Partnerships Flashcards
partnership definition
an association of two or more persons to carry on a business for profit as co-owners
separate legal entity: may own property/sue
GPs are not protected from personal liability
General partnership requirements
1)two or more persons: any individual or legal entity
capacity based on K law
2)intent: to carry on a business for profit(not revenue) as co-owners
subjective intent does not matter
3)written agreement is not necessary but if written could be subject to SOF
4)passive co-ownership is not enough- look for activities designed to obtain a specific business purpose
profit sharing
general presumption that an agreement to share business profits creates a partnership
not apply in six statutorily enumerated circumstances:
1)pay debt
2)pay interest
3)pay rent
4) pay wages or compensation
5)make goodwill payments stemming from the sale of a business, or
6)pay a retirement/healthcare benefit to beneficiary
sub-partnership
an arrangement where a partner contracts with a third party to share in partner’s profits
3rd party becomes a sub partner- not a true member
has a contractual claim but is not a partner
partnership by estoppel
person might be treated as a partner even when true partnership doesnt exists
arise when:
1)D makes or consents to a representation to the P that he is a partner in an actual or purported partnership, and
2)the plaintiff reasonably relies on the representation and suffers damages as a result of the reliance
no duty to deny: merely being named partner is not enough
public holding out: D may not be able to defend claim she was unaware
the falsely named partner can act as an agent for the person incorrectly naming the party as a partner
duties owed by partners to the partnership
every partner is an agent- owes fiduciary duties
duty of loyalty
due of care
duty of good faith and fair dealing
duty of loyalty
a partner cannot:
1)compete with the partnership business,
2)pursue an interest adverse to the partnership
3)take an opportunity that belongs to the partnership without notifying partnership
4)use the assets of the partnership for personal benefit without notifying partnership
can carve out activities that will not violate
certain number of partners can authorize/ratify transaction between partner and partnership
duty of care
a partner cannot engage in grossly negligent, reckless or intentional misconduct
parties can reduce this duty by agreement but must be reasonable
timing of duties
are only for current partners
duty to get out clean: duties still apply to partners who are preparing to quit
duty of good faith and fair dealing
can be modified in the agreement but must be reasonable
Profits and losses
by default, each partner entitled to an equal share- but can be change and profits versus losses can be a different distribution
partnership accounts
reflects each partner’s net worth
increased by contributions and profits
decreased by liabilities, distributions, and losses
partnership distributions
partner cannot demand a distribution
when partnership earns a profit, each account will be credited its share
partnership interest
the right to share in profits and losses, not an interest in the underlying property
can be transferred to a third party, but the transferee doesnt become a partner and the transferor remains a partner
transferee just has the right to receive distributions, no control or management rights
property ownership
all property acquired by the partnership is partnership property
if titled in name of partnership- partnership property
if not titled, intent of the partners control
property is presumed to be partnership if it is purchased with partnership assets/credit
presumed to be partner proper if acquired in their name or with their assets
Partnership decisions
admitting a new partner: must be approved by all existing partners
management rights: by default each partner has equal rights
ordinary business decisions: majority vote
special/extraordinary decisions: consent of all
indemnification
partnership must indemnify each partner for personal liability incurred in the ordinary course of conducting the partnerships’ business
access to record
each partner has the right to inspect and copy records, including the finances of the partnership
lawsuits
a partnership can sue and be sued in its own name
partnership may sue individual partner for breach of partnership agreement or violating a duty
partner may sue the partnership or another partner to enforce the partners rights under the agreement- include the right to an accounting of the business
dissociation
an individual partner’s relationship with the partnership is terminated
may be either voluntary or involuntary
events causing dissociation
1)partner gives notice of express will to withdraw
2)occurrence of an event specified in Pship agreement
3)the partner is expelled pursuant to pship agreement
4)partner expelled pursuant to unanimous vote if it is unlawful to carry on the business with that partner
5)partner is expelled by a court order
6)partner files for bankruptcy
7) partner dies/entity partner terminated
8)guardian is appointed for the partner or it is determined that they cant perform their duties
wrongful dissociation in a pship not for a term
only occurs when there is an express breach of a provision in the agreementw
wrongful dissociation in a pship for a term
wrongful if:
1) partner withdraws
unless it follows within 90 days of
i)a wrongful dissociation by another partner, or
ii)dissociation by another partner for the reasons listed avoce at 6-8
2)the partner is expelled by court order, or
3)partner is a debtor in bankruptcy
is wrongful dissociation effective
yes but the partner is liable to the partnership and other partners for damages caused by the dissociation