Partnership

Question 1

The general partnership definition

Answer 1

• 2 or more owners to carry on for profit

- For formation, all that is required is mutual manifestation of consent.

Question 2

Defining characteristics of a general partnership:

Answer 2

1. Equal sharing of ownership and management functions
   a. Each partner is the residual claimant, has full and equal right to participate in management of the firm and has an equal right to act as an agent of the partnership
   b. Each is also assigned equal share of profit and losses
   c. General partnership law norms will be most efficient if partners make similar contributions of service and capital
2. Individual partner’s adaptability to changed circumstances favored over firm’s continuity and adaptability
   a. If partnership wishes to terminate its association w/ partner it may do so only by dissolving the partnership & paying the expelled partner the value of her interest in cash
3. Unlimited personal liability
   a. Under general partnership norms all partners are jointly and severally liable for all obligations of the partnership and there is no limit on this potential personal liability
4. Fiduciary duty
   a. Every partner owes fiduciary duty to the other partners

Question 3

Joint Ventures

Answer 3

DISTINGUISHED from General Partnerships; Associates join to exploit a particular opportunity; less permanent/less complete merging of assets

Question 4

Limited Liability Partnership

Answer 4

Owners can only lose the capital invested in the company

Question 5

Byker v. Mannes

Answer 5

i. A partnership is created when two or more parties agree to carry on as co-owners of a business for profit, regardless of whether they subjectively intend to form a partnership

Question 6

Hynansky v. Vietri

Answer 6

i. A partnership agreement is strong evidence that the parties had the intent necessary to create a partnership, but it does not conclusively establish that a partnership exists.

Question 7

Kovacik v. Reed

Answer 7

i. Monetary losses will be apportioned equally between partners who make capital contributions; where one partner contributed labor and the other capital, the rule is not applied.

Question 8

Meinhard v. Salmon

Answer 8

i. Co-adventurers, like partners, have a fiduciary duty to each other, including sharing in any benefits that result from the parties’ joint venture.

Question 9

Self-Dealing

Answer 9

Acting as both vendor & purchaser whether for goods or services”

Question 10

Vigneau v. Storch Engineers

Answer 10

A Partner who breaches his duty of loyalty to the partnership is still entitled to recover his capital contribution to the partnership, though that sum may be reduced by the amount of any improper profits the partner earned due to the breach of duty.

Question 11

Starr v. Fordham (1995)

Answer 11

a. Starr v. Fordham (1995)
i. A partner violates the duty of loyalty and the implied covenant of good faith and fair dealing when he unfairly determines another partner’s profit share.

Question 12

Dissolution & Dissociation of at-will partnership

Answer 12

a. At-will partnership: partnership formed w/o agreement that the partnership will continue for a specified term or undertaking
i. The partnership can only continue as long as every member assents
ii. Ensures any partner will be able to adapt to changed circumstances by disassociating w/ the partnership and redeploy his talents elsewhere
iii. The relationship must first be dissolved and then the business of the partnership must be wound up; pay its debts and settle accounts. As soon as partnership affairs are wound up the partnership terminates.
iv. If dissolution is not wrongful, any partner has the rights to liquidate the partnership assets via a judicially supervised auction and profits will be divided according to shares. This can be avoided by an agreement before or after dissolution
v. A partners death or non-wrongful association by any means other than her expression of will does not give any partner the right to force a liquidation sale, as was under UPA instead partnership interest of a deceased or otherwise disassociated partner will be purchased by the partnership at a buy out rate based on the greater of the partnership’s liquidating or going – concern value

Question 13

Wrongful Disassociation

Answer 13

1. If a partner disassociates from partnership before completion of a agreed term or undertaking such disassociation would be wrongful
2. Non disassociating partners have the option of continuing partnerships

Question 14

McCormick v. Brevig:

Answer 14

i. Under RUPA, when a court orders the termination of a partnership, partnership assets must be converted to cash to pay creditors, with any remaining surplus going to the partners pro rata.

Question 15

Drashner v. Sorenson

Answer 15

i. A partner who dissolves a partnership in contravention of the partnership agreement is not entitled to a valuation that includes the going concern or good will value of the business

Question 16

Page v. Page

Answer 16

i. A partnership may be dissolved upon notice by any partner when there is no definite term set for the partnership.

Question 17

Bohatch v. Butler & Binion

Answer 17

Fiduciary Limits on Expulsion of Unwanted Partners
i. A partnership may expel a partner for purely business reasons, to protect relationships within the firm and with clients, or to resolve a fundamental schism in the partnership.

Question 18

Partners as Agents: P.A.Properties Inc. v. B.S. Moss’ Criterion Center Corp

Answer 18

a. P.A.Properties Inc. v. B.S. Moss’ Criterion Center Corp.
i. A partner’s actions may bind the partnership to an agreement with a 3rd party even if the 3rd party is unaware that the partnership exists, as long as the partner intends the agreement to benefit the partnership.
b. Haymond v. Lundy (2002)
i. A lawyer referral fee is a material asset in the context of a partnership business.
ii. Lundy exceeded his authority under 5.01 (iv) by not obtaining his partners consent before making the agreement

Question 19

Limited partnerships

Answer 19

a. A limited partnership is a business association composed of one or more general partners and one or more limited partners
b. You form a limited partnership by filing a certificate of limited partnership w/ the secretary of state
c. Defining characteristics of limited partnership
i. Separation of ownership and management functions
1. Ownership and management funtions are divied among the firm’s general and limited partners
2. Under statutory default norms, limited partners have essentially no management powers and no authority to act as agents in carrying out the partnership’s business
3. General partners are the active participants in the firm empowered to make and carry out firm’s business policies

Question 20

Limited liability

Answer 20

1. Limited partners are not personally liable for the limited partnerships obligations
2. General partners are jointly and severally liable
   iv. If an LLC were unable to satisfy its obligations, its owners would lose only the capital they had actually invested in the company
   v. LLC members would not be personally liable for the debts and obligations of the LLC that could not be satisfied out of firms assets

Question 21

Firms continuity and adaptability to changed circumstances favored over individuals adaptability

Answer 21

1. General partners may withdraw from partnership at will, but limited partners may not
2. Unlike general partnership, withdrawal from partnership does not lead to automatic or triggered dissolution and liquidation
3. General partners make ordinary decisions by majority votes and extraordinary decisions unanimously