Partnership - Property Flashcards
Classificiations of Partnership Property vs. Partnership Capital
a. Partnership Capital
Partnership capital is the property or money contributed by each partner for the purpose of carrying on the partnership’s business.
b. Partnership Property
Partnership property, in its broadest sense, is everything the partnership owns, including both capital and property subsequently acquired in partnership transactions.
Partnership Property: Which property belongs to the partnership and which belongs to an individual partner (whether property is partnership property or the separate property of a partner)?
For real and personal titled property, apply RUPA
For untitled property, apply common law
RUPA provisions:
Rule 1: Property Deemed to Be Partnership Property
TITLED property is partnership property if it is acquired in the partnership’s name or in a partner’s name where it is apparent from the document that they are acting for a partnership (for example, doc mentions a partnership or says they are a partner).
Rule 2: Property PRESUMED to Be Partnership Property
Property is rebuttably presumed to be partnership property if it was purchased with partnership FUNDS, regardless of in whose name title is held.
- “Partnership funds” includes not only the partnership’s cash, but also the partnership’s credit.
Rule 3: Property Presumed to Be Partner’s SEPARATE Property
Property is rebuttably presumed to be a partner’s property if
(1) it’s held in the name of one or more partners,
(2) the instrument transferring title gives no sign that they’re acting for a partnership, and
(3) partnership funds were not used to acquire the property.
Partnership property - real and personal titled property
For real and personal titled property, apply RUPA:
a. Belongs to partnership if:
(i) titled in partnership name or
(ii) names the partner(s) and instrument transferring title notes titleholder’s capacity as partner or existence of a partnership.
b. Presumed partnership property if purchased with partnership funds
c. Presumed separate property of partner if:
held in name of partner(s),
instrument/title does not indicate capacity of partner or partnership, and
partnership funds were not used
Partnership property - Untitled property
For untitled property, apply common law… Factors:
used partnership funds,
use of property by partnership,
listed in partnership books as an asset,
close relationship between property and the business,
improvement with partnership funds,
maintenance with partnership funds
Untitled Property—Common Law Criteria.
These indicate that the property was intended to be partnership property:
1) Acquisition of the property with partnership funds
2) Use of the property by the partnership in conducting the partnership’s business
3) Entry of the property in the partnership books as a partnership asset
4) A close relationship between the property and the business operations of the partnership
5) Improvement of the property with partnership funds
6) Maintenance of the property with partnership funds
Partnership rights in Partnership property
The partnership owns partnership property - rights unrestricted.
The partnerships rights in partnership property are totally unrestricted.
Partner’s rights to use partnership property
NO OWNERSHIP:
Partner just has ownership stake in the partnership, not ownership stake in property.
A partner is NOT a co-owner of partnership property and has NO interest in partnership property which can be transferred.
(The partnership is an entity; the partnership itself, not the partners, owns its property.)
RIGHT TO USE:
A partner can simply use partnership property for partnership purposes.
A partner has NO right to use partnership property other than for the benefit of the partnership!
- Partner can use pship property for personal interests Only with pship consent.
Partner’s Ownership Interest in the Partnership
(Partnership INTEREST)
!!!!
A partner’s ownership interest in a partnership is his “partnership interest”. It’s personal property of the partner.
PARTNERSHIP INTEREST: A partnership interest is comprised of (1) Management Rights and (2) Financial Rights.
Financial Rights: partner’s right to receive his share of any profit distributions made by the partnership
Management Rights: partner’s right to participate in the management of the business, to obtain information about the partnership, and to be recognized as a “partner”).
Transfer KEY: The ONLY part of Pship interest that Partner can Transfer is the FINANCIAL RIGHTS! [Pick your Partner rule]
Pick your Partner rule: Can only add a partner with unanimous consent from other partners.
What can a partner do with partnership interest? Restrictions?
Transfer KEY: The ONLY part of Pship interest that Partner can Transfer is the FINANCIAL RIGHTS! [Pick your Partner rule]
No Unilateral Transfer of Management Rights
Unless otherwise agreed, a partner CANNOT unilaterally transfer his management rights and thereby make the transferee a “partner.”
The default rule for the admission of a new partner is that it requires a unanimous vote of the existing partners.
Pick your Partner rule: Can only add a partner with unanimous consent from other partners.
Unilateral Transfer of Financial Rights Permitted
A partner’s financial rights are personal property and are unilaterally transferable (voluntarily or involuntarily).
Unless otherwise agreed, a partner CAN unilaterally transfer his financial rights.
The transferee merely has the right to receive profit distributions from the partnership that would have otherwise gone to the partner.
The transferee is not a partner; the transferor is still a partner and retains all of the management rights of a partner.
