Partnerships Flashcards
Definition of a partnership
The association of two or more persons to carry on as co-owners, a business for profit … whether or not the persons intended to form the partnership.
What are the formation requirements for a general partnership?
There are no formalities required to form a GP. Courts will generally look to the intent of parties to determine whether a GP exists.
Profit sharing creates a presumption that the person is a partner in the business unless the profits were received in payment: of a debt by instalments or otherwise, as wages of an employee or independent contractor, as rent to a landlord.
Partners Liability + Indemnification
Partners are liable for all K entered into by a partner in the scope of the partnership or w/ authority of the partnership.
Partners are liable for all torts by any partner or employee w/in the ordinary business or w/ authority of the partnership.
Civil liability: jointly and several.
Each partner is personally and individually liable for the entire amount of partnership obligations. If paid more than fair share, may seek contribution / indemnification.
Authority
Each partner has the ability to bind the partnership under a theory of actual or apparent authority because each partner is an agent of the partnership.
There are three types of authority: actual express, implied and apparent authority.
In order to determine if the partnership is bound by the contract, the partner must have had the express, implied or apparent authority to enter the contract and bind the partnership.
Actual Express Authority
Express authority is that authority contained within the four corners of the partnership agreement, those expressly granted by the partnership or a statement of authority filed with the state.
Actual Implied Authority
Implied authority is authority that the partner reasonably believes she has as a result of the actions of the partnership.
Apparent Authority
Exists if the partnership holds a partner out as possessing certain authority or under RUPA, an act by the partner that was within the scope of the partnership business thereby inducing others to reasonably believe that authority exists.
Ratification
In addition, a partnership may ratify a K even though it was entered into without its authority.
Management + Decisions
All partners have an equal right to participate in the management and control of the partnership, unless an agreement provides otherwise.
Decisions involving the “ordinary course of the business” are controlled by the majority of the partners.
Whereas matters outside the “ordinary course of the business” require unanimous approval by all partners.
Distribution of Profits
Each GP is entitled to share equally in profits and must contribute toward losses in proportion to profit share.
May agree to share profits other than equally and share the losses in the same ratio.
Distribution of Assets
TP creditors, partners are paid back for their loans, partners are paid back for their contributions and lastly, partners are paid any profits.
LLP
To create a LLP, partners must register with the state by filing a statement of qualification.
No partner will then be held PL for the obligations arising from the partnership. (although partners are still liable individually for their torts)
Duties of Partners
A partner owes a DOC to the partnership and to other partners to refrain from entering in negligent, reckless or unlawful conduct.
A partnership may pursue a legal action against a partner for breach of the partnership agreement or for violating a duty owed to the partnership that caused the partnership harm.
Dissolution
The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on. Some ways to dissolve a partnership include death, bankruptcy, end of a definite term or withdrawal
Rights of partners?
Partners have equal rights to co-manage affairs. Extraordinary matters like admitting a new partner or seling land requires a unanimous vote.
Profits and losses are shared equally unless otherwise stated.
Generally - no right to compensation for running a partnership.
