Partnership Outline

Question 1

Partnership Formation (decide first)

Answer 1

General Partnership formation:

• No formalities whatsoever to becoming a general partnership
• Law will deem you to be a general partnership even if you don’t want to be one
• The contribution of money or services in return for a share of profits (not salary, interest) if any, creates a presumption that a general partnership exists

Question 2

Partnership Definition

Answer 2

A general partnership is:

1. an association of two or more persons
2. who are carrying on
3. as co-owners
4. of a business for profit

Question 3

Liabilities of Partnerships for Torts and Contracts (decide second)

Answer 3

• Law of Agency applies fully as partners are just agents of the partnership for carrying on normal partnership business
• Liability- partnership is the aggregation of it’s general partners
• Thus each individual P is liable for debts, obligations and torts of all other partners in the partnership
• Pre-existing debts- new partners are not directly, personally liable for prior debts, but if new partner contributes capital, then partnership may use this capital may use it to settle prior debts
• Dissociating partner debts- partners who dissociate retain liability on future debts until:
  
  • actual notice of dissociation is given to creditors; OR
  • until 90 days after filing ‘Notice of Dissociation’ with the state

Question 4

Partnership Liability by Estoppel (decide third)

Answer 4

• a person who represents to a 3rd Party that they are a partner in a partnership will be liable to that 3p as if they were a partner, even if they’re not a partner.
  
  • knew of statement and failed to correct

Question 5

Rights and Liabilities that run between Partners

Answer 5

• General Partners are fiduciaries of each other and the general partnership
• They owe to each other and partnership the duty of loyalty
  
  • No self-dealing
  • No usurping partnership opportunities
  • No secret (shhhh) profits
• Remedy is an ‘Action for an Accounting’- may disgorge profits and losses to the partnership caused by the breech

Question 6

Partnership Property

Answer 6

• specific partnership assets (land, equipment, leases)
• a share in profits and surplus, if any
• a share in management

Question 7

Partnership Property- Specific Partnership Assets

Answer 7

• land, leases, equipment owned only by the partnership
• these assets may not be transferred by any individual partner without partnership authority

Question 8

Partnership Property- A Share in the Profits and Surpluses, if any

Answer 8

• This is the partners own personal share of the profits and surplus, if any
• This is personal property owned by individual partners
• Thus, this share is freely transferrable

Question 9

Partnership Property- A Share in Management

Answer 9

• Not a right owned by a partner
• owned only by the partnership itself
• Thus, no individual partner may transfer their share in management to a 3rd party

Question 10

Partnership Gap-filling Rules

Answer 10

Absent an agreement to the contrary:

• Management- equal control; one partner-one vote
• Salary- partners do not get a salary
  
  • Exception- helping to wind up partnership business during dissolution
• Profits- absent an agreement, profits are shared equally
• Losses- absent an agreement, losses are shared just like profits

Question 11

Dissolution Process

Answer 11

• Dissolution
• Winding Up
• Termination

Question 12

Dissolution

Answer 12

• In a partnership at will, where there is no agreement among the partners, partnership will be dissolved upon the expressed will of any single partner to dissociate
• In a partnership not at will (there is an agreement among the partners), partnership will be dissolved:
  
  • upon the terms of the agreement, OR
  • if any single partner dissociates AND the remaining partners by a majority vote, vote to dissolve within 90 days of the dissociation

Question 13

Winding Up

Answer 13

• Definition- the winding up period is a period between dissolution and termination in which the remaining partners liquidate the partnerships assets to satisfy the partnerships creditors
• During winding up:
  
  • Compensation -partners handling winding up will be paid a salary
• Liability of transactions entered into by remaining partners after dissolution
  
  • Old business- the partnership, and thus its general partners, still retains its liability on all transactions entered into to wind up business with existing creditors
  • New business- the partnership, and thus its general partners, retain liability on new business until:
    
    • actual notice of dissolution is given to creditors; OR
    • until 90 days after filing ‘Statement of Dissolution’ with the state

Question 14

Termination

Answer 14

Partnership is ended after all debts are satisfied.

Question 15

Dissolution- Waterfall Provisions

Answer 15

Three levels of priority- each one must be fully satisfied before going on

1. Creditors- all must be fully paid from partnership assets
   
   • Outside, non-partner creditors
   • Inside, partner creditor
2. Capital Contributions by Partners- all must be fully paid from partnership assets
   
   • Money paid in by a partner NOT in return for interest (thus not a loan)
   • Partnership must pay partners the full repayment of the capital amount contributed by partners
3. Profits & Surplus, if any
   
   • If anything is left over, then you look to default rules for profits and losses