GENERAL PARTNERSHIPS Flashcards
I. FORMATION A. DEFINITION B. FACTORS To determine who is a partner C. WRITING D. JOINT VENTURE E. ESTOPPEL
A. DEFINITION: An association of two or more persons to carry on as co-owners a business for profit, whether they intend to form a partnership or not.
B. FACTORS: To determine who is a partner, look to the following factors:
- CAPITAL. A capital contribution is not required to be a partner.
- CONTROL. The right to control may be enough, even if control is never exercised [because owners usually have the right to control operations].
- SHARING PROFITS.
- if sharing just one factor; no presumption of partnership.
- not a factor if getting profits as wages, rent, repayment of a debt, or interest on a loan, or sharing gross receipt
C. WRITING: Partnership law does not require one, but the Statute of Frauds may.
-require if for partnership last for 2 yrs
D. JOINT VENTURE: A joint venture is treated like a partnership, but requires express agreement on how the losses will be shared.
E. ESTOPPEL: If no partnership was formed, parties may still be liable as if they are partners to protect reasonable reliance by third party [like apparent authority].
T can recover from party who make the statement, creditors of T can recover too if they relied on the statement
II. PROPERTY INTERESTS
A. RULES FOR DETERMINING PARTNERSHIP PROPERTY
A. RULES FOR DETERMINING PARTNERSHIP PROPERTY
- __IS__ PARTNERSHIP PROPERTY if acquired in the partnership’s name or in a partner’s name where it’s apparent from the document he’s acting for a partnership (e.g., it mentions a partnership or says he’s a partner).
- __PRESUMED__ TO BE PARTNERSHIP PROPERTY if partnership funds are used.
- __PRESUMED__ TO BE A PARTNER’S PROPERTY if acquired in his name without partnership funds and there’s no sign he’s acting for a partnership.
- A bought a truck in her name with her own money. AB Partners uses the truck for deliveries: presumed to be A’s property assuming there is no sign she was acting for the partnership
- 2, 3 can be rebutted
II. PROPERTY INTERESTS
*** B. RIGHTS IN PARTNERSHIP PROPERTY
partnership vs. partner
Can A pledge her interest in the truck as collateral for a personal loan? Can A devise her interest in the truck to her husband? Can A’s judgment creditor attach her interest in the truck?
*** C. A PARTNER’S ECONOMIC INTEREST IN THE PARTNERSHIP
Can A assign her economic interest in the partnership? Can A devise it to her husband? does her husband become a partner after transfer? Can a judgment creditor of A attach (“charge”) her interest in the partnership?
- ** B. RIGHTS IN PARTNERSHIP PROPERTY
1. PARTNERSHIP: Rights are totally unrestricted [it owns the property!] - ** 2. PARTNER: Extremely limited rights! A partner can use partnership property only for partnership purposes. This right is not transferable.
- can’t use on vacation unless other partners consent
- no unless other partner’s consent
- ** C. A PARTNER’S ECONOMIC INTEREST IN THE PARTNERSHIP
1. DEFINITION: A partner’s share of the profits (e.g., a 25% stake/ interest).
2. IS TRANSFERABLE: Like any other financial asset. - yes; only the interest/ profit
- transferee does not become a partner
3. is COMMUNITY PROPERTY if acquired during life of the community.
III. RELATIONS AMONG PARTNERS
** A. SHARING PROFITS AND LOSSES
agree to pay off their investment first?
Rachel, Phoebe and Monica form the RPM Partnership. Rachel contributes 60% of the capital. The others contribute 20% each. Unless otherwise agreed (“UOA”), how will profits be split? Unless otherwise agreed, how will they share the losses?
** If they agree Rachel won’t bear any loss, is she free from liability to a third party? [TRICK Q!]
B. NO RIGHT TO COMPENSATION
C. MANAGEMENT RIGHTS
Rachel gets 60% of the profits. Monica and Phoebe get 20% each [“otherwise agreed”]. Rachel votes against selling goods to Wolverine. Monica and Phoebe vote in favor. What result?
