Partnerships Flashcards
what is a general partnership
any association of two or more people as co-owners of a for-profit business
how is a general partnership formed
A partnership is formed when two or more people associate to carry on a for-profit business as co-owners
No formalities required — no formal agreement is required; parties’ intent to associate as co-owners can be inferred from their conduct
- note: first look to see if there is a partnership agreement before falling back on default rules
how to determine if a partnership exists
1) party’s intent to have formed one
2) profit-sharing
- best indicator there is one
- Exception — profits received as payment of a debt, rent, wages, services rendered, etc. are not profit-sharing
3) some other lesser factors (sharing of control, joint property ownership, capital investment)
what is partnership by estoppel
where no partnership exists, parties may be held liable to third parties as a partnership if they:
- actively held themselves or others out as partners or
- consented to being held out as partners
what is partnership property
consists of capital contributed by each partner and all property owned by the partnership; all else is individual property
- partners have no individual interest in partnership property
- i.e., a partner’s creditors cannot get to partnership property to satisfy a personal debt
how to distinguish between partnership property and individual/separate property
Property deemed the partnership’s
- anything titled in the partnership name or in the name of one or more partners in their capacity as partnership members
Property presumed to be the partnership’s
- property purchased with property funds, regardless of who has title
Other factors — in the absence of the above, courts may look at:
- use of property by partnership;
- entry of property in partnership books;
- improvement and maintenance of property with partnership funds
how are profits shared between partners
each partner has a transferable interest consisting of her share of profits and losses and her right to receive distributions
- Each partners’ share is equal absent an alternative agreement
- Each partner must contribute to partnership losses in proportion to their share in profits
Note: “losses follow profits, but profits don’t follow losses”
how are management rights split between partners
absent an alternative agreement, partners have equal rights in management of the partnership business as well as equal votes (one partner, one vote)
When is a majority vote required for partnership business? When is a unanimous vote required for partnership business?
A majority vote of the partners is required to authorize ordinary business;
A unanimous vote of the partners is required to
authorize extraordinary acts
what are the fiduciary duties owed between partners
1) duty of loyalty
2) duty of care
3) duty of obedience
4) duty of disclosure
what is the duty of loyalty in a partnership
each partner must:
1) to account to the partnership for any benefit derived by the partner in conducting the partnership business, using the partnership’s property, or appropriating a partnership opportunity;
AND
2) Refrain from:
- Competing with the partnership; and
- Dealing with the partnership as, or on behalf of, a party with an adverse interest to the partnership
what is the duty of care in a partnership
each partner must refrain from engaging in misconduct, specifically:
- Grossly negligent or reckless conduct,
- Intentional misconduct, or
- Knowing violations of the law
what is the duty of obedience in a partnership
partners are agents of the partnership and, as such, must obey all reasonable directions from the partnership, and must not act outside the scope of his or her authority
what is the duty of disclosure in a partnership
Partners must provide each other and the partnership complete and accurate information concerning the partnership
What disclosures must a partner make without demand vs. with demand to other partners?
R.U.P.A. provides that 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;
(2) with demand, any other information concerning the partnership’s business and affairs (except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances).
