Partnership Flashcards
creation of gen partnership
two or more persons
as co-owners
carry on business for profit
- intent not required
- person who receives share of profits is presumed a partner unless the payment is received to pay a debt, loan, rent, wages, sale of business
- joint venture or sharing in gross profits is not a partnership
limited partnership formation
file certificate of LP with secretary of state (name of partnership, address, registered agent, name of each gen partner and signed by all gen partners)
have at least one limited partner and
at least one general partner
Limited liability partnership creation
all partners have limited liability, no gen vs. limited partners
requires approval by same vote necessary to amend partnership agreement and statement of qualification must be filed with secretary of state
LLP remains liable for any obligations prior to becoming LLP
amending partnership agreement
unless otherwise agreed, requires unanimous vote of all partners
authority of partner to bind partnership
partner is an agent of partnership and generally has authority to bind partnership for its business
partner must have actual or apparent authority
partner express actual authority
a partner receives express actual authority from partners
acts within the ordinary course of business –> requires approval of majority of partners
acts outside the ordinary course of business –> requires unanimous approval of partners
if pship agreement is silent –> partner has authority for usual and customary matters unless he knows other partners might disagree or that consultation is appropriate
partner implied actual authority
a partner may take action reasonably incidental or necessary to achieve the partner’s authorized duties
partner apparent authority
apparent authority exists for act conducted within ordinary course of pship or of the kind carried out by Pship
BUT partners act will not bind pship when the partner lacked authority and third party knew or received notice of lack of authority
for acts outside the scope of business –> need a manifestation by pship that partner had authority for it to be binding
authority to bind partnership after dissolution
actual –> partners authority after dissolution is limited only to acts appropriate for winding up the business
apparent –> authority to bind partnership if the partners acts would have normally bound the partnership and third-party did not have notice of dissolution
liability of general partners
personal liability –> personally liable for all obligations unless otherwise agreed by the claimant or provided by law. partners are jointly and severally liable.
incoming partners –> not liable for obligations incurred prior to their admission but risk losing capital contributions
dissociating partners –> remains liable for obligations arising while partner unless payment, release, or novation
judgment against a partnership is not a judgment against individual partners, but judgment may be sought against pship and individual partners in the same action
may only go after personal assets if pship assets are exhausted
liability of limtied partners
not personally liable for obligations of LP
exceptions
- liable for own conduct
- at risk of losing capital contribution
- may become personally liable if partner participates in management (some jxn only)
partnership profits and loss sharing
unless otherwise agreed, profits are shared equally and losses are shared in the same ratio as profits (losses follow profits)
*any partner who pays more than fair share in losses is entitled to contribution from other partners
partner right to management or control
unless otherwise agreed, each partner has equal rights in management and control
*disagreement only need majority approval if in ordinary course of business
acts outside ordinary course requires unanimous approval
transfer of partnership ownership interest
can only transfer interest in a share of profits and losses and right to receive distributions
***cannot transfer partnership - no matter what OG partner remains partner, even if interest in the partnership is transferred
any other rights cannot be transferred unless partnership agreement provides otherwise and all partners consent for assignee of partnership interest to become partner
right to partnership property
all property acquired by the partnership is owned by the partnership, not partners. partners have equal right to use of property and personal use of property requires consent
property acquired in name of a partner is presumed separate property if no partnership assets are used to acquire it and title to the property does not reference the partnership
*partnership property cannot be used to satisfy judgment against partner, but creditor may seize financial interest in partnership
partnership advance of funds and reimbursement
partnership must reimburse a partner for advancement to the partnership beyond their capital contribution – payment must be in proper course of partnership business and partner must comply with duty of care and loyalty
management & control in LP
general partner –> has full management rights and control
limited partner –> has no say or control as to how the LP is run and does not have the right to manage or control day-to-day business - generally, they are passive and have voting rights only in extraordinary situations (amendment, sale, admitting new partner)
limited partner financial rights
distributions are made on basis of partner contributions
contribution may be in form of any benefit
partner contribution obligation is not excused by death or disability and may only be compromised by consent of all partners
limited partner right to inspect records
RULPA - limited partners have right to inspect and copy records the LP is legally required to keep
upon reasonable demand, a limited partner may obtain
- true and full info regarding the state of business and financial condition
- tax return and
- any information that is just and reasonable
Duties owed by partners
Duty of care
duty of loyalty
duty to provide full information
duty of care
partner owes fid duty of care to the partnership AND other partners
RUPA holds a partner only breach duty of care if he engages in gross negligence or reckless conduct, intentional misconduct, or a knowing violation of law
includes duty of disclosure - partner has duty to provide complete and accurate information concerning partnership
if breached, may be personally liable for any losses
duty of loyalty
partner owes duty of loyalty to partnership and other partners. this requires acting in best interest of partnership
RUPA requires a partner to account for any property, profit or benefit derived from partnership property or business, not have adverse interest and not compete with partnership unless otherwise agreed
partnership agreement may reasonably eliminate or alter duty of loyalty
avoiding duty of loyalty liability
partner is not liable if he fully discloses information and either the partnership agreement is amended or all partners consent
duty of loyalty partnership opportunity
one that is closely related to the partnership existing or prospective line of business
