Partners and the Partnership Business Flashcards
What is a partnership agreement?
Relations among the partners and between the partners and the PS are governed by the PS agreement. To the extent the PS agreement does not otherwise provide, the RUPA governs relations among the partners and between the PS.
The PS agreement may not:
- vary the rights and duties of filing the statement of PS;
- unreasonably restrict the right of access to books and records;
- eliminate the duty of loyalty, but it may:
a. identify specific types or categories of activities that do not violate these duties, i not manifestly unreasonable; and
b. specify the number or percentage of partners that may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate these duties. - unreasonably reduce the duty of care;
- eliminate or reduce the obligation of good faith and fair dealing, but it may prescribe the standards by which the performance of an obligation is to be measure, if the standards are not manifestly unreasonable;
- vary the power to dissociate as a partner except to require the notice of a partner’s will;
- vary the right of a court to expel a partner;
- vary the requirement to wind up the PS business because of an event that make it unlawful for the PS to continue, or on the basis of a judicial determination to wind up the business;
- vary the law applicable to a LLP; or
- restrict the rights of third parties under RUPA.
Unless otherwise provided in the PS agreement, it cannot be amended without the consent of all the partners.
What are the rules governing a partners’ contributions and shares?
Partners make contributions to the PS in case or otherwise.
Each partner is entitled to be repaid his contributions, whether made by way of capital or advances to the PS property, and to share equally in profits and surplus remaining after all liabilities are satisfied.
A partner has no right to receive a distribution in kind.
Each partner must contribute toward losses, whether of capital or otherwise, sustained by the PS according to his share in the profits.
Partners may agree to share the profits other than equally, and would then share the losses in the same ratio, unless specifically agreed otherwise.
What are the rights of partners in conducting the PS business?
- Right to indemnity
The PS must indemnify every partner with regard to payments made and liabilities incurred by that partner in the ordinary course of the PS’s business or for the preservation of its business or property.
- Right to interest
A partner who, in aid of the PS, makes any payment or advance beyond the amount of capital that he agreed to contribute must be paid interest from the date of the payment or advance.
- Right to compensation
In general, a partner is not entitled to compensation for services performed for the PS, except reasonable compensation for services rendered in winding up the PS business.
However, a partner’s agreement may provide for salaries to be paid. Such an agreement should spell out the source of payments and the work and time required in exchange.
In the absence of an express agreement, the right to compensation may still be implied from other agreements regarding the conduct of the business or from the course of dealing among the parties.
- Right to intervention
Every partner has the right to access, inspect, and copy the PS books during ordinary business hourse.
Each partner and the PS shall furnish to a partner:
a. without demand, any information concerning the PS’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties under the PS agreement; and
b. on demand, any information concerning the PS’s business and affairs, except o the extent the demand or information demanded is unreasonable or otherwise improper under the circumstances.
- Right to accounting
During any term of the PS, a parnter may maintain a legal or equitable action, including an action for an accounting.
The accounting action is equitable in nature, and determines each partner’s investment, the PS’s profits or losses, and the share of profits to which each partner is entitled.
An accounting is not a prerequisite to the availability of other remedies.
- Management and control
All partners have equal rights in the management and conduct of the PS business.
Any difference arising as to ordinary matters connected with the PS business may be decided by a majority of the partners, but no act in contravention of any agreement between the partners may be done rightfully without the consent of all the partners.
- Property rights of a partner
The property rights of a partner consist of:
a. his interest in the PS; and
b. his right to participate in the management.
A partner is not a co-owner of PS property and has no interest in such property that can be transferred.
The only interest that is transferable is his share in the profits and losses and his right to receive distributions. This includes the economic or financial interest. Such a transferable does not itself dissolve the PS. However, in the absence of contrary agreement, a transferee is not entitled to:
a. participate in the management or conduct of the PS business; or
b. require access to any information of the PS.
A transferee is merely entitled to receive distributions. In the event of dissolution, a transferee is entitled to receive his transferor’s interest in distributions and may require an accounting. A transfer in violation of the PS agreement is ineffective as to a person having notice of the restriction.
A judgment creditor can subject the partner’s transferable interest to a charging order.
Upon application, a court can charge the debtor-partner’s transferable interest to satisfy the judgment, and may then, or later, appoint a receiver of his share of the distributions due him.
Before foreclosure or sale of the debtor’s interest, the other partners may deem his interest with their separate property or, with the consent of all other partners, with PS property.
What are the duties within the PS?
Concerning PS matters, partners have a fiduciary relationship to one another and owe the PS and the other partners a duty of loyalty and a duty of care.
A partner must discharge his duties and exercise his rights consistent with the obligation of good faith and fair dealing.
Duty of care
Each partner owes to the PS a duty of care in the conduct of PS business and winding up the PS. The partner must avoid grossly negligent, reckless conduct, intentional misconduct, or a knowing violation of the law.
Duty of loyalty
Every partner must account to the PS for any benefit, and hold as trustee for the PS any profit, derived by him without the consent of the other partners from any transaction connected with the conduct and winding up of the PS business or from any use by him of its property.
A partner cannot use PS property for personal gain.
A partner must refrain from dealing with the PS as a party having an adverse interest.
A partner must not compete with the PS.
Duty to disclose
By statute, partner must render on demand true and full information concerning all things affecting the PS to any partner, legal representative of any deceased partner, or partner under legal disability.
Duty to keep books and right of inspection
The PS books and records must be kept, subject to any agreement between the partners, at the CEO, and every partner shall have the right to access and may inspect and copy any of the books and records during ordinary business hours.
A partner who keeps the books must do so completely and accurately.
When are new members allowed?
No person can become a new member without the consent of all the partners.
The new partner’s liability for obligations arising before his joining the PS is only his contribution to the PS; the new partner is not personally liable for any such charges that arose prior to is joining the PS.
What happens in suits between partners?
A partner may maintain an equitable or legal action against another partner or the partnership to enforce the partner’s rights under the PS agreement, under the RUPA, and any other rights otherwise protectable, whether or not arising under the PS relationship.
