General Partnerships Flashcards
Gral Partnerships - Regulation / Waiver prohibition
- Most states: RUPA - (Revised Uniform Partnership Act of 1997)
- gives room to parties to negotiate terms
- Prohibition for parties to waive certain provisions:
a) good faith and fair dealings, duty of loyalty
b) Limit access to records and financial statements
Gral Partnerships - Concept/Elements (3)
- Association of 2 or more persons
- W/ intention to carry or manage as co-owners
- A business for-profit
Gral Partnerships - Ownership Rules
Gral rule: partners w/= interest in capital/profit/loss allocation/distributions (unless agreed otherwise)
- distinguishes from agency
Gral Partnerships - Ownership Rules - Cases of No presumption of psx when (4)
1) joint tenancy
2) Tenancy in common
3) Joint Property
4) Community Property
Gral Partnerships - Ownership - Share of profits presumption
Right to receive is presumed from partner status
- Does not include shares of: wages, gross receipts, wages, sale, rents, ppals or interest from loan
Gral Partnerships - Types of duration (3)
1) For definitive term
2) For particular undertaking (i.e. joint venture)
3) At-will : no time limitation (MOST COMMON)
Gral Partnerships as Entity Organization - Filing reqs
None - is enough for parties to intentionally act as such EVEN without knowledge of creation of psx or w/out describing business as such
- Optional: file “Statement of Partnership authority” (psx agreement)
- Can choose to act under trade name
Gral Partnerships as Entity Organization - “Statement of Psx Authority” (psx agreement) - Content NAILA
- Name of psx
- Address of CEO
- In-state office address
- List of partners
- Authority to transfer real estate - etc
[Statement of denial: filed by person to deny authority or partnership]
Gral Partnerships as Entity Organization - “Statement of Psx Authority” - Effects
If registered - specific authority (i.e. to transfer real estate) is deemed conclusive against 3rd parties as Constructive Notice
Gral Partnerships - Capacity
Same rules as for CL +
- infants: can dissafirm but not withdraw capital to detriment of creditor
- corps, LLC and other entitiies can act as partners
- Either spouse can be partner in non-realty psx w/o other’s consent
Gral Partnerships - Formation methods (3)
1) Express - SOF if over 1 year
2) Implied - i.e. share benefits
3) Estoppel: present himself as partner or allow name to be used
Gral Partnerships - Formation methods - Express - Gral
- Written if over 1 year or for real estate / Oral if at-will
- No restriction on type of contribution of capital (i.e. services, promissory notes)
Gral Partnerships - Formation methods - Express - Ownership rights
Unless agreed otherwise:
- ALL with = % of equity, capital interest, share of profits
Gral Partnerships - Formation methods - Implied
- When certain conduct leads to satisfy psx formation elements
- i.e. share profits, share mgmt, make capital contribution.
