Partnership Flashcards
Limited Partnership
At least one general partner + one limited partner
Limited Liability Partnership
Protects general partners from personal liability
Any general partnership can become LLP. LP CANNOT become GP.
Forming a General Partnership
Formed by an objective agreement between 2+ persons to co-own an ongoing business for profit
Agreement can be expressly (oral/written) or implicitly (from the parties’ conduct)
Parties’ subjective belief is immaterial.
No formal or statutory requirements.
Forming a General Partnership - Sharing of Profits
Sharing profits is prima facie evidence that the profit-receiving person is a partner in a GP
Sharing of profits is NOT being paid for a loan, collecting rent, or earning a salary.
Forming a limited partnership
Formed by complying with statutory requirements:
(1) execute a certificate of limited partnership signed by all named general partners; and
(2) file a certificate of limited partnership within the secretary of state’s office
NOTE: Name of LP must include “LP”
Forming a Limited Liability Partnership
Formed by filing with secretary of state’s office a certificate of registration signed by at least one person
Usually must pay a filing fee.
NOTE: Name of LLP must include “LLP”
Partnership Agreement
Governs relations between partners and partnership.
But if PA is silent, look to default provisions of UPA.
What is the PA barred from doing?
(1) unreasonably restrict a partner’s access to the books and records;
(2) remove the partner’s duties of loyalty and care; OR
(3) Disallow a partner’s right to dissociate (but can require the partner to given written notice of her intent to withdraw)
Rights of General Partners (in GP and LP)
Each GP has equal rights to manage the partnership and conduct business, unless PA says otherwise.
GP binds the partnership when acting within the ordinary course o business.
Acts outside the ordinary course of business? –> binds the partnership ONLY IF all GPs consent to the action
What happens to disputes between the GPs?
Requires majority vote for acts within the ordinary course of business.
Requires unanimous consent for acts outside the ordinary course of business.
Rights of LPs
Right to seek information for a purpose reasonably related to their interest as a LP, including the right to
(1) inspect and copy tax returns and other documents required by law; and
(2) obtain true and full information as to the financial condition and state of the partnership’s business
LPs have NO right to co-manage the partnership or engage in partnership business
(Limited partners are not agents of the limited partnership)
Duties within a Partnership
(1) Duty of Care
(2) Duty of Loyalty
(3) Duty to Disclose
(4) Duties of Limited Partners
Duty of Care
Applies to GPs in a GP or LP. Applies during partnership and throughout the winding-up process.
Can’t engage in:
(1) grossly negligent or reckless conduct; (2) intentional conduct that harms the partnership; or
(3) a knowing violation of law.
Duty of Loyalty
Applies to GPs in GP or LP.
Cannot:
(1) compete with the partnership or appropriate a partnership opportunity; or
(2) enter deals with the partnership that are adverse to the partnership’s interest
If a partner violates the duty of loyalty, they must account for any benefit and hold any profit in trust.
Duty to Disclose to General Partners
Without demand –> any information related to the partnership and reasonably required to exercise a partner’s rights and duties under the PA
On Demand –> Any other information re partnership if the demand is reasonable and made for a proper purpose
Duty to Disclose to Limited Partners
Must provide the opportunity to inspect financial and tax records, and other documents reasonably related to the limited partner’s interest in the LP
Duties of Limited Partners
Duty of good faith and fair dealing (less demanding than duties of care and loyalty)
Sharing of Profits and Losses - Default Rule
Profits are shared equally & losses are shared in proportion to the sharing of profits
Partner’s Interest in Partnership
A partner’s interest in partnership is personal property, which includes:
(1) financial interest in his share of profits and losses; and
(2) right to receive distributions
Transferring Partners Interest in the Partnership
Interest is freely transferrable, but transferee has NO right to
(1) participate in the management and control of the partnership; and
(2) demand access to the partnership’s information, books and records
Transfer does not automatically dissolve the partnership.
General Partners - Liability to Third Parties
Personally liable for all partnership debts, including torts committed by a partner IF it’s:
(1) done in the ordinary course of the business; or
(2) With authority from the partnership
GPs are joint and severally liable. Partners can sue others who didn’t pay their pro rata share for contribution.
NOTE: does not apply to an LLP
Limited Partners - Liability to third parties
Not personally liable for the debts. (only their capital contribution is at stake).
This is true even if the limited partner participates in management.
Dissociation of a Partner in GP or LLP
Partners always have the power to dissociate upon giving notice to the partnership.
It would be wrongful if it violates an express provision of the partnership agreement. And thus, the partner who wrongfully dissociates would be liable for any damages caused.
Events causing a partner’s dissociation
(1) death
(2) bankruptcy, which will make the dissociation wrongful if the partnership is for a definite term or undertaking
(2) appointment of a guardian
(3) judicial determination that a partner is incapable of performing the duties of a partner
(4) occurrence of an event specified in the PA that triggers dissociation
(5) Expulsion from the partnership pursuant to a provision in the PA, unanimous vote of other partners, or judicial determination made upon application of a partner
