Partnership Terms Flashcards
Partnership Definition
an association of (1) two or more persons (2) carrying on as co-owners (3) for profit
Partnership Formation Requirements
No formal requirements required!
if there is a question as to a partnership’s formation, prima facie evidence may be needed to support its establishment
Partnership Liability to Third Parties
partners are AGENTS of a partnership for carrying on the USUAL PARTNERSHIP BUSINESS
Agency principles apply
- A, B, C
-bound by torts committed within the scope
-bound by contracts of authorized parters
Joint and Several Liability
Partners are jointly and severally liable for PARTNERSHIP debts.
Partnership creditors must exhaust partnership resources before recovering from partners individually
Partner Indemnification
a partner who is help personally liable for a partnership debt has a right to indemnification from the partnership as well as contributions from the other parties
Pre-Existing Debt for New Partners + Exception
General rule is that incoming partners have no liability for pre-existing debt.
The exception here is that any capital contributed by an incoming partner (i.e., their buy in) may be used to pay pre-existing debt
Exception to Outgoing Partner Liability for Subsequent Debt
Exceptions:
(1) if the outgoing partner files a notice of withdrawal and if that notice is given to all known and future potential creditors, then the outgoing partners cannot be liable for future debts, OR
(2) The outgoing partner can protect themselves by filing a notice of dissociation with the Department of State which is effective 90 days after file
Outgoing Partner Liability for Subsequent Debt
Outgoing partner remains liable to ALL future creditors
Limited Partner Liability
Limited partners are only liable to the extent of their capital contribution
Whatever money they put in is also the cap of their liability
Limited Partner Rights
No management rights or any rights other than receiving profits
Partnership by Estoppel
One who represents to a third party that a partnership exists will be liable as if a partnership does, in fact, exist.
bound if they hold themselves out as being a partnership
Fiduciary Duties of Partners (3)
- partners are fiduciaries of each other AND the partnership and the partnership CANNOT eliminate these duties *
(1) Duty of Loyalty
(2) Duty of Good Faith and Fair Dealing
(3) Duty of Care
Duty of Loyalty Breach Action
If this is violated, the enforcement is an Action for an Accounting
The partnership may recover losses caused by the breach of loyalty and may disgorge profits made by the breaching partner
This is the only form of an action that can be brought by a partnership against its own partners for breach of loyalty.
Duty of Loyalty
duty owed to the partnership AND other partners
No usurping of partnership opportunities, no self-dealing, and no secret profits at the partnership’s expense
Partnership Information for Partners
(1) Partner must provide, without demand, information about the partnership reasonably required for another partner to exercise her rights under the partnership agreement
(2) Partner must provide, on demand, any other information about the partnership unless it is unreasonable §408(c)(2)
Duty of Care
Partner must refrain from grossly negligent or reckless conduct or intentional misconduct
No liability to other partners for ordinary negligence
Individual Rights of Partners
A partner can inspect the books of the partnership §408(b)
A partner can get a formal accounting when reasonable §408(c)
A partner can sue the partnership or another partner during the life of the partnership even if the claim is related to partnership affairs
Specific Partnership Property
Includes land, leases, equipment (PPE) owned ONLY by the partnership §203 and §501 UPA
Individual partners may not transfer the specific ownership property unless you have a majority vote of the partnership to transfer the asset
Partner Share of Profits/Surplus
Each partner’s share of profits is personal property owned as such by each individual partner §502 UPA
transferred at the will of individual partners
Partner Share in Management
The right to management (and share of management) is a partnership asset that belongs to the partnership along, not even the individual partner
- Individual partners may not transfer the share in management because it is a partnership asset
Partnership v. Personal Property
Partnership funds = partnership presumed
partner funds = partner property presumption
*** presumption exception for partner funds ONLY: UNLESS the instrument transferring title suggests otherwise making it partnership property
Partner Control of Org
default 1:1 voting in which each partner is entitled to equal control
Partner Pay Structure (Salary/Share of Profits/Loss)
Absent an agreement, partners do NOT get a salary
Absent agreement, profits are shared equally
Absent agreement, losses are shared like profits
Types of Dissociation
Express
Expulsion
Appointment of receiver
Death
Distribution of all partners’ interest
[EEADD]
Wrongful Dissociation
Breach of the partnership agreement will cause you to wrongfully dissociate
Dissociating Partner Consequences (With and Without Dissociation)
If it is NOT wrongfully dissociated the remaining partners may continue the partnership and buy out the withdrawing partner
If it is a wrongful dissociation—the rule is that the remaining partners can continue the partnership and buy out the partner BUT there will be NO payment to the dissociating partner until the completion of the project
Partnership Consequences for a Dissociating Partner
the dissociated partner retains the ability to bind the partnership for 2 years after the dissociation
Partnership can prevent this by notifying people or filing a statement of dissociation with the department of state to put all potential creditors on notice
Dissolution
Occurs upon any material change such as death, withdrawal, or insolvency of any single general partner
Dissolution is the PROCESS leading to termination
Termination
Termination is the actual end of the partnership
Winding Up
Period between dissolution and termination in which partners liquidate partnership assets to satisfy creditors
Exception to general ‘no salary rule’ for partners
partners MAY receive compensation for winding up
Partner Distribution Structure
Each partner must be repaid their loans and capital contributions PLUS that partner’s share of the profits MINUS that partner’s share of the LOSS
Priority of Distribution of Assets
- creditors (first outside then inside)
- capital contributions of partners must be repaid
- partners then share remaining profit
Partnership Liability for Winding Up (New/Old Businesses)
old (2 years+): Partnerships and general partners retain liability on all contracts entered into to wind up an old business with existing creditors
new: Partnerships and all general partners retain liability on new businesses and business transactions until NOTICE of dissolution has been given to actual and potential creditors by filing a statement of dissolution with the department of state