Gral Partnerships - Formation methods - Implied - Effects on liability
Implied psx as E of rebuttable presumption of several and joint liability among partners
-burden on supposed partner to prove otherwise
Gral Partnerships - Formation methods - Estoppel - Gral + for whom’s benefit
- WHEN someone presents himself as partner or knowingly allows his name to be used in psx trade name
- As protection for 3rd parties who granted credit relying on that representation
Gral Partnerships - Property Rights - Gral
- Owned by entity NOT individually
- Partner interest = share of profit/loss + right to distributions
Gral Partnerships - Property Rights - Applicable presumptions in relation to under whose name property is held, who acquired and use
- If acq w/psx assets: Presumed owned by psx even if held under partner’s name
- If acq by partner and under his name: Presumed to be owned by partner, even if for psx purpose
Gral Partnerships - Property Rights - Conveyance of Partner’s Interest
- Doesn’t dissolve psx
- Assignee receives share + “liability shield”
- BUT no mgmt/adm rights unless agreed AND no rights to inspect books, or info and accounts of transactions (RUPA - modern view, different from CL)
Gral Partnerships - Property Rights - “Charging Order”
- Requested by individual partner’s creditor to court after judgment
- To charge interest in psx for unsatisfied amount
- Allows payment of shares/profits/other due directly to creditor
Gral Partnerships - Rights and Duties (6)
1) Fiduciary
2) Profit/loss share
3) Management
4) Rights to inspect books and records
5) Right to receive information
6) Actions by psx/partners
Gral Partnerships - Fiduciary duties - Gral
- For all partners
- Creates liability to psx for breach
- Includes duty of loyalty, reasonable care, good faith and fair dealing, and disclosure of conflictive transactions
Gral Partnerships - Fiduciary duties - Loyalty (CAP)
1) Competition prohibited
2) Avoid adverse interests representation or transaction with psx
3) Psx accounting for benefits and use or hold any property
Gral Partnerships - Fiduciary duties - Standard of care
Reasonable care
- no gross N, recklesness, intentional misconduct or knowing violation of law
Gral Partnerships - Profit/Loss Sharing - Gral rule
Equal for all partners
Gral PSX - Profit/Loss - Compensantion gral rule
no compensation for psx activties
Gral Partnerships - Profit/Loss Sharing - Exception to rule of no compensation to partners (3)
1) “wind down” activities
2) Extraordinary efforts
3) Reimbursement or indemnification for expenditures and personal obligations incurred in proper and ordinary cause of actions
Gral Partnerships - MGMT - Gral Rule
- All partners and all with = rights to decide on day to day basis
- Voting quorum for more relevant decision
Gral Psx - MGMT - Decision making
- Any ordinary decision requires majority (day-to-day)
- Change of agreement AND expulsion of partner AND other extraordinary decision (as decided by court)- Requires unanimity
Gral Partnerships - Actions for liability for psx/partners
1) By psx vs partner for breach of contract or duty
2) By partner vs psx or other partner for legal or equitable relief that doesnt cause dissolution
Gral Partnerships - PSX liability to 3rd parties - Gral
- All partners PERSONALLY liable for all psx debts/obligations
- JOINT and SEVERALLY - hence plaintiff can go first against psx assets and then against any partners - and then possible contribution among partners
Gral Partnerships - PSX liability to 3rd parties - Exception for entering partner (assignee of interests on psx)
Liable only to extent to contribution for psx’s pre-admission torts/contractual breaches
UNLESS: - intentional waiver of “liaiblity shield”
- Express assumption of responsibility beyond contribution
Gral Partnerships - PSX liability to 3rd parties - Rule on imputed knowledge of PSX
- PSX charged w/knowledge by constructive notice or notice given to any partner
Gral Partnerships - PSX liability to 3rd parties - Agency
- Every/All partner(s) is agent
- Contract liability for psx if within ordinary course (Not if partner lacks authority OR 3rd party knows or should know about lack of authority OR outside scope of authority)
- Torts liability of psx as respondeat superior
Gral Partnerships - PSX liability to 3rd parties - Transfer of psx property under psx name
- Ok if partner authorized
- If not: PSX can recover from 3rd party that knew of lack of authority (but not against subsequent BFP)
Gral Partnerships - PSX liability to 3rd parties - Transfer of psx property under partner’s name
Only by partner under whose name is held
- Psx can recover only if transferee new property was owned by Psx and partner lacked authority
