PARTNERSHIP Flashcards
Creation of General Partnership
General partnership is type of partnership that has NO limited personal liability (general partners remain personally, jointly & severally liable for ALL debts of partnership). General partnership formed when: (1) two or more persons; (2) associate as co-owners; (3) to carry a business for profit. It is irrelevant whether parties intended to form a partnership.
Tort Liability of Partners
General partners are jointly and severally liable for ALL obligations of partnership arising from any wrongful act/omission of any partner acting (1) within ordinary course of partnership’s business; OR (2) with authority of all other partners.
Limited partners are NOT personally liable for obligations of limited partnership arising from wrongful acts/omissions of other partners, but are always liable for OWN misconduct.
Contract Liability of Partnership
Each partner is agent of partnership. Actions of every partner that’s made within ordinary course of business to carry on partnership’s business bind the partnership unless the partner (1) has no authority to act on behalf of the partnership; AND (2) other side has knowledge/notice that partner lacks authority.
Contract Liability of Partners
General partners are jointly and severally liable for ALL debts and obligations of partnership.
Limited partners are personally liable for debts of limited partnership ONLY to extent of their investment - but limited partners always liable for own misconduct.
Equal Rights to Manage & Control
Absent an agreement that says otherwise, general partners have equal rights to manage a control the partnership’s business, while limited partners have no say. Disagreements relating to ordinary matters connected with business of partnership decided by majority of partners.
Duty of Care
Each partner owes limited fiduciary duty of care to partnership and other partners, which requires each parter to refrain from from: (1) grossly negligent/reckless conduct; (2) intentional misconduct; or (3) knowing violation of law. If partner breaches duty of care, may be held personally liable for damages.
Duty of Loyalty
Each partner owes fiduciary duty of loyalty to partnership and other partners, which requires: (1) acting in good faith and fairly toward other partners; (2) account for any property, profit, or benefit derived by partner from partnership business or property; AND (3) not compete with the partnership. If partner breaches duty of loyalty, may be held personally liable for damages.
Dissolution
Dissolution of a partnership does NOT immediately terminate partnership - rather, partnership enters “winding up” phase.
Causes for Dissolution
Three main causes of dissolution: (1) actions taken by partners; (2) operation of law; or (3) court order.
Dissolution under UPA
Under the UPA, any change in partner membership automatically triggers dissolution of partnership UNLESS agreement that says otherwise. Every partner has the power to dissolve partnership at any time by withdrawing. If dissolution is wrongful, remaining partners may hold the dissolving partner liable for damages.
Dissolution under RUPA
RUPA provides basis for continuing partnership despite a partner’s withdrawal where remaining partners may buy out withdrawn partner’s interest instead of winding up. Under RUPA, absent an agreement that says otherwise, dissociation of a partner does NOT automatically tigger dissolution UNLESS (1) it’s an at-will partnership; or (2) partners specified otherwise.
