Partnerships Flashcards
Partnership (MEMORIZE THIS)
Association of 2 or more persons to carry on as co-owners of a business for profit
Do not have to intend to be a partnership! If it satisfies this test ^ it’s a partnership!
o Subjective intent irrelevant!
A person may be an individual, trust, or corporation
Partnership Formation Factors
Totality of Circumstances Test
- Profit sharing!!! -> Presumed partnership!
o Gross Returns -> Revenues of a business
Not presumed to be Partnership! - Right to participate in control of business
- Loss sharing
-> absence of an agreement to share losses may show intent to not form a partnership
No writing is required to form partnership -> unless required to do under Statute of Frauds
**When a person receives profits, the presumption of partnership does not apply if the share is to repay a debt, is as compensation, or the like
Voting - Partnership
- Absence of another agreement -> One partner, one vote
- Ordinary business decision = Majority vote
- Extraordinary business decision = Unanimous vote
Salary - Partnership
Unless otherwise agreed, a partner has no right to compensation for services rendered to the partnership
Profit/Loss Sharing Default Rules - Partnership
- Profits shared equally, unless otherwise agreed
- Losses shared in same manner as profits, unless otherwise agreed
Partnership Liability - Torts and Contracts
Partnership = Principal under agency law
Tort
- Partnership liable for loss or injury caused to a person as a result of the tortious conduct of a partner (or an employee) acting in ordinary course of business of the partnership or with authority of the partnership
Contract
- A partnership is liable for all contracts entered into by partner in the scope of partnership business or with actual or apparent authority of the partnership
Actual Authority - Partnerships
Authority partner reasonably believes they have based on the communications between the partnership and the partner
Partner = Agent under agency law
- Statement of Authority
o Document filed publicly limited partners’ authority to transfer real property
Apparent Authority - Partnerships
Partner has apparent authority to bind the partnership to transactions within the ordinary course of the partnership’s business AND the third-party reasonably believes the partner has the authority to act on behalf of the partnership
Partner = Agent under agency law
Liability of Partners Individually
Each partner is jointly and severally liable for partnership obligations, whether arising from contract or tort!
o But only as guarantors
o Plaintiff must first come after partnership and then they can come after individual partner assets
***When a partner entered a contract he had no authority to enter on behalf of the partnership, the partnership is not bound by the contract
***Where one partner pays the entire amount of a partnership debt, they may require the other partner to contribute his pro rata share of the payment
Admitting New Partners
Default rule -> Unanimous vote required
Newly admitted partner is not liable for partnership obligations that arose before their admission
Liability of Dissociating Partners
An outgoing or disassociated partner remains liable for obligations arising while they were a partner unless there has been payment, release, or novation
Criminal Liability - Partnership
Generally, not liable for crimes of other partners committed in scope of partnership, unless the other partners participated in crime as well
Fiduciary Duties
Duty of Care AND Duty of Loyalty
- Owe it to the partnership AND to the individual partners
Duty of Loyalty
- Account to partnership for any benefit
- No taking adverse positions to partnerships
- No competing with partnership
Duty of Care
- No grossly negligent or reckless conduct
- Ordinary negligence is excused
**Cannot eliminate fiduciary duties
Duty of Disclosure
Each partner and the partnership shall furnish to a partner (1) without demand, any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties; and (2) on demand, any other information concerning the partnership’s business and affairs (except to the extent the demand or the info demanded is unreasonable otherwise improper under the circumstances)
Partnership Property
Property is deemed to be partnership property if it is titled in the partnership’s name
- Using partnership funds to buy property
- Right to use partnership property only for partnership purposes
- **The partnership owns partnership property
- **Partner is not a co-owner of partnership property and has no interest in partnership property which can be transferred
Individual Partner Property
- Held in name of one or more partners
- Gives no sign that they’re acting for a partnership
- Partnership funds were NOT used to acquire the property
Partnership Interest
- Partner’s ownership stake in the partnership
- Financial rights
- Management rights
Management Rights
Unless otherwise agreed upon, a partner cannot unilaterally transfer his management rights and thereby make the transferee a “partner”
The default rule for the admission of a new partner is that it requires unanimous vote of the existing partner
Financial Rights
Unless otherwise agreed, a partner can unilaterally transfer his financial rights
Transferee merely has the right to receive profits distributions from partnerships that would have otherwise gone to a partner
Transferee is not a partner though!
Disassociation
Partner’s withdrawal from partnership
- Dissociation by Express Will -> Partner voluntarily leaves
Wrongful Dissociation
Wrongful dissociation occurs if the dissociation is in breach of an express term in the partnership agreement.
A dissociation is wrongful in a term partnership if the partner withdraw, is expelled, or becomes bankrupt.
Liable to partnership for any damages
At-Will Partnership
Default form of partnership
Partner dissociates by express will in an at-will partnership, the dissociating partner can force partnership to dissolve!
A partnership at-will is dissolved and its business must be wound up when a partner notifies the partnership of his intent to withdraw
Term Partnership
Agreement to remain partners for amount of time or until completion of project
Buyout
Dissociating partner’s right to be paid value of partnership interest by continuing partners
