Partnership Flashcards
Partnership
A partnership is an association of two or more people to carry on as co-owners a business for profit.
There is no requirement that the parties subjectively intend to form a partnership, only that they intend to run a business as co-owners.
A person who receives a share of the profits of the business is presumed to be a partner, unless the share is to repay a debt, as compensation, or the like.
Other factors may be considered when determining if a partnership exists, such as:
1) the extent of the parties’ activity in the enterprise (ex: participation in operating the business is indicative of a partnership) and
2) whether the parties agree to share losses (ex: absence of an agreement to share losses is some evidence that the parties did not intend to form a partnership).
Partners
Each partner is an agent of the partnership for the purpose of its business
Can Partners Acts Bind the Partnership?
A partnership can be bound on a contract entered into by a partner ONLY if that partner had actual or apparent authority.
Partnership: Actual Authority
Authority that a partner reasonably believes he has based on his communication with the partnership. Actual authority can take the form of express authority or implied authority through custom, necessity, or prior acquiescence
Partnership: Apparent Authority
Act of any partner apparently carrying on in the ordinary course of the partnership business or business of the kind carried out by the partnership will bind the partnership unless 1) the partner had no authority to act for the partnership and 2) the 3rd party with whom the partner dealt knew that the partner lacked authority.
Partnership Liability for Contracts Entered into with Actual or Apparent Authority
All partners are jointly and severally liable for all obligations of the partnership, which means that each partner is personally liable for the entire amount of such obligations.
But creditor/whoever must first go after partnership’s assets before it can try to recover from the individual partners
Partnership Liability for Contracts Entered into WITHOUT Authority
When a partner enters a contract that he had no authority to enter on behalf of the partnership, the partnership is not bound by the contract. The partner, alone, is personally liable for the contract.
Creditor instead of Partner?
If X is entitled only to receive a share of the net profits of the business until X’s loan (plus interest) is paid in full, he is not presumed to be a partner in the business.
If X did not agree to share in any losses that the business might suffer and does not play any role in the day-to-day operations of the business,X will be considered a creditor in the business instead of a partner in the partnership.
Partner’s Transferable Interest in a Partnership
A partner has a transferable interest in the profits and losses of the partnership and in the right to receive distributions.
A partner can unilaterally transfer their financial rights voluntarily or involuntarily at any time.
The transfer creates in the transferee a right to receive profits and losses of the partnership and to receive distributions to which the transferor would otherwise be entitled.
Transferee Rights
A partner’s transferable interest entitles the transferee to profits and losses of the partnership and the right to receive distributions.
However, the transferee does not become a partner by virtue of the transfer. There is no unilateral transfer of management rights. Rather, the transferee will become a partner ONLY if the other partner(s) consent.
[Recall: You pick your partner rule bc partners are jointly & severally liable for partnership obligations]
Therefore, absent an agreement, the transfer of a partnership interest does not entitle the transferee to inspect partnership books or records.
Can a Partner use Partnership Property for Personal Purposes?
Property is deemed to be partnership property if it is titled in the partnership’s name.
A partner is not a co-owner in partnership property. A partner has a right to use partnership property only for partnership purposes.
Absent an agreement between partners that a partner can use partnership property for personal purposes, the partner is not entitled to do so.
Dissociation from the Partnership
Dissociation is a change in the relationship of the partners caused by any partner ceasing to be associated with the carrying on of the business.
A partner is dissociated from the partnership upon notice of his express will to withdraw as a partner.
Dissolution from the Partnership: At-Will Partnership
A partnership is dissolved and its business must be wound up when a partner in a partnership at-will notifies the partnership of his intent to withdraw. (Partnership is at-will if the partners did not agree that the partnership was to continue for any specific amount of time.)
In a jurisdiction that follows the Uniform Partnership Act, while the term dissociation is not recognized, the UPA does allow for a partner to dissolve an at-will partnership by his express will at any time.
Can a Partner bind the Partnership after it has been dissolved?
A partnership will be bound by a partner’s act after dissolution if the act is appropriate for winding up the partnership business.
A partnership will also be bound by a partner’s postdissolution act - even an act that is not appropriate for winding up the partnership, such as entering into a contract to carry out new business - where the party with whom the partner dealt did not have notice of the dissolution and the act would have bound the partnership before dissolution (that is, the partner had apparent or actual authority to act).
A partner has apparent authority to carry on in the ordinary course the partnership’s business unless the other party to the transaction knows that there is no authority.
If a partner pays the entire amount of a partnership debt, can they collect contribution from another partner?
Yes. Each partner is jointly & severally liable for obligations of the partnership. Where one partner pays the whole of a partnership debt, she may require the other partner to contribute his pro rata share of the payment.
In the absence of an agreement otherwise, partners share profits equally, and losses are split in the same ratio as profits.
