Partnership Flashcards
Partnership Requirements
(1) mutual consent to a relationship that involves the combining of resources and efforts (includes a promise to provide resources)
(2) in determined proportions
(3) to collaborate at mutual risk
(4) for their common profit or benefit
Partnership for a Fixed Term
partnership that has a stated term
Voluntary Withdrawal from Partnership: Fixed Term
requires unanimous consent of all other partners
*exception: does not require unanimous consent where one or more partners have failed to perform a material obligation
Voluntary Withdrawal from Partnership: Indefinite Term
Requirements:
(1) withdrawal is in good faith
(2) partner gives notice to other partners
(3) notice is given at a time not unfavorable to the partnership
Involuntary Withdrawal from Partnership
(1) death
(2) interdiction
(3) seizure of partner’s partnership interest by a creditor (with 30 day cure period)
(4) expulsion of partner for just cause with majority vote
Effect of Withdrawal of Partner
partner entitled to be paid out his partnership interest, calculated in one of three ways:
(a) book value
(b) fair value (price between a knowing buyer and seller)
(c) market value (price on the market fetched by unknowing buyer)
Actions Beyond Scope of Authority
if a partner acts beyond their scope of authority, they are liable for damages to the partnership
Authority as to Third Persons
if partnership decides to strip partner of mandatary authority but fails to inform third parties, the partnership can still be bound by the non-authoritative partner’s actions with third parties
Partnership: Authority
each partner is a mandatary for the partnership and has the authority to bind the partnership in all matters “involving the ordinary course of the partnership business”
things NOT considered ordinary: alienating, leasing, encumbering any immovable property owned by the partnership
Partnership: Personal Liability
each partner is personally liable for partnership debts, but only after the partnership’s assets have been depleted and only for their virile share
Defense to Personal Liability where Partnership Assets have Not Yet Been Depleted
Discussion
Duty of Loyalty
each partner owes a duty of loyalty to the partnership to act in the best interest of the individual partners and the partnership
Breach of Duty of Loyalty
breach of the duty of loyalty opens partner up to liability for damages to indemnify the partnership for any wrongful gain or losses incurred as a result of breach
Unpaid Partner Contribution
3rd parties (and the partnership itself) can sue for unpaid but promised partnership contributions
Termination
(1) unanimous consent of the partners
(2) judgement of termination
(3) bankruptcy of the partnership (granting of an order for relief to the partnership under Chapter 7 of the Bankruptcy Code)
(4) reduction of the membership to 1 person
(5) expiration of term
(6) the attainment or the impossibility of attainment of the object of the partnership
(7) in accordance with the partnership agreement
Effect of Termination of Partnership
mandatary authority terminates
*Exceptions: partner unaware of termination, 3rd party unaware of termination
liquidation of partnership assets
Liquidation Priority
(1) partnership creditors
(a) secured creditors
(b) unsecured creditors
(i) non partner unsecured creditors
(ii) partner unsecured creditors
(2) fulfillment of partners’ contributions to the partnership (value of capital contribution)
(3) divided among partners in accordance with ownership of partnership interests
Form Requirement
none* unless partnership wishes to own immovable property
Partnership Ownership of Immovable Property
partnership agreement MUST be in writing for partnership to own immovable property
Partnership Ownership of Immovable Property: If No Written Partnership Agreement
all partners co-own in indivisibility immovable property attained in the name of the partnership without a written partnership agreement
Partnership Ownership of Immovable Property: Effect on Third Persons
partnership ownership of immovable property only affects third persons if the partnership agreement is written and filed with the Secretary of State
if not written/filed, third persons are entitled to assume that the immovable property is co-owned in indivision by all partners of the partnership
Partnership Ownership of Immovable Property: Cure
partnership can cure ownership of immovable property without a written/filed partnership agreement by making a written partnership agreement (and filing it to affect 3rd parties), BUT the cure does not retroactively prejudice the rights of third parties
Requirements to File Partnership Agreement with Secretary of State
(1) name and address of the partnership
(2) name and address of all partners to the partnership
Contribution
all partners must contribute something of economic value to the partnership
Equality
generally, all partners are treated equally unless otherwise agreed in the partnership agreement
meaning all are equally liable for partnership debts, losses, and profits
Unanimous Consent of Partners Required When…
(1) decision to amend the partnership agreement
(2) decision to terminate the partnership
(3) decision to add a new partner
*unless otherwise agreed in the partnership agreement
Majority Consent of Partners Required When…
(1) determining power of individual partners to govern the partnership
(2) other operational/policy decisions affecting the partnership
*unless otherwise agreed in the partnership agreement
Right to Inspect Partnership Records
absolute right of all partners, cannot be limited or eliminated by partnership agreement
Obligation of Partners to Each Other and to the Partnership
Fiduciary duty to
(a) act in the best interest of the partnership
(b) abstain from wrongfully taking partnership property or partnership business opportunities
Breach of Fiduciary Duty
breaching partner is liable for damages caused by the breach to the partnership, including any wrongful gain incurred by the partner in the course of his breach
Assignment of Partnership Interest
partners can only assign their economic interest in the partnership to a 3rd person
3rd person is not treated as a new partner unless there is unanimous consent from all other parters
Services Rendered to Partnership by Partner
partner is not entitled to reimbursement
*unless otherwise agreed under the partnership agreement
Exceptions: partner acts in good faith in
(a) loaning money to the partnership
(b) incurring liability/loss for partnership (ex: becoming a surety)
Partnership in Commendam: Requirements
Must have a Partnership Agreement that complies with the following:
(1) in writing
(2) name of the partnership must clearly indicate that it is an in commendam partnership (and must not suggest that any of the in commendam partners are general partners)
(3) must indicate 1 or more partners in commendam
(4) must identify property contributed by the partner(s) in commendam in a dollar ($) amount or with a method of valuation
(5) must describe when contribution by partner(s) in commendam will be made (if not, due at creation)
(6) must be filed with the Secretary of State
Undoing Limited Liability in LLP
(1) limited partner allows their name to be used in dealings of the limited partnership
(2) limited partner participates in the management of the limited partnership
(3) limited partner conducts business with a 3rd party in the name of the limited partnership, if the 3rd party believes that the limited partner is actually a general partner
Permissible Limited Partner Activities
(1) discussing business matters with other partners
(2) serving as a guarantor for the debts of the limited partnership
(3) voting on matters that require partnership approval
*limited partner is NOT a mandatary of the limited partnership!
Registered Limited Liability Partnership
LLP, shields all partners from liability in certain situations
Registered Limited Liability Partnership: Form Requirements
(1) partnership must already exist, need to convert the partnership into an LLP by filing a application of conversion with the Secretary of State
(2) name of LLP must include “LLP”
Registered Limited Liability Partnership: Secretary of State Requirements
(1) name of partnership
(2) number of partners (no names required)
(3) statement of purpose
(4) signed by a majority of the partnership interest (not necessarily majority of the partners)
*status of LLP is ONLY GOOD FOR 1 YEAR (must refile every year)
Benefits of LLP
all partners are shielded from liability incurred by a partners actions in the conducting of business of the partnership that include: error, omission, negligence, malfeasance, or incompetence
but partners are liable for all other debts!
Can a partner sued in her capacity as partner automatically recover expenses from the suit from the partnership?
No, no provision requiring reimbursement in the civil code.
Corporations on the other hand have statutory authority entitling the directors or officers sued in their official capacity to recover litigation expenses, including attorneys’ fees, if they were successful, and giving the corporation discretion to reimburse the fees if they were unsuccessful.
