Partnership Flashcards
Partnership
association of two or more persons to carry on as co-owners of a business for profit.
It’s formed as soon as that happens, regardless of whether the parties subjectively intend to form a partnership. So, if they intended to carry on as co-parties, there is a partnership even if they did not subjectively intend to be partners.
Elements to consider:
- sharing profits: creates a presumption
- sharing losses
- Right to participate in control (even if they never exercise it!)
- title to property held in joint or common tenancy
- parties designate rel. as partnership
- sharing of gross returns
- extensive activity
Formalities: no writing is required to form partnership, unless agreement to be partners for more than 1 year!
Partnership by Estoppel
Person held out AS partner: will be liable if consented to be held out by other as partner through the other’s words and conduct. Consent can’t be mere failure to deny partnership.
Person who holds ANOTHER out as partner: When a person holds another out as a partner, he thereby makes that person his agent to bind him to third parties. (If there is a partnership, only those partners who know of or consent to this holding out will be bound.)
Partnership agreement + formation
- Agreement can be written, oral, implied
- Contractual capacity required, p-ship purpose must be legal, no-one can become partner without express or implied consent of all partners, may file statement of partnership authority
Voting
Unless otherwise agreed all partners have equal voting rights
- decisions within ordinary course of p-ship = majority
- outside ordinary scope of p-ship = unanimous
Indemnification and Repayment
A partnership must indemnify every partner with regard to payments made and obligations reasonably incurred in carrying on the partnership business. If a partner makes a payment or advance on behalf of the partnership beyond the contribution the partner agreed to make, the payment or advance constitutes a loan that must be repaid with interest.
Distributions
Partners have whatever rights are granted in the partnership agreement as to distribution of profits. If the agreement is silent, partners share profits (and losses) equally.
Losses follow profits= if you have an explicit agreement to share profits in a certain way but silent on losses, then losses will be shared the same way as profits.
General Partnership Liability in Tort
With respect to the partnership’s liability in tort, a partnership is liable for loss or injury caused to a person as a result of the tortious conduct of a partner (or an employee) acting in the ordinary course of business of the partnership or with authority of the partnership.
NB: but they always say a partner is liable for their own torts…
Statement of Partnership Authority
Real Property: grants/restrictions on partner authority to transfer partnership real property in the statement are BINDING on third parties if:
- the statement is recorded with secretary of state and county where property located. (TP benefitted by grants unless actual knowledge p lacked authority, and burdened by filed restrictions on authority).
Not Real Property:
- statement filed with secretary of state
- grants of partner authority in statement are binding on partnership unless a third party has actual knowledge that partner lacked authority (charged with constructive notice).
- restrictions on partner authority are not binding unless actual knowledge (not charged with constructive notice).
Apparent Authority
a partner is an agent of the partnership, and that a partner has apparent authority to bind the partnership to transactions within the ordinary course of the partnership’s business or business of the kind carried out by the partnership (unless the third party is aware that the partner lacks actual authority to act).
A third party must have subjective knowledge-what they should’ve known based on circumstances irrelevant. Notification is when it is delivered OR comes to TP’s attention.
Transfer of Partnership Interest
Partnership interest indicated: partnership can recover from initial transferee of unauthorized transfer, but not from a BFP
Partnership interest not indicated: if transferee gives value without notice of lack of authority, they take free of the partnership interest.
Liability of partners
(1) each partner is jointly and severally liable (so, one or more partners may be sued) for all obligations of the partnership, whether arising in tort or contract.
* each partner is individually liable for entire amount of p-ship obligations, but can require p-ship to indemnify, or require other partners to contribute to pro rata share if p-ship can’t indemnify
(2) But the plaintiff must first exhaust partnership resources before seeking to collect from an individual partner’s assets.
Liability of new partners
A newly admitted partner is not personally liable for partnership obligations that arose before their admission. They can only lose the amount of their investment in the partnership.
Liabilities of disassociating partners
Pre-Dissociation: An outgoing or dissociated partner remains liable for obligations arising while they were a partner unless there has been payment, release, or novation.
Post-Dissociation: An outgoing partner can also be liable for acts done after dissociation incurred within two years after dissociation IF
- when entering transaction the other party reasonably believed the dissociated partner was still a partner, AND
- did not have notice of the partner’s dissociation.
*partners can protect themselves by filing a dissociation statement to make other parties aware they are no longer with the p-ship.
Criminal Liability of Partners
Partners will not be criminally liable for the crimes of other partners committed within the scope of the partnership business, unless the other partners participated in the commission of the crime either as principals or accessories.
Fiduciary Duties of Partnership
- Duty of loyalty (can’t be waived)
- Duty of care (also apparently can’t be waived)
- Duty of obedience
- Duty of disclosure
Duty of loyalty
This duty requires each partner:
(1) to account to the partnership for any benefit derived by the partner in conducting the partnership business, using the partnership’s property, or appropriating a partnership opportunity;
(2) to refrain from dealing with the partnership in the conduct of its business as (or on behalf of) a party having an interest adverse to the partnership; and
(3) to refrain from competing with the partnership in the conduct of its business.
Duty of Care
The duty of care requires each partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.