Partnerships Flashcards
What is the definition of a partnership?
An association of 2 or more persons who co-own a business for profit.
-legal persons (company) (anyone legal capacity to K)
-
How to determine if a partnership exists:
TOTALITY OF CIRCS TEST (imprecise)
- co-ownership of property does not in itself established Partnership
- Receipt of share of profits is prima facie evidence that he is partner, but this inference NOT drawn if profits were payments of debt, wages, annuity t widow etc., loan interest, or purchase of something
Does the formation of a partnership require written formalities?
NONE whatsoever.
How does partnership liability work?
General, Ptrs jointly and severally liable for everything chargeable to the partnership
What if someone calls himself a partner, or allows someone else to present him that way, but is not?
He is liable to anyone who relied on the representation that he was a partner
Duty of loyalty in a partnership
Partner must:
- Account to the partnership and hold as trustee for it any benefit derived in conduct (including winding up) of business, use of aprntersip property, or appropriation of paternjhip opportunity.
- do not act adverse to the partnership in any affairsv (including winding up business) (can use defense that transaction was fair to partnership)
- No competing in business before dissolution
Describe partner’s duty of care
In the conduct or winding up of parntnership:
refrain from engaging in
1. grossly negligent or reckless conduct,
2. wilfull or intentional misconduct, or
3. knowing violation of law
3 crucial elements of a partnership
(1) an intention to be partners,
(2) co-ownership of the business, and
(3) a profit motive
How is joint venture different from a partnership?
A joint venture is similar to a partnership but is more limited in scope and duration,
and principles of partnership law apply to the
joint venture relationship
“Joint adventurers, like copartners, owe to one another, while the enterprise continues, the duty of the finest loyalty.”
What can limit the bounds of a partner’s fiduciary duty?
“The existence and scope of a fiduciary duty depends upon the language of the parties’ agreement.”
HOWEVER, FINEST loyalty and UTMOST care
when does a partnership form?
- division of PROFITS (not paying debts)
- sharing of control over business (most commonly different spheres of control)
Who can be a partner in a partnership?
Anyone with a legal capacity to contract.
NOT-
-minor
-intoxicated
-insane
YES: any company that can contract
What intent is required to form a partnership?
NOT to form a partnership. It’s:
- carry on a business together, each has some control (so not a principal-agent)
- for profit
Corporations can form a partnership by…
Needs to be way more formal than with natural persons. Filiing stuff
When two or more persons share profits…
presumption of a partnership.
Legal condsequences of having a partnership
- partnership is separate legal entity separate from each partner. Can sue, own property
- Partnership liability. Partners are personally liable for partnership obligations (unlike corporation) if partnership $ is exhausted.
- No entity-level taxation. Taxed when income is distribution to partners (less tax, nicer than corp)
What is a partnership agreement? “It is the law of partnerships”
- Partnerships can kinda set the terms of their partnerships however they want.
- Need not be written. New terms also need not be written
- What if no partnership agreement, just a partnership? STATE LAW FILLS THE GAP
What aspects of partnership agreement are mandatory?
- Personal liability to 3Ps is mandatory
- Can’t deny partners access to books and records
- Can’t waive fiduciary duties
Every partner is a fiduciary of…
the partnership
How to avoid breaching duty of loyalty to partnership
- cannot compete with partnership
- cannot advance an interest adverse to partnership (law firm partner lobbies to outlaw law firms)
- cannot usurp partnership opportunity
Can partners limit the duty of loyalty
State law says: cannot eliminate duty of loyalty. HOWEVER can limit the duty by describing it differently so long as not manifestly unreasonable
What if you, a P, might be doing something disloyal? How to solve the problem?
Ratification. If you disclose everything and the other partners ratify by vote (according to partnership agreement)
What is the duty of care in a P relationship?
- no grossly negligent or reckless conduct
- not intentional misconduct
- no knowing violation of the law
What can partnership does to limit duty f care?
So long as reasonable. Can’t say it’s cool to do illegal stuff, but limiting it from certain things is cool
Who owes duties of loyalty and care?
Prospective partners and former partners do NOT owe duties of loyally and care to each other. Current shareholders can say, strip pension benefits from retired people and it’s OK because no dates to them.
