Partnerships Flashcards
Partnerships for MEE
Define
General partnership
Association of two or more persons operating a business for profit as co-owners
Factors for deciding whether partnership exists:
* Share in the profits (not to pay a debt or rent, but actual share of profits without a cap on the amount) -> Not to pay a debt owed or to pay rent, but an actual share of the profits with no cap on the amount -> If person gets a share of the profits = presume co-owner (strongest factor)
* Right to participate in control of business
* Share in the losses
Subjective intent to form a partnership does not matter. Partnership is formed as soon as meet the above definition (no filing or registration is required).
Must formation of a general partnership be in writing?
Only if the Statute of Frauds would require it be in writing
Ex. A and B partner to make ten rap albums -> could be done within one year = no SOF requirement
General partnership by estoppel
If no parternship was formed in fact, partners may still be held liable as if they were partners to protect reasonable reliance by third parties
Ex. A applies for a loan from C. B lets A say that B is A’s partner, even though B is not. C can hold both A and B liable if A fails to make payments on A’s loan. C’s creditors can also hold A liable if they reasonably rely on A’s payments.
General partnership agreement
Although not required, partnership agreements can be made and used to contract around almost all of the statutory provisions.
* Agreements can be oral, written, or implied through conduct
Implied through conduct: if partners have done something a certain way for extended period of time, can argue that a partnership agreement exists to ensure it is continued to be done that way
Voting rules in general partnership
Unless otherwise agreed:
* All partners have equal rights in management and equal votes (one partner, one vote)
* Ordinary business decision = majority vote
* Outside of ordinary business decision = unanimous vote
Does not matter how much a partner contributes to the partnership (ex. A contributes 90% vs. B contributes 10% = still equal vote)
Right to salary in general partnership
Unless otherwise agreed:
Partners have no right to a salary (make money through the profits of the partnership)
General partnership’s liability to third parties in torts
Loss or injury caused as result of tortious conduct of a partner or their employee acting in the ordinary course of business of the partnership or with authority of partnership
* Same as agency law and vicarious liability
General partnership’s liability to third parties in contracts
Contracts entered into on its behalf with actual or apparent authority
Actual authority
* Authority that a partner reasonably believes they have based on communications with partnership
* By the partnership agreement
* By requisite vote of the partners
* Filing statement of partnership authority with the Secretary of State -> Gives third parties constructive notice that partners in this partnership cannot bind the partnership to transactions involving real property
Apparent authority
* By statute, a partner is an agent of the partnership = has apparent authority to bind partnership to transactions in the ordinary course of the partnership’s business (regardless of the actual authorities outlined in the partnership agreement as to which partner has authority to do what)
* Cannot contract around giving all partners statutory apparent authority (would limit third parties’ rights to transact) -> Can file statement of partnership authority to limit apparent authority in regards to real property
Liability of the partners to third parties in general partnershp
Each partner is personally jointly and severally liable for all of the partnership’s obligations whether arising in tort or contract claims
If plaintiff wants to sue for a partner’s personal assets, they must first try to recover from the partnership’s assets, and only if cannot recover from partnership, can plaintiff sue individual partner
If partners agree to indemnify a specific partner, the third party is still able to sue the specific partner, but the specific partner can sue the other partners to recover their loss as the partners’ agreement to indemnify is binding amongst the partners
Even if the partner themselves did not partake in the action (some other partner did), they can be held liable just by being a partner
Liability of admitted partners in general partnership
Partners must unanimously vote to admit new partners
Newly admitted partners are not personally liable for partnership obligations that arose before their admission
Share of profits in general partnerships
Unless agreed otherwise:
Profits are shared equally based on the number of partners
* Losses are split in the same manner as profits, but profits are not necessarily split in same way as losses
Ex. 3 partners
* Default: 1/3 each profits, 1/3 each losses
* Agree 60-30-10 in profits: 60-30-10 profits, 60-30-10 losses
* Agree 60-30-10 in losses: 1/3 each profits, 60-30-10 losses
Duties owed by partners in general partnerships
Partners owe duties to other partners and the partnership
- Duty of loyalty (fiduciary)
- Duty of care (fiduciary)
- Duty of disclosure (statutory)
Partnership agreements can contract around the duty of disclosure but not duties of loyalty and care
Duty of loyalty in general partnerships
Must treat the partnership and other partners fairly
* Account to partnership for any benefit derived by partner conducting partnership business
* Cannot take adverse positions to partnership
* Cannot compete with partnership
Duty of care in general partnerships
Partners cannot engage in grossly negligent, reckless, intentional, or knowing misconduct
* Ordinary negligence is excused!
Duty of disclosure in general partnerships
Duty to provide complete and accurate information concerning the partnership
* Without demand (no request needed): any information concerning partnership’s business and affairs reasonably required for proper exercise of partner’s rights and duties
* With demand (on request): any other information concerning partnership’s business and affairs and is reasonable under the circumstances
Partnership’s property vs. partner’s property
Partnership’s property
* Acquired in partnership’s name
* Acquired in partner’s name but apparent in document that partner acted for partnership
* Partnership’s funds were used to acquire
Partner’s property
* Acquired in partner’s name;
* Not apparent in document that partner was acting for partnership; and
* No partnership funds were used
Partnership’s rights in partnership’s property
Partnership owns the partnership’s property… it can do whatever it wants with its own property
* Ex. Partnership creditors can seize the partnership’s assets for debts owed by the partnership
Partner’s rights to partnership’s property
Partners are not co-owners of and have no transferable interest in partnership’s property.
Partners can only use partnership property for partnership purposes unless the partnership consents.
