Partnership Flashcards
*General Partnership definition
An association fo 2 or more persons to carry on as CO-OWNERS of a business for profit, whether they intend to form a partnership or not.
No writing required.
*General partnership factors
- capital: though a capital contribution si NOT required to be a partner.
- control: right to control, even if controls is never exercised.
- Sharing profits: just one factor; no presumption fo a partnershipl
Joint venture
treated same way as general partnership.
*only difference: requires express agreement on how the losses will be shared.
Estoppel for general partnerships
if no partnership was formed, parties may still be liable AS IF they are partners to protect reasonable reliance by third party (like apparent authority)
*Determining partnership property
- IS PARTNERSHIP PROPERTY: Acquired in the partnership’s name or in a partner’s NAME where it’s apparent from the document he’s acting for a partnership.
- PRESUMED to be PARTNERSHIP prop: if partnership funds are used.
- PRESUMED to be a PARTNER’s prop: if acquired in his name without partnership funds and there’s no sign he’s acting for a partnership.
*Rights in partnership property
PARTNERSHIP’s rights: totally unrestricted (it owns the property)
PARTNER’s rights: extremely limited rights. A partner can use partnership property only for partnership purposes [must ask permission]. Right is not transferable.
Partnership’s economic interest in partnership
Definition: a partner’s share of the profits/financial stake (25% stake)
IS transferable: like any other financial asset (e.g. stock) you can assign/devise/use it as collateral.
Default rule of how partners share profits and losses
Partnerships share profits EQUALLY, not in proportion to capital contribution.
UOG (unless otherwise agreed), the partners will share in the same way as they share profits
Default Rules of partnership
- Profits:
Partnerships share profits EQUALLY, not in proportion to capital contribution.
UOG (unless otherwise agreed), the partners will share in the same way as they share profits
- No right to compensation (except for winding up)
- Equal management rights (but ordinary business is decided by majority in interest)
- Indemnification and interest (if she pays 10K loan on partnership debt, she gets interest)
Duties in a partnership
Care, loyalty, good faith, but may not limit or even eliminate them in partnership agreement.
Admission of new partners
New partner requires unanimous consent.
New partner liable for his interest in the business for debts incurred before he came, but not more-so. ANd yes is liable for future debts.
*Actual authority within a partnership
Created by partnership agreement, majority vote of partners, or the statute, which makes every partner an agent of the partnership for carrying on the business in the usual way [statutory authority can be negated by other partners, so is not absolute]
*Apparent authority in a partnership
- Partner’s title
2. Prior conduct
*Partner’s or employee’s tort
- partnership cannot waive liability for torts
Partner is always liable for her own tort (but use respondeat superior for employee/IC), but partnership can also be liable for the tort if the partner committed the tort in the ordinary course of the partnership’s business
*if partner committed tort and third party was not aware of the partnership, then partnership and other partners not liable
Partner conveying real property without authority
Partnership can get the property back from the initial transferee (who should have check on authority) but not from a subsequent BFP (who had no reason to check)
*Partner liability for partnership
Partners are liable for partnership obligations.
*Partners are JOINT AND SEVERALLY LIABLE but the plaintiff must first exhaust PARTNERSHIP resources (so partners are basically guarantors)
===this is a nice balance: protects 3Ps but also exhausts partnership resources before partner to give partner some slack.
*Exception: limited liability partnership (LLP): no liability on contracts or for the torts of others (“broad shield” statute)
Withdrawal of a partner
Event of withdrawal:
- notice of express will to withdraw
- an agreed-on event
- a partner’s expulsion, death, bankruptcy, or incapacity
- appointment of a trustee, receiver, or liquidator for a partner
- redemption of a transferee’s interest
Partnership buys out withdrawing partner and continues without her.
*Apparent authority of withdrawing partner
-May have apparent authority to bind partnership to an innocent TP for ONE YEAR - but partnership can protect itself by notifying creditors
*Liability of withdrawn partner
- to existing creditors (unless released)
- to subsequent creditors (who are unaware of withdrawal - can let them to know to protect herself)
- to other partners - if she withdraws before the term is up or before the specific task is completed (“wrongful withdrawl”)
Partnership at will
you can withdraw at any time without penalty (liability to the other partners for breach).
Most partnerships are “at will” - no term or specific task, they’re open-ended.
Triggering events for winding up a partnership
- business becomes illegal
- all assets are sold outside the usual course of business
- entry of judicial decree
- term is up/task is completed
- all partners consent
- a majority-in-interest consent in a partnerhsip at will.
Right to wind up
Partners who have not wrongfully withdrawn may wind up
*Liability after winding up
May be apparent authority to bind the partnership to an innocent 3P on a new business even after an event requiring winding up (but the partnership can protect itself by notifying the potential creditors).
*Distribution of partnership assets on winding up
- To creditors (including partners who are creditors). [if not enough for these: they split pro rata]
- To partners for what is in their capital accounts (capital contributions + profits - losses)
