Partnerships Flashcards
Partnership
An association of two of more persons to carry on as co-owners a business for profit. Formed as soon as that happens, regardless of whether the parties subjectively intended to form a partnership. Courts will not look at subjective intent to create a partnership, instead they will look at whether the parties intended to carry out a business together.
No writing required unless it falls within SOF.
Factors for deciding whether a partnership exists
- sharing profits raises presumption of partnership unless receiving share as payment of a loan, rent, etc.
- participating in control
- title to property held in JT or tenancy in common
- parties designate their relationship as a partnership
- venture undertaken requires extensive activity
- sharing gross returns
Voting
Unless otherwise agreed, all partners have equal rights in management of the business and equal votes.
Decisions in ordinary course of business require majority vote.
Decision outside ordinary course of business require unanimous vote.
Sharing profits and losses
Unless otherwise agreed, profits are shared equally among the partners by number. Unless otherwise agreed, losses are shared in the same manner as profits.
Liability of partnership in tort
Liable for tortious conduct of a partner or employee acting in the ordinary course of business of the partnership or with authority
Liability of partnership in contract
Liable for all contracts entered into by a partners in scope of partnership business or with actual or apparent authority of partnership.
Actual authority- authority a partner reasonably believes they have based on communications between the partnership and the partner. Can file a statement of partnership authority that indicates the authority the partners have.
Apparent authority- partners are agents of the partnership and have apparent authority to bind the partnership to transactions within the ordinary course of the partnership or business of the kind carried out by the partnership.
Not bound if third party knew the partner was not authorized to act.
Liability of partners
Each partner is jointly and severally liable for all obligations of the partnership. Plaintiff must first exhaust partnership resources before seeking to collect from an individual partner’s assets.
If one partner pays the whole obligation of the partnership- they’re entitled to indemnification from the partnership.
Incoming partner generally has no liability for obligations incurred before they became partner other than to the extent of their investment.
Outgoing partner remains personally liable unless there has been payment, release, or ovation.
Fiduciary duties of partners
Partners owe to each other and the partnership.
Duty of loyalty
Duty of care- refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of law
Duty of disclosure- duty to provide complete and accurate information concerning the partnership.
Duty of obedience- obey all reasonable directions of the partnership and not act outside the scope of his or her authority
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.
Rebuttable presumption that property is partnership property if it was purchased with partnership funds, regardless of who holds title.
Not partnership property
- held in name of one or more partners
- instrument transferring title gives no sign of acting for partnership
- partnership funds not used to acquire the property
Partner is not a co-owner of partnership property and has no transferrable interest in it.
Partner’s ownership interest in the partnership
Partnership interest is personal property of the partner.
Partner cannot unilaterally transfer management rights and make transferee a partner. Admission of a new partner requires unanimous vote of the existing partners.
Unilateral transfer of financial rights to receive returns is permitted. Transferee is not a partner and the transferor is still a partner and retains all management rights.
Dissocation
Change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business.
- by oral or written notice of express will to withdraw (this automatically triggers dissolution of the partnership)
- happening of agreed event
- valid expulsion
- partner’s bankruptcy
- death or incapacity
- decision of court that partner incapable of performing their duties
- termination of business entity partner
Partner will be deemed to have wrongfully dissociated if dissociation is a breach of an express term in the partnership agreement. The partner is then liable for any damages caused by dissociation.
At will parntership
Partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking.
Term partnership
Partnership where partners have implicitly or explicitly agreed to remain partners for a definite term or until the completion of a particular undertaking.
Consequences of dissociation
(1) partnership is dissolved and its business must be found up. Partnership business will be liquidated and sold off. OR
(2) partnership continues in existence with dissociated partner becoming entitled to buyout of their partnership interest.
Dissociated partner remains liable for pre-dissociation partnership obligations. Can be liable for post-dissociation liabilities incurred within 2 years of the dissociation if the third party reasonably believed the dissociated person was still a partner and did not receive notice of the dissociation.
Dissociated partner can protect themselves by directly notifying creditors or by filing a public notice of dissociation.
Dissociated partner can continue to bind the partnership if the act would have bound the partnership before the dissociation, the other party to the transaction reasonably believed dissociated person was still a partner and did not have notice.
Dissolution as a result of dissociation
Where partner dissociates by express will the partnership is dissolved and the business must be wound up.
In a term partnership, if one partner dissociates wrongfully or because of death or bankruptcy, dissolution and winding up are required only if at least one half of the remaining partners agree to wind up within 90 days.