III. RELATIONS AMONG PARTNERS: Statute supplies the default rules, but the partners may contract around them, so the __partnership agreement usually governs in this area.__
- ** A. SHARING PROFITS AND LOSSES
- equally UOA, not in proportion of captital contribution
- losses follow profits unless UOA
- then distribute profit according to their investment then the equally distribute the rest
- ***no; partner can’t limit a T’s right without that T’s consent; but the agreement will be effective among the partnership meaning if T recover from Rachel she can recover from the other two partners, but if the two partners dont have money then Rachel pays
B. NO RIGHT TO COMPENSATION
UOA; only compensated when the partner is winding up the partnership affairs
C. MANAGEMENT RIGHTS
***Rachel wins; equal management rights unless UOA, but matters of ordinary business is decided by a majority in interest/ profit share (not majority in number)
Rachel will win
III. RELATIONS AMONG PARTNERS
D. INDEMNIFICATION AND INTEREST
Phoebe pays out $10,000 on a partnership debt. What are her rights against RPM?
E. DUTIES:
F. ADMISSION OF NEW PARTNERS
- Rachel and Monica want to admit Ryan Reynolds as a partner. Phoebe objects. Is he admitted?
- If Phoebe relents and Ryan is admitted, is he liable for debts RPM incurred before his admission?
D. INDEMNIFICATION AND INTEREST
-partnership pay her back with interest
E. DUTIES: Partners owe duties of care, loyalty and good faith, but may limit or even eliminate them in the partnership agreement (***but not the duty of loyalty).
F. ADMISSION OF NEW PARTNERS
- no; unless UOA, admission of new partners need unanimous vote
- yes, BUT discounted because he wasnt there, he can lose his partner interest but nothing more, however same liability for future debt
***IV. RELATIONS BETWEEN PARTNERS AND THIRD PARTIES: USE AGENCY LAW
A. CONTRACT
Lebron knows Monica is RPM’s managing partner and has signed contracts for RPM. Rachel and Phoebe forbid Monica to sign new contracts, but she signs one with Lebron anyway.
Did Monica have authority to bind RPM to Lebron?
what about other partners’ liability
IV. RELATIONS BETWEEN PARTNERS AND THIRD PARTIES: USE AGENCY LAW
A. CONTRACT (Partnership is the principal, partner is the agent)
1. ACTUAL AUTHORITY: Created by partnership agreement, majority vote of partners, or the statute, which makes every partner an agent for carrying on business in the usual way [**but can be negated by partners].
2. APPARENT AUTHORITY: Look at partner’s title and prior conduct.
-yes; no actual but apparent
**so even though she didn’t have consent from other partners other partners will still be personally liable to the transaction
- RATIFICATION/ADOPTION if there’s no authority at time of contract
IV. RELATIONS BETWEEN PARTNERS AND THIRD PARTIES: USE AGENCY LAW
B. PARTNER’S TORT:
C. CONVEYING REAL PROPERTY WITHOUT AUTHORITY
partners are jointly and severally liable for torts committed by another partner or a partnership employee in the ordinary course of the partnership’s business or within the partner’s authority
B. PARTNER’S TORT (unauthorized sale of client’s stock): The only issue is whether it was committed ___in the ordinary course of the partnership’s business___.
Note: Use regular tort analysis for a tort committed by a partnership employee (i.e., servant, scope of employment).
C. CONVEYING REAL PROPERTY WITHOUT AUTHORITY: Partnership can get the property back from the initial transferee [who should have checked on authority], but not from a subsequent BFP [who had no reason to check].
IV. RELATIONS BETWEEN PARTNERS AND THIRD PARTIES: USE AGENCY LAW
*** D. PARTNERS’ LIABILITY FOR PARTNERSHIP OBLIGATIONS
new comers?
How do you form an LLP/PLLP?
*** D. PARTNERS’ LIABILITY FOR PARTNERSHIP OBLIGATIONS (obviously the partnership is liable—it’s a partnership obligation!)
