable to third parties who extend credit to the actual or apparent partnership in reliance on the representation.
• a person held out by another as a partner is not liable as a partner unless they actually consent to the holding out—mere failure to deny a representation of partnership does not give rise to liability as a purported partner.
Liability of Person Who Holds Another Out as Partner:
• When a person holds ANOTHER out as a partner, he thereby makes that person his agent to bind him to third parties. (If there is a partnership, only those partners who know of or consent to this holding out will be bound.)
Pship agreement.
Do you need Partnership agreement?
Not required required to form a partnership.
Partnership law allows the partners to contract around almost ALL of the statutory provisions.
Partnership agmt can be written, oral, or implied by conduct.
But people can have no pship agreement, then all the statutory default rules apply.
Is pship an entity?
Yes.
Except with respect to partners’ personal liability for partnership obligations, a partnership is a legal entity distinct from its partners.
Entity Status
Title to land may be in the partnership name.
A partnership may sue or be sued in the partnership name.
Additional Formation Considerations
Capacity?
Purpose?
Consent?
a. Capacity
Anyone who is capable of entering into a binding contract may be a partner.
A would-be partner who lacks capacity is liable only to the extent of his capital contribution, but the partnership with such person is not void; it will continue to exist until steps are taken to dissolve it.
b. Legality of Purpose
A partnership formed to achieve an illegal purpose is void, and the courts will not compel an accounting or a settlement of a void partnership’s affairs.
c. Consent
Unless otherwise agreed, no one can become a partner without the express or implied consent of all partners.
d. Statement of Partnership Authority
A partnership may choose to file a statement of partnership authority with the secretary of state, which can give constructive knowledge of the extent of the partners’ authority with regard to the partnership.
RUPA provisions that cannot be waived by partnership agreeement:
Partners are free to agree—through a partnership agreement—to abide by different rules for governing the relation- ships among themselves.
BUT,
duty of loyalty,
the right of a court to expel a partner).
CANNOT BE WAIVED.
How is Partnership MANAGED?
(DEFAULT rule, these can be displaced)
Voting?
VOTING DEFAULT RULES:
Each partner has one vote.:
Unless otherwise agreed, all partners have equal rights in the management of the busienss and they have equal votes. (that is, one partner, one vote).
Ordinary business decision require MAJORITY vote.
Decisions regarding matters within the ordinary course of the partnership business require a MAJORITY vote of the partners.
Extraordinary business decisions require UNANIMOUS vote..
Matters outside of the ordinary course of business require the unanimous consent of all partners.
***CRITICAL NOTE about VOTING: We do not care about capital contribution, each partner gets one vote under the default rule. But again, they can enter into Pship agreement to give her more.
Partnership compensation
Default rule: is No compensation, because by default youll be sharing in profits.
No one has right to salary under default rule, but can change it under pship agmt.
R: Unless otherwise agreed, a partner has no right to compensation for services rendered to the partnership
(with the exception of a right to reasonable compensation for services rendered in winding up the partnership business).
On the other hand, if a partner has impliedly or expressly promised to devote time to the partnership business and fails to do so, they may be charged in an accounting for damages caused to the partnership.
Partners’ Accounts
Each partner is deemed to have an account that is credited with an amount equal to the partner’s contribution plus his share of any profits and debited with the partner’s share of any losses and partnership liabilities.
Where a partner personally profits at the expense of the partnership, the partner must account to the partnership for those profits.
Upon dissolution, a partner is entitled to settlement of their account.
Indemnification and Other Repayment
A partnership MUST indemnify every partner with regard to payments made and obligations reasonably incurred in carrying on the partnership business.
If a partner makes a payment or advance on behalf of the partnership beyond the contribution the partner agreed to make, the payment or advance constitutes a LOAN that must be repaid with interest.
