Partnerships Flashcards
Partnership - General Definition
Partnership = association of two or more persons to carry on a for-profit business as co-owners.
Partnership - Requirements for Creation
Requirements = persons with capacity to contract, intent to carry on a for-profit business as co-owners, activities directed towards achieving the business’s ends (not just passive ownership of property), sharing profits.
Partnership - Sharing Profits
Sharing profits creates a rebuttable presumption that the business arrangement is a partnership and the recipients are partners.
Exceptions = debt payments, interest, rent, wages, goodwill payments stemming from sale of business, annuities etc. paid to beneficiary of a deceased person.
Partnership - Partner by Estoppel - Requirements
Requirements for liability as partner by estoppel =
i) representation that the person is a partner;
ii) purported partner makes or consents to the representation;
iii) reasonable reliance by third party; and
iv) damages result from the reliance.
Partnership - Nature of a Partnership
Partnership = a legal entity that is distinct from its partners. May hold property and sue or be sued. Partners are not protected from personal liability for the partnership’s obligations.
Partnership - Power and Liability of Partners - Partner’s Power to Bind the Partnership
Partner is an agent of the partnership for the purposes of its business and can bind the partnership when the partner acts with actual or apparent authority.
Partnership - Power and Liability of Partners - Partner’s Actual Authority
Can be express, e.g. arising from partnership agreement, authorization of partners, or statement of authority. Can also be implied based on partner’s reasonable belief that the action is necessary to carry out express authority.
Partnership - Power and Liability of Partners - Partner’s Apparent Authority
The partnership can be bound by unauthorized acts if performed by a partner in the course of apparently carrying out the partnership’s business of the kind of business carried out by the partnership. A third party cannot hold the partnership liable if that party knew or had received notification that the partner was acting without authority.
Partnership - Power and Liability of Partners - Partner’s Tortious Acts
Partnership is liable for partner’s tortious acts, including fraud, committed in the ordinary course of the partnership business or with actual or apparent partnership authority.
Partnership - Rights of Partners - New Partner
To become a partner, a person must secure the consent of all existing partners.
Partnership - Rights of Partners - Management and Control
Each partner has equal rights to the management and control of the partnership.
Partnership - Rights of Partners - Management and Control - Ordinary Business
A majority of partners can make a decision as to a matter in the ordinary course of the partnership’s business, e.g. distribution of profits.
An individual partner has actual authority to commit the partnership to usual and customary matters, unless the partner has reason to know that other partners might disagree or for some other reason consultation is appropriate.
Partnership - Rights of Partners - Management and Control - Ordinary Course of Business
A majority of partners can make a decision as to a matter in the ordinary course of the partnership’s business, e.g. distribution of profits.
An individual partner has actual authority to commit the partnership to usual and customary matters, unless the partner has reason to know that other partners might disagree or for some other reason consultation is appropriate.
Partnership - Rights of Partners - Management and Control - Outside Ordinary Course of Business
Consent of all partners is required for matters outside the ordinary course of business or to amend the partnership agreement.
An individual partner has no actual authority to take unusual or non-customary actions that will have a substantial effect on the partnership.
Partnership - Rights of Partners - Duty of Loyalty
Duty to refrain from competing with the partnership’s business, advancing interest adverse to the partnership and usurping a partnership opportunity or otherwise using partnership property or business to derive personal benefit without notifying the partnership.
