More Partnership Info Flashcards
If a partner wishes to withdraw from the partnership, what must he do? How does this change if the partnership is constituted for a term?
The exercise of the right of withdrawal hinges on whether the partnership is constituted for a term.
a. With Term
If the partnership is constituted for a term, a partner may withdraw during the term with the unanimous consent of the other partners. He may withdraw without the consent of his partners only if another partner has failed to perform a material obligation.
b. Without Term
A partner may withdraw from a partnership without a term at any time provided that he gives notice in good faith at a time that is not unfavorable to the partnership.
Cessation of Partnership Membership
A partner ceases to be a member of the partnership upon: (i) death, (ii) interdiction, (iii) bankruptcy,
(iv) seizure of his interest, (v) expulsion, withdrawal, or (vi) in accordance with the partnership agreement.
> The partnership doesn’t terminate when a partner ceases his membership unless only one partner is left.
> If all but one of the partners have withdrawn, the partnership ceases & automatically becomes a sole proprietorship.
> The rule applies to all partnerships,
including registered Limited Liability Partnerships.
Upon properly ceasing to be a member of the partnership . . .
The former partner, his successor, or the seizing creditor is entitled to be paid the value of his interest in the partnership.
> Unless otherwise agreed, the amount must be paid in money if the partnership continues to exist.
HOW TO DETERMINE THE VALUE OF THE FORMER PARTNER’S INTEREST?
Courts set value, if partners hadn’t provided for in the agreement, using the following methods:
(1) Book Value Method – value of former member’s interest as it appears on the books of the partnership (b/c records will contain dollar value attached to each partner’s interest).
(2) Fair Value Method – price of partnership interest in an arm’s length transaction between a knowing buyer & knowing seller.
(3) Market Value Calculation – partnership interest valued at whatever price that the partnership would fetch in a market transaction where parties might not be as individually knowledgeable.
What are the ways in which an entire partnership may be terminated?
A partnership terminates by (i) unanimous consent, (ii) a judgment of termination, (iii) bankruptcy of the partnership, (iv) reduction of membership to one person, (v) on the expiration of its term, (vi) the attaining of or the impossibility of attaining the object of the partnership, or (vii) in accordance with the provisions of the partnership agreement.
When a partnership continues after termination . . .
A partnership may be expressly or tacitly continued after the term expires, its object attained, or the parties agree to terminate it.
If the object becomes impossible, the partnership may be continued for a different object.
Effect of Termination of Partnership . . .
- Generally
Upon termination, the authority of the partners to act as mandataries ceases except as to acts necessary for liquidation. - Lack of Knowledge of Termination
A partner who has no knowledge of the termination can still bind the partnership. - Rights of Third Parties Vis-à-Vis Partnership’s Termination
Termination does not affect the rights of third persons who in good faith (without knowledge of the termination) transact business with the partnership.
Dissolution & Liquidation of Partnership…
A. PARTNERSHIP CREDITORS OVER CREDITORS OF INDIVIDUAL PARTNERS – The creditors of the partnership must be paid in preference to the creditors of the individual partners.
B. CREDITORS’ ORDER OF PREFERENCE – Upon liquidation, the creditors of the partnership are paid in the following order of priority:
- Secured creditors (both partners and nonpartners);
- Unsecured creditors who are not partners;
- Unsecured creditors who are partners;
- Capital contributions of each partner are restored; and finally
- The surplus, if any, is divided proportionately.
Partnership in Commandem, Def.
A partnership in commendam is a partnership w one or more commendam (or limited) partners
who have limited powers, rights, & liability (they aren’t personally liable for the debts of the partnership) & one or more general partners.
» General partnership rules apply to the extent they are consistent.
Liability in Commandem Partnership Hinges on Contribution
A commendam partner must agree to make a contribution, but it can be cash, any type of property, or performance of non-managerial services.
The commendam partner is thereafter only liable for partnership debts up to the extent of the contribution (whether or not actually paid to the partnership).
Commendam partners aren’t personally liable for partnership debts.
WHEN COMMENDAM PARTNER CAN BE LIABLE AS GENERAL PARTNER
A commendam partner becomes liable as a general partner if she (i) permits her name to be used in the business dealings of the partnership; (ii) participates in the management or administration of the partnership; or (iii) conducts business with third parties on behalf of the partnership. However, such liability will be only to persons who transact business with the partnership reasonably believing, based on the partner in commendam’s conduct, that the partner in commendam is a general partner.
Effects of a Registered Limited Liability Partnership
An LLP insulates its partners from personal liability for the “debts and obligations of the partnership arising from errors, omissions, negligence, incompetence, or malfeasance committed in the course of the partnership business by another partner or a representative of the partnership.” Thus a partner in an LLP is not the proper party in any such legal proceeding by or against the LLP.