Gral Partnerships - PSX liability to 3rd parties - Transfer of psx property rule for recorded real estate transfer authorization
Recorded specific authorization for sale of real estate on psx agreement
- as constructive notice for 3rd parties to allow recovery
Gral Partnerships - Dissociation - Concept / Rights /Effects
- When partner leaves psx
- Partner entitled to current value of interest
- “wind up” scenario when only 1 partner left (dissolution)
Gral Partnerships - Dissociation - Causes (2)
1) By express will of partner
2) By expulsion: (3) by partners OR judicial OR bc of insolvency
Gral Partnerships - Dissociation -By express will
- By partner at any time
- Unless otherwise agreed - as breach of psx agreement (i.e. before set term)
Gral Partnerships - Dissociation -By Expulsion by partners
- Unanimously
- With cause: very limited - i.e. unlawfulness, trasnfer of interest w/o approval
- Without cause as agreed on psx agreement
Gral Partnerships - Dissociation -By Judicial Expulsion (3)
When partner:
1) wrongful action
2) material breach of psx agreement or fiduciary duty
3) Impracticable to continue business with that partner
Gral Partnerships - Dissociation -Bc of insolvency (examples)
- Petition for bkrupt or appointment of bkrup trustee
- Assignment of essential assets to creditor
- Charging order [UNLESS vacated within 90 days]
Gral Partnerships - Unlawful Dissociation - Causes (2)
1) Violation of psx agreement
2) When Psx was created for specific term or undertaking and partner dissociates previously
Gral Partnerships - Unlawful Dissociation - Effects
- Cant force them to remain as partners
- Cause of action for potential damages
Gral Partnerships - Dissociation - Effects on psx
1) If psx-at-will: psx terminates
2) If non-psx at will: psx survives
Gral Partnerships - Dissociation - Effects on dissociated partner
- Looses right to mgmt/conduct business
- Duty of loyalty remains only regarding pre-disassociation matters
Gral Partnerships - Dissociation - Purchase of disassociated interest - Conditions and Price
- Possible if no dissolution of psx (no psx at will)
- DX offset against buy-out-price
- Price: = to pro-rate share of psx net-assets unless otherwise agreed
- Parties must agree on final amount
Gral Partnerships - Dissociation - Purchase of disassociated interest - Lack of agreement on price (procedure)
- No agreement within 120 days:
1) Psx must tender cash offer w/explanation of price + financial statements - Disassociated partner has 120 days to accept or start legal action
OR
2) If no tender by PSX: partner has 1 year to start action
Gral Partnerships - Dissociation - Disassociated partner ongoing liability
- Liability and right to indemnify remains for obligations pre-disassociation
- No added liability if psx maintains name on psx name
- Authority as agent ends
- BUT liability remains for lingering apparent authority for 2 years UNLESS “Statement of dissociation” - 90 days as constructive notice
Gral Partnerships - Dissolution Causes (5)
1) Agreed by at least half of remaining partners
2) Termination event set in psx agreement
3) Illegality - event makes business unlawful
4) Judicial determination
5) Dissociation for psx-at-will AND/OR of last partner
Gral Partnerships - Dissolution Causes - Judicial determination - Grounds (3)
1) economic frustration
2) Equitability of winding-up business
3) Partners conduct makes continuation impractical
Gral Partnerships - Dissolution - Wind down
- Psx continues post dissolution for purposes of winding down
- By partners not wrongfully dissociated or by judicial supervision
- Can bound psx or partner if unauthorized act
Gral Partnerships - Dissolution - Wind down - Statement of dissolution
- Filed creates constructive notice after 90 days on apparent authority
- Cancels previous statement of psx
Gral Partnerships - Dissolution - Liquidation Distribution Priority - Gral
- Any loss/profit credited/charged to partners accounts
- Gral rule: pay debts first ad then distribute - CPU
- Creditors
- Partners for capital accounts
- Undistributed proftis to partners equally unless agreed on
Gral Partnerships - Dissolution - Liquidation Distribution Priority - CPU
1st: Creditors (including partners as creditors)
2nd: Partners for capital account contributions
3rd: Undistributed profits to partners - equally unless agreed otherwise
Gral Partnerships - Dissolution - Liquidation Distribution Priority - Rules when insolvency
- Partner assessed for contribution
- If insolvent his share is allocated among other partners who then have contribution right
Gral Partnerships - Conversions/Mergers - gral
- Allowed by RUPA when partners agree
- if partner dissents: entitled to receive fair market value for interest
Gral Partnerships - Conversions
From gral psx to Limited psx
- need to file new certificate of ltd psx
