Partnership/LLP

Question 1

UPA/RUPA Breakdown

Answer 1

12 UPA vs 37 RUPA states. States are free to make changes or not adopt uniform act amendments.

Question 2

Formation

Answer 2

None required to form partnership. Formed when:

1. 2 or more people associate to carry on as co-owners a business for profit AND
2. They do not file paperwork to operate business in some other form

Question 3

Holmes v. Lerner

Answer 3

For oral partnership agreement to start company “Urban Decay,” Holmes prevailed on claim that Lerner breached her partnership agreement and Soward interfered w/the Holmes-Lerner contract, resulting in Holmes’ ouster from the business.

Express agreement to divide profits is NOT a pre-req to prove existence of partnership. Oral partnership agreement sufficiently definite to allow enforcement.

Question 4

Inadvertent partnership

Answer 4

RUPA §202(c): generally, “[a] person who receives a share of the profits of a business is presumed to be a partner in the business”

Exceptions include profits paid on a debt or as compensation.

Element of sharing profits indicates profit sharing evidence of a partnership rather than required element of the definition of a partnership.

UPA §15006 provides that association w/the intent to carry on a business for profit is the essential req for partnership.

Question 5

RUPA Default Rules

Answer 5

Each partner has equal management rights & rights on conduct of the partnership business. So, each partner generally gets one vote. Matters normally only put to vote if (1) there is a disagreement among the partners as to how to proceed, (2) the matter is outside the original course of the partnership’s business, or (3) a 3rd party is requiring formal partner approval as a condition of entering into a transaction w/the partnership.

Ordinary course of business approved if majority of partners in favor. Outside course of ordinary business requires unanimous approval.

Partners free to alter/opt out of any statutory provision unless listed in §103(b)

Question 6

Partnership Agreement Covers…

Answer 6

Management structure, allocation of profits/losses, partner taxation, admission & withdrawal of partners, and dissolution.

Question 7

Partner Fiduciary Duties

Answer 7

Codified by RUPA in §404
Only fiduciary duties a partner owes to the partnership and other partners are the duty of loyalty and duty of care set forth in (b) and (c).

(b) Duty of loyalty comprised of duty “to account to the partnership & hold as trustee for it any property, profit, or benefit… derived from a use by the partner of partnership property” and prohibitions against self-dealing & competing agains the partnership
(c) Duty of care comprised of duty to refrain from “engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law” in connection w/partnership business

Question 8

Meinhard v. Salmon

Answer 8

Joint adventurers, like copartners, owe to one another, while the enterprise continues, the duty of finest loyalty.

RUPA §103(b) says partnership agreement cannot eliminate the duty of loyalty or care BUT the partnership agreement may identify specific types of categories of activities that don’t violate duty of loyalty, if not manifestly unreasonable.