Partnerships Flashcards
A partnership is
an agreement between two or more people to carry on a for-profit business together as co-owners.
Does a partnership require a formal agreement?
No. A formal written agreement is not required.
During the life of the partnership a partner may not demand
a distribution, but he may have his share of income credited to his partnership account, which is established based on his contributions to the partnership.
Absent an agreement, how are profits shared?
Absent an agreement, PROFITS SHARED EQUALLY
Absent an agreement, how are losses shared?
Absent an agreement, LOSSES SHARED LIKE PROFITS
Upon death, a partner is
dissociated from the partnership.
Does dissociation of a partner by death trigger dissolution of the partnership?
However, the dissociation of a partner by death from a partnership at will does not trigger dissolution and winding up of the partnership
“Partnership at will” means a partnership in which
the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking.
What happens after partner is dissociated?
Under the Virginia Uniform Partnership Act, the partnership must buy out the dissociated partner’s interest when the partnership continues after the partner’s dissociation. VA Code §50-73.112. See also §50-73.111 (A) (Article 7 of the
statute applies if the partner’s dissociation does not cause dissolution and winding up of the partnership business).
When a partner dissociates, the buy-out price is
greater of the partnership’s (1) liquidation value or (2) going concern value, on the date of dissociation. VA Code §50-73.112 (B).
E.g. Thus, the partnership is only required to pay Burton’s estate the value of his interest at the time of his death.
The dissociated partner’s personal liability
Partners are personally liable for debts of the partnership, §50-73.94 (A), and a partner’s dissociation does not discharge the partner’s liability for a partnership obligation incurred before dissociation. §50-73.114 (A). Although a
dissociated partner generally is not liable for partnership obligations incurred after dissociation, the dissociated partner will be liable to a third party who transacted business with the partnership within one year of the dissociation and who
reasonably believed that the dissociated partner was still a partner without notice or knowledge otherwise. §50-73.114 (B).
After a dissociated partner’s interest is bought out by the partnership under section §50-73.112, the partnership must
indemnify the dissociated partner for all partnership obligations, whether incurred before or after the partner’s dissociation. VA Code §50-73.112 (D).
Can you continue to use the name of a deceased partner for the name of your practice/business?
The governing rule from the Virginia Rules of Professional Conduct would be Rule 7.1, which generally provides, “A lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s services. A communication is false or misleading if it contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially misleading.”
The Comments to Rule 7.1 address the question of whether a firm’s name is misleading. Comment 5 states, in relevant part, “A firm may be designated by the names of all or some of its members, by the names of deceased members where there has been a continuing succession in the firm’s identity or by a trade name such as the “ABC Legal Clinic.” … It may be observed that any firm name including the name of a deceased partner is, strictly speaking, a trade name. The use of such names to designate law firms has proven a useful means of identification. However, it is misleading to use the name of a lawyer not associated with the firm or a predecessor of the firm, or the
name of a nonlawyer.”
**If the firm had used this name for many years, the argument
for keeping the name intact would be stronger.
Is the partnership liable for the torts of partners?
A partnership is liable for the torts of a partner committed within the ordinary course of partnership business.
