Partnership Flashcards
Overview
Partnership law is based on the law of contracts and agency. A partnership is an association of two or more persons (which may include trusts and business entities) to carry on as co- owners a business for profit. The large topics to think about in partnership law include: how
a partnership is formed; the duties and rights of partners and partnerships; liability between partners and third parties; how partners dissociate from a partnership; and how partnerships are dissolved. There are also limited partnerships and limited liability companies that are governed by different statutes than general partnerships.
FORMATION - Requirements
- No formal agreement or writing is required to form a partnership; the parties’ intent can be implied from their conduct
- Anyone who is capable of entering a binding contract is capable of being a partner
- The partnership may not have an illegal purpose
- No one may become a partner without the consent of all the partners
FORMATION - Factors to Imply a Partnership
- Intent of the parties
- Sharing of profits raises a presumption of partnership (exception—payments for: a
debt, services rendered, rent, annuity or retirement benefits, interest on a loan, or
sale of goodwill of a business) - Other factors do not raise a presumption but are evidence that a partnership has
formed:
a. Title to property is held in joint tenancy or tenancy in common
b. Parties designate their relationship as a partnership
c. The venture requires extensive activity
d. Sharing of gross returns
PARTNERSHIP PROPERTY - Factors to Determine Whether Property Belongs to the Partnership
- For real and personal titled property, apply R.U.P.A.:
a. Property belongs to partnership if it is titled in:
1) The partnership name, or
2) The name of the partnership and the instrument transferring title notes the
titleholder’s capacity as partner or the existence of a partnership
b. Property is presumed partnership property if purchased with partnership funds
c. Property is presumed separate property of partner if:
1) The property is held in name of partner(s)
2) The instrument transferring title does not indicate the person’s capacity as
a partner or mention the existence of a partnership
3) Partnership funds were not used - For untitled property, apply common law factors:
a. Used partnership funds
b. Use of property by partnership
c. Listed in partnership books as an asset
d. Close relationship between property and the business
e. Improvement with partnership funds
f. Maintenance with partnership funds
PARTNERSHIP PROPERTY - Partner’s Rights in Partnership Property
- Partners are not co-owners of partnership property and have no transferable interest in partnership property
- Partners have no right to use partnership property other than for the benefit of the partnership
RIGHTS AND DUTIES OF PARTNERS - Rights
- All partners have an equal right to participate in the management and control of the partnership absent a partnership agreement providing otherwise
- All partners have an equal right to share in the profits and losses and receive
distributions - Partners are not entitled to remuneration except for reasonable compensation for
services rendered in winding up the partnership’s business - The partnership must indemnify partners for payments reasonably made and
obligations reasonably incurred by a partner in carrying on the business of the
partnership - If a partner must pay more than his fair share of the partnership’s debt, he is entitled
to contribution from the other partners - All partners have the right to inspect the partnership books and records
- The partnership may sue or be sued in the partnership name or in the names of the
individual partners
RIGHTS AND DUTIES OF PARTNERS - Duties
- Duty of loyalty
a. Partners must account for all profits or other benefits derived by the partner in
connection with partnership business
b. Partners may not deal with partnership as one with an adverse interest
c. Partners may not compete with the partnership - Duty of care
a. Partners must refrain from engaging in negligent, reckless, or unlawful conduct
b. Partners must refrain from engaging in intentional misconduct - Duty of obedience
a. Partners must obey all reasonable directions of the partnership
b. Partners must refrain from acting outside the scope of the partner’s actual
authority - Duty to provide complete and accurate information
a. Partners must provide complete and accurate information concerning the partnership
LIABILITY OF PARTNERS - Agency Principles Apply in Determining Liability
- R.U.P.A. generally provides that each partner is an agent of the partnership
- The act of any partner binds the partnership, unless the partner had no authority and the third party knew or had notice that the partner lacked authority
[The Revised Uniform Partnership Act (“R.U.P.A.”) provides a default set of rules for general partnerships]
LIABILITY OF PARTNERS - Civil Liabilities
- Contract liability—partners are liable on contracts made by a partner in the scope of the partnership business and on any other contracts expressly authorized by the partners
- Tort liability—partners are liable for any torts committed by a partner or an employee of the partnership in the ordinary course of partnership business
DISSOCIATION AND DISSOLUTION - Dissociation
- A partner is dissociated from a partnership upon:
a. Notice of the partner’s express will to withdraw
b. The happening of an agreed upon event
c. The valid expulsion of a partner
d. The partner becoming bankrupt
e. The death of an individual partner, or the termination of a partner that is a
business entity, or
f. A court decision that a partner is incapable of performing her duties
DISSOCIATION AND DISSOLUTION - Dissolution
- Generally, a partnership is dissolved and its business must be wound up:
a. In a partnership at will, when a partner gives notice of her express will to
withdraw
b. In a partnership for a definite term or particular undertaking, when:
1) Within 90 days after a partner’s death, bankruptcy, or wrongful dissociation, at least half the remaining partners express a will to wind up the business
2) All the partners express a will to wind up the business, or
3) The term expires or the undertaking is complete
c. Upon the happening of an agreed upon event
d. Upon the happening of an event that makes it unlawful for the partnership to
continue, or
e. Upon a judicial decree
LIMITED PARTNERSHIP - Governing Law and Formation
- Limited partnerships are governed by the Uniform Limited Partnership Act (“U.L.P.A.”)
- Need one or more general partners plus at least one limited partner
- Need to file a certificate of limited partnership with the secretary of state
LIMITED PARTNERSHIP - Partner’s Contributions
- Partner has no rights to distributions absent a contribution
- Contributions may be in the form of any benefit to the partnership (e.g., money,
property, services, and promises to make such contributions)
LIMITED PARTNERSHIP - Liability of Limited and General Partners
- Limited partner
a. Limited partners have no personal liability for obligations of the partnership - General partner
a. General partners are jointly and severally liable for all partnership obligations
b. General partners may also be limited partners but they still have all of the liabilities and duties of a general partner
LIMITED PARTNERSHIP - Duties of Partners
- General partners owe the limited partnership fiduciary duties of care and loyalty
- Limited partners owe no fiduciary duty to the partnership and are free to
compete with the partnership, except as otherwise provided in the partnership agreement