- JOINT AND SEVERAL LIABILITY, but the plaintiff __must first exhaust partnership resources__ (so partners are basically guarantors). WORST ASPECT
- P. can sue all or some of the partners, and get damage from them, but the partnership resources must first be gone
- new comer partners won’t be personally liable for debt incurred before their admission, but her financial interest in the partnership will be at risk
*** 2. EXCEPTION FOR LIMITED LIABILITY PARTNERSHIP (LLP): no liability on contracts or for the torts of others (“broad shield” statute). but tortfeasor has to be liable
BOTTOM LINE: An LLP is exactly like a general partnership except for vicarious liability!
FILE a certificate of formation with the Secretary of State and pay a fee [must renew annually].
NAME must include the phrase “limited liability partnership” or an abbreviation of it [notice].
dont need to renew the status as LLP every year anymore
V. WITHDRAWAL OF A PARTNER
If RPM has a two-year term, may Phoebe withdraw before the term is up?
If RPM is formed to buy a piece of land, subdivide it, and sell off the lots, may Phoebe withdraw before the last lot is sold off?
If RPM is formed to run a bar, may Phoebe withdraw after one week?
what if orally agreed to a 2 yr term partnership
a wrongful withdraw partner will be liable to the partnership for any damage resulting from the wrongful withdraw
A. EVENT OF WITHDRAWAL: Notice of express will to withdraw; an agreed-on event; a partner’s expulsion, death, bankruptcy or incapacity; appointment of a trustee, receiver or liquidator for a partner; or redemption of a transferee’s interest.
*** B. NO BIG DEAL: Partnership buys out withdrawing partner and continues without her.
C. MAY HAVE APPARENT AUTHORITY to bind partnership to an innocent third party for one year (but partnership can protect itself by notifying creditors).
D. LIABILITY OF WITHDRAWN PARTNER:
- TO EXISTING CREDITORS unless released by a creditor, expressly or impliedly (determined on a creditor-by-creditor basis).
- TO SUBSEQUENT CREDITORS who were unaware of the withdrawal (but can protect herself by notifying potential creditors of her withdrawal).
- TO OTHER PARTNERS if she withdraws before the term is up or before the specific task is completed (“wrongful withdrawal”).
- Yes, but she’ll be liable for ___other partners___ since she agreed to stay for two years.
- Yes, but since this is a partnership ___to complete a task___, Phoebe will be liable for breach of contract since she agreed to stay until the task was completed.
***Yes! This is a partnership __at will___, from which any partner can withdraw at any time without penalty. Most partnerships are “at will” (no term or specific task).
-statute of fraud, court will probably find it as partnership at will
VI. WINDING UP A PARTNERSHIP
A. TRIGGERING EVENTS:
B. RIGHT TO WIND UP: who can
*** C. MAY BE APPARENT AUTHORITY
D. DISTRIBUTION OF PARTNERSHIP ASSETS ON WINDING UP
E. PARTNERSHIP ASSETS INSUFFICIENT TO COVER LIABILITIES
F. CREDITORS’ RIGHTS:
A. TRIGGERING EVENTS: Business becomes illegal; all assets are sold outside the usual course of business; entry of judicial decree; the term is up/task is completed; all partners consent; or a majority-in-interest consent in a partnership at will. ____winding up is rare_____
B. RIGHT TO WIND UP: Partners who have not wrongfully withdrawn may wind up.
*** C. MAY BE APPARENT AUTHORITY to bind the partnership to an innocent third party on new business even after an event requiring winding up (but the partnership can protect itself by notifying potential creditors).
D. DISTRIBUTION OF PARTNERSHIP ASSETS ON WINDING UP
1st: To creditors (***including partners who are creditors)
2nd: To partners for what is in their capital accounts (contributions + profits - losses)
E. PARTNERSHIP ASSETS INSUFFICIENT TO COVER LIABILITIES
Same drill: The creditors split the assets prorata
The rest of the debts and the capital contributions are partnership losses, which partners bear in the same proportion as profits, UOA.
F. CREDITORS’ RIGHTS: Partnership creditors have priority over a partner’s creditors on partnership property, and equal claims on a partner’s separate property.
