General Partnerships Flashcards
Partnership
An association of two or more persons to carry on as co-owners of a business for profit.
Formed when that happens regardless of subjective intent.
Intent Necessary
Whether parties intented to carry on business as co-owners
Factors to Consider
- Sharing of Profits
- Right to participate in control
- Title to Property held in joint or common tenancy
- Parties designate the relationship as partnership
- Sharing of Gross Returns
Writing?
Not required unless by SOF
Partnership by Estoppel
If no Partnership was formed in fact, parties may still be liable as partners to protects reasonable reliance by third parties
Partnership Agreement
Not required, but be on the lookout because it gets around most statutory provisions
Entity Status
Is a legal entity distinct from the partners
Capacity
Contractual
Party lacks capacity is liable to the extent of capital contributions
Voting
Unless otherwise agreed, all partners have equal rights in the management of the business and equal votes
Decisions W/I Ordinary Course (Voting)
Require Majority of the Votes
Decision Outside Ordinary Course (Voting)
Require Unanimous Votes
Right to Salary?
No.
However, a partner that has promised to devote time to the partnership and fails to do so, may be charged in an accounting for damages caused by partnership.
Legal Actions Against Partnership
Partnership may be sued in its own name, but to reach a partner’s personal assets, there must be a judgment against the individual partner
Rights of Partners
- Management
- Distributions
- Renumeration
-Indemnification - Contribution
- Inspection
- Lawsuits
Rights of Partners
Management
All partners have an equal right to participate in the management unless agreement provides otherwise
Rights of Partners
Distributions
Partners have whatever rights are granted in the agreement as to distribution, if agreement is silent then profit share is equal
Rights of Partners
Renumeration
Partners have NO right to renumeration for their services to the partnership except for winding up the business
Rights of Partners
Indemnification
A partner has a right to be indemnified by fellow partners for expenses incurred on behalf of the partnership
Rights of Partners
Contribution
A partner has a right to contribution from fellow partners where the partner has paid more than his share of a partnership liability
Rights of Partners
Inspection
A partner has a right to inspect and copy the partnership books
Rights of Partners
Lawsuits
Generally, a partner may sue his partnership and the partnership may sue a partner in an action at law or equity.
Rights of Partners
Losses
Shared in the same manner as profits, unless otherwise agreed
Liability to Third Parties
Generally, each partner is an agent of the partnership for the purpose of business. (See agency liability)
Liability of the Partnership in Tort
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 or with authority of the partnership
Liability of the Partnership in Contract
Liable for all contracts entered into by a partner in the scope of the partnership or with actual or apparent authority of the partnership
Statement of Authority
Grants or limits the partner’s authority to enter into transactions on behalf of the partnership
Effect depends on whether it involves transfer of real property
Partner Authority
Transactions Involving Real Property
Grants of and restrictions on partner authority to transfer real property in the statement are binding on third parties if the statement is recorded in the county where the property is locatd.
Partner Authority
Transactions Not Involving Real Property
Grants of partner authority are binding (unless 3rd party has actual knowledge the partner lacks authority)
Restrictions on partner authority are not binding
Liability of the Partners
Each Partner is jointly and severally liable for all obligations of the partnership, whether arising in tort or contract
When can Plaintiff go after Partner’s personal assets?
Plaintiff must first exhaust partnership resources before seeking to collect from an individual partner’s assets
Partners are like guarantors
Fiduciary Duties
Duty of Loyalty
- Account to the partnership any benefit derived by the partner in conducting the partnership business
- Refrain from dealing with the partnership in the conduct of its business as a party having an adverse interest
- Refrain from competing with the partnership
Fiduciary Duties
Duty of Care
Requires each partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law
Fiduciary Duties
Duty to Disclose
Partner has a duty to provide complete and accurate information concerning the partnership.
Duty to Disclose
Without Demand
Any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties
Duty to Disclose
On Demand
Any other information concerning the partnership’s business and affairs (unless demand is unreasonable)
Fiduciary Duties
Duty of Obedience
Requires the partner to obey all reasonable directions of the partnership and not act outside the scope of his or her authority
Elimination of Duties
May not eliminate duty of loyalty or care; but can eliminate the duty to disclose
Partnership Capital
Property or Money contributed by each partner for the purpose of carrying on the business
Partnership Property
Everything the partnership owns, including both capital and property subsequently acquired in partnership transactions
Partnership Rights
Property
Totally unrestricted
Partner’s Rights
Partnership Property
Not a co-owner and has no interest in it that can be transferred, can use for partnership purposes although
Partnership Interest
Partner’s ownership interest:
1. Management Rights
2. Financial Rights
Management Rights
Partner’s right to participate in the management of the business, to obtain information about the partnership, and to be recognized as a “partner”
NO UNILATERAL TRANSFER; needs unanimous vote “pick your partner”
Financial Rights
Partner’s right to receive their share of any profit distributions made by the partnership.
Unilaterally transferable; receiver known as “Mere transferee”
Dissociation
Withdrawal
Wrongful Dissociation
If withdrawal is in breach of an express term in the partnership agreement (i.e Term Partnership)
At-Will Partnership
One where the parties have not agreed to remain partners until the expiration of a definite term or completion of particular events
Default type
Term Partnership
Where the parties have agreed, explicitly or implicitly, to remain partners for a definite term or until the completion of a particular event
Effects of Dissociation
For Partnership
- Dissolution
- Buyout and Continuation
Effect of Dissociation
For Partner
Right to participate ceases
Partnership must purchase their interest and indemnify them against known pre-dissociation liabilities, as well as post not incurred by the dissociating partners acts
Dissolution
- Required when partner dissociates by express will
- In a term partnership, if one partner dissociates wrongfully or if by death or bankruptcy, dissolution is required only if within 90 days 1/2 of remaining partners agree to wind up and liquidate
Buyout and Continuation
If a parnter’s dissociation does not require dissolution, the partner is entitled to receive a buyout of partnership interest.
(if for term dissociating partner must wait till end of term for buyout)
If dissociation is wrongful, any damages offset against buyout price
Liability of Dissociated Partner
Pre-Dissociation
Generally, a dissociated partner remains liable for pre-dissociation partnership obligations
Liability of a Dissociated Partner
Post-Dissociation
A dissociated parner can be liable for post-dissociation partnership liabilities incurred within two years after the dissociation if:
1. 3rd party entered into transaction reasonably believing DP was still a partner; AND
2. 3rd Party did not have notice of the partner’s dissociation
DP can protect themself by notifying creditors directly of dissociation; OR by filing a public notice of dissociation which becomes effective after 90 days
DP’s power to Bind Partnership
Partnership can be bound by the acts of a DP undertaken within 2 years of dissociation if:
1. the act would have bound the partnership before dissociation; AND
2. the other party reasonably believed the DP was still a partner and did not have notice of dissociation
Partnership can protect itself by directly notifying creditors of dissociation OR by filing public statement of dissociation which becomes effective after 90 days
Dissolution
Generally requires the partnership to be wound up and partnership assets must be applied to discharge of the parties.
If the assets are insufficient, individual partners are required to contribute in accordance with their loss shares.
Dissolution or Dissociation can be accomplished by?
- Oral or written notice (express will)
- Happening of an agreed event
- Valid expulsion
- Bankruptcy
- Death or incapacity
- Decision of a court
- Termination of a business entity that is a partner
