Partnership pt 2 Flashcards
most important indicator of a partner status
agreement to share profits
Capital accounts keep track of
contributions, profits, and draw along the way
When the business is sold or dissolved
- the capital accounts will be
settled out first - Whatever gain is left over will be
split – default equally
The rights and duties of the partners in relation to the partnership shall be determined, subject to any agreement between them, by the following rules:
- (a) Each partner shall be repaid his contributions, whether by way of
capital or advances to the partnership property and share equally in the profits and surplus remaining after all liabilities, including those to partners, are satisfied; - and must contribute towards the losses, whether of capital or otherwise, sustained by the partnership according
to his share in the profits. - (f) No partner is entitled to remuneration for acting in the partnership
business, except that a surviving partner is entitled to reasonable
compensation for his services in winding up the partnership affairs.
A partner who in aid of the partnership makes any payment or advance beyond the amount of capital which he agreed to contribute, shall
be paid interest from the date of payment or adance
A partner shall recieve interest on capital contributed by him only from the date when
repayment should be made
The statutory test for partnership by estoppel requires that
- credit must have been extended on the basis of partnership representation
- that the alledged partner must have made or consented to representations being made in a public manner or not such representations were actually communicated to the person extending credit
The foundation of estoppel is that one is bound by saying or doing something upon which another
relies to his or her detriment
estoppel
public representation does not eliminate the requirement of
reliance
A dissolution occurs and a new partnership is formed whenever a partner
retires or a new partner is admitted
any change in membership
dissolves a partnership and creates a new partnership
A partner may convey his interest without dissolving the partnership, enables a partner to
transfer some, and not all, of his partnership rights without transferring managemnet rights and without dissolving the partnership
Those who forbid a change must
have their way
business differences must be decided by a
majority of the partners provided no other agreement between the partners speaks to the issues
In the absense of an agreement to the contrary, if the business were sold for cash, each partner would be entitled to recieve
an amount equal to his or her capital account, if available
- any excess or deficit would be shared in accordance with each partners share of gain and loss
A partners share of profit can be thought of as something that he or she has
earned and reinvested in the firm
If have a deficit in the capital account when sold, he would be required to
contribute thtat amount to the total funds available so that the other partners could recover the amounts to which they were entitled
General rule of a partner only contributing personal services
absense of an agreement, a partner contributing only personal services is ordinarily not entitled to any share of partnership capital pursuant to dissolution
Default rules of partnership to know
- management and voting
- profits and losses
- admission of new partners
- fiduciary duties
- majority vs. unanimous
- indemnification
if you are the one left to wrap things up, you can get
compensation
Partnership is liable for contracts entered into by partners acting with
actual or apparent authority
- looks at the ordinary course of business in the industry as well as that partnership
Partnership is liable to 3rd parties, non-partners, in tort for
wrongful acts or ommisions of partners acting with authority in the ordinary course of the partnership
Liability for Contracts and Torts (Partners)
Partners are personally liable
to third parties for liabilities of
the partnership
liabilites of incoming partners
- Not personally liable for obligations
incurred prior to joining. - Could lose everything put into the
partnership.
A person admitted as a partner into an existing
partnership is liable for
all the obligations of the
partnership arising before his admission as though he
had been a partner when such obligations were incurred,
- except that this liability shall be satisfied only out of
partnership property.
Partnership liability
Partnership is liable for intentional torts:
- committed in the ordinary course of the partnership; OR
- with actual authority
Partnership is liable for a
Partner misapplying
money or property if
done in the course of the
partnership’s business or
while acting with
authority
Suing Under Contract and Tort
Tort: can sue partners jointly and severally
Contracts: can sue partners jointly
Suing the Partnership
and Partners
RUPA 1997 treats a partnership as an entity distinct from its owners that can
sue on its own behalf and be sued
Suing the Partnership and Partners
Partners are jointly and severally liable for obligation of the partnership that happened
while they are a partner
unless otherwise agreed
Suing the Partnership and Partners
in the same action you can
sue the partnership and the partner
Suing the Partnership and Partners
3rd parties have to obtain a judgement against the partner (not just the partnership) before
they can collect from the partner
Suing the Partnership and Partners
3rd parties have to show that they tried to collect from the partnership itself
- Attempt unsuccessfully to enforce the judgment against the partnership
(the ”exhaustion requirement”) - the partnership is in bankruptcy
- the partner waived the exhaustion requirement by contract
- a court waives the exhaustion requirement
- Partner is independently liable, not just through the partner
f a partner pays for an obligation or incurs personal liability in the ordinary conduct of business, the partnership must
- reimburse the partner
- adds in reasonably requirement for liabilities incurred and throws in proper along with ordinary conduct.
If a partner pays for an obligation or incurs personal liability to preserve the business or its property, the
partner is entitled to
indemnification even if not in the ordinary course. (default rule)
- UPA 1914 adds in reasonably requirement for liabilities incurred and throws in proper along with ordinary conduct.
The partnership must indemnify every partner in
respect of
payments made and personal liabilities reasonably incurred by him in the ordinary and proper conduct of its business, or for the preservation of its business or property.
Contribution
If the partnership doesn’t have the money to reimburse a partner, the partners have to
pay their share of the loss to that partner
Partners may be required to make a contribution to satisfy
creditors on dissolution
In a dissolution senerio, partners who do contrinute have to contribute to cover
shares of the loss of partners who don’t
From a 3rd party’s perspective, if a loss was caused by the
wrongful act of one of the partners
- Go after the partnership
- Go after wrong-doing partner
- Go after innocent partners after going after the partnership
