Partnerships Flashcards
Partnership (general)
An association of two or more persons to carry on as co-owners a business for profit
formed as soon as it happens - do not need subjective intent or filing
only intent to carry on a business as co-owners
Factors in deciding whether partnership exists
sharing of profits - presumption of partnership
- unless received as payment of debt, wages, compensation, rent, annuity, interest, sale of goodwill
- gross returns is not profits - does not create presumption
right to participate in control
non-presumptive evidence
- title to property held jointly
- parties designate their relationship as a partnership
- sharing of gross returns
Partnership by estoppel
if no pship formed, may still be liable to protect reasonable reliance of third parties
must have consented to being held out as a partner
Becoming and rights of a partner
Need consent of all partners to become a partner
voting
- equal rights to vote - one partner one vote
- ordinary course of business - majority
- outside of business - unanimous
no right to salary or compensation
- equal share of profits and losses
- losses are shared the same as profits, but if specify losses and silent on profits, profits are not shared the same as losses
partner - agent of partnership
Actual authority of partners
Transaction involving real property
- 3rd parties are deemed to have constructive knowledge of statement if secretary or state and county filings are made
- grants of authority and restrictions
Transactions not involving real property
- third parties are deemed to have constructive knowledge only of filed grants of authority, not restrictions
Apparent authority of partners
Ordinary course of business or business of the kind carried out by the partnership
Liability of the partners
Partners jointly and severally liable for all obligations
P must first exhaust partnership resources before seeking to collect from an individual partner’s assets
Can only limit a parters contribution for losses on liability, cannot limit liability to a third party
a new partner is not personally liable for obligations that arose before admission - only to the extent of their investment
Fiduciary duties
each partner owes duties to the partnership and the partners
Duty of loyalty
duty of care
- refrain from engaging in grossly negligence, or reckless conduct, or intentional misconduct
duty of disclosure (statutory duty)
- without demand - any info concerning business or affairs reasonably required for proper exercise of duties and rights
- all else with demand
duty of obedience
Cannot waive loyalty/obedience or care
Partnership property
Partnership has unrestricted rights
partner has no rights or interest- can only use for partnership purposes
Partnership interest
Management rights
- no unilateral transfer - need unanimous vote
financial rights
- can unilaterally transfer
Dissociation
Parter withdraws from partnership
- express will (auto triggers dissolution)
- happening of agreed event
- valid expulsion
- partner’s bankruptcy or appointment of receiver
- partner’s death or incapacity
- decision of court
- termination of business entity
wrongful
- breach of express terms of partnership agreement
- term partnership - agreement to remain partners for a definite term of until the completion of a particular undertaking
Consequences of dissociation
Partnership
- dissolve and wind up
- or buyout partner’s interest
dissolution
required when
- event in agreement requires widning up
- business becomes illegal
- judicial decree
- unanimous consent
- expiration of term partnership
- dissociation by express will of a partner in at will partnership
- in a term partnership if one partner wrongfully dissociates or dies or bankrupt - only if within 90 days after 1/2 of the remaining partners agree to wind up
passage of 90 days where the partnership doesnt have 2 partners
Dissociated partner liability
Pre - liable
post - may be liable for liabilities incurred within 2 years of dissociation
can give public notice - effective 90 days after filing
Priority of distribution
Creditors
capital contributions
profits and losses
Winding up
After dissolution, partnership still exists to wind up
- can still be bound by apparent authority
- bound by actions to wind up
may waive dissolution before winding up is complete and continue business- unanimous vote of all partners who have not wrongfully dissolved
Right to dissolve
Always have a right to dissolve
at will - no penalty
- partner can compel dissolution
term - damages
- can continue and buy out
Limited partnership
partnership with at least one general partner and one limited partner
- gp - personally liable
- lp - limited liability to extent of investment
must file a public document
- signed by all gp
- name of partnership
- names and addresses of agent for service of process and all gp
General partner v limited partner
GP - equal rights in management
LP
- no mgmt rights unless agreement gives them
- involvement in mgmt does not cause lp to become personally liable
vote of all partners needed for extraordinary activities
only gp needed for ordinary activities
LP Financials
Distributions made on basis of contribution
LP duties
GP - duty of loyalty and care
- odes not auto violated loyalty merely because the general partner’s conduct furthers own interest
lp - no fiduc duties
LP right to dissociate
LP has no right to dissociate befre termination
gp - right to dissociate
LP dossolution
Judicially dissolved
- if because of failure to do something required - can be reinstated if cure within 2 years
- happening of an event
- consent of all gp and lp holding a majority interest
- dissociation of gp - consent of majoirty partners if another gp remains, or after 90 if dont find another gp
- 90 days after dissociation of last limited parter unless new lp found
Limited liability partnership
all partners have limited liability
need to file public documents
- signed by at least 2 partners
- llp election
- deferred effective date if any
becomes llp at time of filing or on deferred date
Limited liability company
Hybrid partnership and corporation
- limited liability unless pierce the corporate veil
need to file public document
- name
- address of registered office
- name and address of registered agent
operating agreement
- can eliminate duty of loyalty, can alter duty of care
- cannot eliminate good faith and fair dealing
management - all members or managers
- majority vote for ordinary business, unanimous for extraordinary
distributions - usually based on contribution
LLC Fiduciary duties
members if member managed, managers if manager managed
Care and loyalty
care
- business judgment rule - cannot be held liability for negligent decisions
loyalty
- can self deal if disclose all material facts, all members authorize or ratify act
- if manager managed- only members can authorize or ratify and only managers subject to the duties
LLC Dissociation
can rightfully or wrongfully
may be liable for damages if wrongful
LLC dissolution
Event in operating agreement
consent of all members
passage of 90 days with no members
judicial dissolution
administrative - fail to submit ree or anual report, but can cure