would competitively advantage the partnership and
the partnership has the financial ability, knowledge, and experience to pursue the opportunity
duty to provide full information
UPA - partners shall render, on demand by any partner, true and full information of all things affecting partnership
RUPA - partners shall disclose, without demand, full information concerning the partnership business and affairs
if breached, liable to partnership for any losses
dissociation
partner may dissociate (withdraw) at any time upon notice
a partner becomes dissociated from a partnership upon the partner providing notice of express will to withdraw, the occurrence of agreed upon event, expulsion pursuant to the partnership agreement, expulsion by unanimous vote if it is unlawful to continue business with that partner or he transferred all partnership interest for other than security purpose, judicial expulsion, bankruptcy, incapacity, appointment of personal rep, or termination of an entity partner
wrongful dissociation definition
deemed wrongful if it is done in breach of an express provision of the partnership agreement or
before the completion of an agreed upon term or undertaking
wrongful dissociation result
a wrongfully dissociated partner cannot participate in the management or the winding up process
partner may be liable to the partnership or other partners for damages caused by wrongful dissociation for up to two-years after if the party reasonably believed the dissociated partner was still partner and did not have notice of dissociation
events resulting in dissolution of general partnership
unless agreed otherwise, dissolution occurs upon
consent of all partners
within 90 days of partner death, bankruptcy, or wrongful dissociation, at least half of remaining partners wish to dissolve
occurrence of agreed upon event
business becoming unlawful or
judicial dissolution (pship purpose frustrated, partner involved in unreasonable conduct, business cannot be carried on)
dissolution of partnership happens when…
occurs within 90-days after partner dissociation by death or wrongful dissociate if it is the express will of at least half remaining partners to wind up (rightful dissociation constitutes the expression of partner’s will to wind up) or
express will of all partners to wind up or
upon expiration of the term or completion of the partnership purpose
dissociation causing dissolution
two options: dissolve pship and liquidate business or remaining partners can buy out dissociating partner and pship continues
at-will partnership/no pship agreement = willful withdrawal of one partner REQUIRES dissolution of pship
partnership agreement dissolution:
rightful dissociation = must buyout at liquidation price or going-concern value
wrongful dissociation = not entitled to buyout price until term expires or undertaking is completed unless they can establish earlier payment will not cause undue hardship
rightful dissociation –> dissociated partner is allowed to vote on whether to waive winding up and termination of the partnership. regardless, the partners may choose to continue business for reasonable amount of time
dissolution is required when:
- partner dissociates by express will in an at will pship
- in term pship, if one dissociates wrongfully, or b/c of death or bankruptcy, dissolution are required only if, within 90 days after dissociation, at least on-half of remaining partners agree to wind up
dissolution vs. winding up vs. termination
dissolution –> occur upon occurrence of any specified statutory event
winding up –> period b/t dissolution and termination, in which assets are liquidated to satisfy creditors
termination –> occurs when the winding up process is complete - the real end of partnership
distribution of partnership assets during winding up
partnership assets are converted to cash and distributed in the following order:
- outside creditors
- inside creditors (partners who loaned money)
- partner’s capital contributions
- any remaining profits go to partners equally unless agreed otherwise
if insufficient assets to satisfy creditors, the loss is divided among partners
rebutting the presumption of partnership
if there is profit-sharing, one can try to rebut partnership presumption with evidence suggesting lack of a co-ownership relationship, such as no right to control or no sharing of losses
partnership by estoppel
if no partnership formed, parties may be liable as if they were partners to protect reasonable reliance by third-party
consider
1. person held out as partner by words or conduct (however, no duty to deny partnership)
2. person holds themselves out to be a partner
partnership indemnification
partnership must indemnify every partner with regard to payment and obligations reasonably incurred in carrying out partnership business
if partner makes a payment or advance on behalf of the partnership beyond the contribution partner agreed to make, the payment or advance constitutes a loan and must be repaid with interest
right to inspect books partnership
each partner has right to inspect books and information
upon demand, each partner must render true and full information of all things affecting partnership
rights of partners
- management: equal right to participate in management of the partnership unless agreement otherwise
- distributions: share profits and losses equally unless agreement otherwise
- remuneration: partners have no right to remuneration for their services to partnership except for winding up partnership business
- indemnification: a partner has right to be indemnified by fellow partners for expenses incurred on behalf of the partnership
- contribution: partner has a right to contribution for partners where the partner has paid more than his share of partnership liability
- inspection: right to inspect and copy partnership books
- lawsuits: partner may sue partnership and the partnership may sue partners in law or equity
duty of obedience
requires the partner to obey all reasonable directions of the partnership and not act outside the scope of the partnership authority
property presumed to be partner separate property
under RUPA, property is rebuttable presumed to be partner property if it is held in the name of one or more partners, instrument transferring title gives no sign that they’re acting for partnership and partnership funds were not used in purchase
admission of new partner
partner cannot unilaterally transfer management interest in partnership
must have unanimous vote to admit new partner
partners express will to withdraw result
notice of partner express will to withdraw from partnership at will automatically triggers dissolution of the partnership
if this happens, discuss BOTH dissociation and dissolution
at will partnership
one where the partners have not agreed to remain partners until expiration of definite term or the completion of particular undertaking
default form of partnership
taxation of partnership and LLC
pass through taxation
no entity level tax
corporation is double taxed - pays taxes on income and SH pay taxes on that income when distributed to them
