General Partnerships Flashcards
Define a general partnership
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
The factors to consider in evaluating whether an association is a general partnership:
Control
- the right to control may be enough even if control is never exercised
Profit
- a person receiving a share of profits is presumed to be a partner
- profits received as a part of wages, rent, payment of a debt, or interest does NOT give rise to this presumption
NOTE: capital contribution is generally a red herring
Is a writing required to form a partnership?
No, unless it is required to satisfy the Statute of Frauds
NOTE: a partnership may file a statement of partnership** with the superior court clerk of any county–**establishes the existence of apartnership
May individuals still be held to have formed a partnership even if they did not intend to?
Yes, this may be accomplished by a partnership by estoppel
- Parties may be liable as if they are partners to protect the reasonable reliance by third parties that a partnership existed (e.g., F holding out that in a partnership with G, M reasonably relies).
- partnership by estoppel only applies to contracts and NOT tort claims
Identify who owns what in a partnership.
Property is presumed** to **belong to the partnership if it is:
- characterized as such in the partnership agreement; or
- acquired in the partnership’s name; or
- acquired with partnership funds
Property is presumed** to belong to a partner if it’s **acquired in the partner’s name w/o partnership funds
NOTE: if real property is held other than in the partnership’s name, it will not be deemed partnership property to the prejudice of an innocent person
What are the rights involved in a partnership property?
Partnership’s rights: totally unrestricted
Partner’s rights: very limited**–may only use the partnership property for **partnership purposes
- not transferable
What is a partner’s economic interest in the partnership?
A partner’s economic interest (share in the profits**) is **transferable
What are the rights and relations among the partners in a general partnership?
Profits and losses are split equally
- may not insulate a partner from liability to a third party
Equal management rights
No right to compensation
Right to indemnification with interest
Duties owed to each other and to the partnership
- duty of care
- duty of loyalty
- duty to render full information (Ga. in the minority)
Right to inspect books and formal accounting
Admission of a new partner
- requires unanimous consent
- newly admitted partner on the hook for debts already incurred but only to the extent of her economic interest
Outgoing Partners
- still liable for partnership debts incurred up to the point of withdrawal
NOTE: these are largely default rules, so may agree to otherwise in the partnership agreement
What is a partnership’s liability to third parties for a partner’s action?
Contracts: apply agency law
- Actual authority
- Apparent authority
- Ratification
- Adoption
- Real property: if a partner sells real property without authority, the partnership can get it back from an initial transferee, but not from a subsequent bona fide purchaser
Torts: inquire as to wheter the torious act was committed within the ordinary course of a partnership’s business
- partnership employees: apply agency law
- vicarious liability
What is a partner’s liability for partnership obligations?
Partners may be held jointly and severally liable
NOTE: this is the primary drawback to operating general partnerships
How does a general partnership limit the partners’ liability and what are the steps in accomplishing that?
By forming a limited liability partnership
- partners are not liable for partnership obligations except for their own torts
Steps in forming an LLP:
- file an election** with the **superior court clerk of any county** where the LLP has an **office
- pay a fee
- name** of the partnership must inclue the words “**limited liability partnership**” or the initials “**LLP”
What may cause the dissolution of a partnership?
End of a definite term
_Accomplishing a particular undertaking _
A partner’s express will or withdrawal
- partnerships are generally at will
- if a partner withdraws before a definite term ends, liable for breach of contract for wrongful dissolution
Explusion of a partner
Operation of law
- death of a partner
- partnership’s business becomes unlawful
Judicial decree
Does a partnership continue to operate after dissolution?
Yes, a partnership must wind up its old business
- partnership will be liable for expenses incurred in winding up
- joint and several liability still attaches to post-dissolution debts
- right to contribution ceases upon dissolution except where dissolution arises from a partner’s express will, death, or bankruptcy
How does the partnership terminate a former partner’s apparent authority upon dissolution?
By providing notice:
- Prior creditors: personal notice
- Others who knew of the partnership before dissolution: newspaper notice
- Those who didn’t know of the partnership before dissolution: no notice needed
How are partnership assets distributed upon dissolution?
First to third-party creditors
Second to partners other than for capital and profits
Third to partners for capital
Fourth to partners for profit
May partners continue the partnership’s business after dissolution? If so, what are the effects?
All partners** who have **not wrongfully dissolved must consent** to the **continued operation of the partnership
- creditors become automatically creditors of the continuing partnership
- withdrawing partner 1) gets his interest in the partnership as of dissolution + interest; or 2) pro rata share of profits
- withdrawing partner who wrongfully dissolved is liable for breach