Every partner is an ____ of the partnership and the partnership itself is the _____
Every partner is an agent of the partnership and the partnership itself is the principal
Each partner has the ability to bind the partnership to a K with what sources of authority to do so?
Express: partnership agreement, statement of authority, verbal agreement at meeting in records
Implied: based on partner’s reasonable belief that an action is necessary to carry out express authority
Apparent: Ptrship will be bound based on partner acting in the ordinary course of dealing. When partner holds out the partner as agent (using letterhead to order work supplies; even if other partner told him not to–still liable on the K of the 3P was told nothing)
Partnership’s liability in tort
Parnership is liable for torts committed by all partners in the course of their partnership. (Ex: law firm is bound to pay for malpractice of a partner)
When a parntship is found liable for a K or tort, who pays?
First, take all teh $ out of parternship itself
Then each partner is jointly and severally liable for the debts and obligations of partnership. (can sue one)
Incoming partner is not personally liable for the Ks or torts incurred before became partners. However, you may get you capital contribution taken
Outgoing partners MAY BE liable for torts and Ks that happen even after they left. DIFFERENT!
How is a partner liable for the partnership’s obligations?
A partner is personally, jointly and severally liable for all partnership obligations.
How to terminate a partnership
2 steps:
- dissollution
- winding up
How does dissoltion of a partnership work?
Partnership at will: whenever someone chooses to dissociate. This is rare. Leaving could dissolve it.
Term partnership: when the term expires or the undertaking is complete.
Either of these can be dissolved
- any dissolving events written in the partnership agreement
- any act that makes it unlawful to continue if not cured in 90d (example: failure to file state taxes)
- court dissolved the partnership
Partnership at will:
open ended partnership, no fixed term that’s tied to an undertaking
Who can handle the wind up of a partnership?
Any partner that has not been wrongfully dissociated (aka booted)
A legal rep of last surviving partner
Any partner or legal rep of transferee can ask court to oversee winding up
What is the power in winding up?
Dispose of Partnership’s property and pay creditors
Might also keep it going for a while if things going well
What is a statement of Dissolution?
File it to notice the rest of the world that there is no more authority here.
How to hand out $ left over after dissolution
- creditors
- partners or their estates
How must profits and losses be divide and what is the default under law?
Can be divided any way in the partnership agreement. If no agreement, then equally (not with reference to cap contribution)
A statment of dissolution is treated as giving notice to the public about the end of the partnership XXX days after it is filed
90 days
What are some other types of partenrships?
LLP limited liability parnertship
LP limited partnership
LLP limited liability parnertship
personal liability is eliminated
Formed by voting an authorization of transformation (partners must vote unanimously unless agreement says otherwise)
MUST change the name–to enjoy the limited liability you must tell the world it’s there. PLLC!
Partners not personally liable for torts and Ks of partnership. You ARE responsible for your own negligence. Siloing partners.
How to terminated LLP status
Can vote to opt in or out
OR state can revoke it if abused
limited partnership
2 or more persons, has at least one general partner and other limited partner. Limited partners have limited liability, general has personally liability.
to form: file a document of rLP. Contain name of LP, in state address, agent in that state, names and addresses of general partners, statement of duratoin
If being sued in , you only get benefits for events after date the certification of LP is filed! (unless it says later date)
Types of partners
Limited and General
Limited partner
Limited Partner:
- can join at start of partnership or by vote
default: does not vote, but can under PAgreement
all LPs have right to access records
LP is not personally liable for obligations as partnership UNLESS he starts to participate in partnership (cough up $, stay out of business)
What can limited partners do without straying into gen partner and its liability?
Be an officer, director or SH of general partner (if corp)
consult gen partners on affairs
act as surety of partnership
attend meetings of partnership
can wind up partnersip
can propose or approve of partnership matters
probably NOT enter a K on behalf of partnership
How to withdraw as a limited partner in a partnership?
Must give 6m written notice to withdraw
(often because they are investors, get $ back)
General partners
-can join at beginngin, or admitted on total consent of all memebrs
Rights and powers: general partner has same all the types
Liability: personally liable for torts and Ks of partnership
Gen partner can be LLC or corporation
How can a general partner withdraw from a partnership
voluntarily withdraw
If GP tries to assign partnership interests, might be removed
bankruptcy
death, incapacity or dissolution
if business entity, if it ceases to exist
