Partnerships Flashcards
General partnership rule
GP is an association of two or more persons who intend to carry on a for-profit business as co-owners.
GP formation
The key test to determine if a partnership exists is whether there is an intent to share profits from bus.; if so, a partnership will be presumed.
**where parties’ intent is unclear, the court looks to the following circumstances: (1) whether profits are shared (profit sharing creates a rebuttable presumption of a partnership; (2) whether the parties have the right to participate in the management of the business; and
(3) whether losses are split.
**No writing required.
Partnership rights
- Each partner has equal control (vote) and management of partnership. A majority of the partners can make a decision as to an ordinary matter of business. All partners must consent to a matter outside the course of ordinary business.
- Property acquired by partnership is owened by partnership, not partners
- Profits and losses: The partnership agreement controls a partner’s rights to share in the partnership’s profits and losses. If there is no agreement, each partner is entitled to an equal share of profits and losses.
- Indemnity: Partner may be indemnified for liabilities and expenses incurred on behalf of partnership.
P as agent for partnership rule
A partner is an agent of the partnership (the principal) for business purposes. As an agent, the partner can commit the partnership to binding contracts with third parties.
*Each partner has authority to bind the partnership, but one partner does NOT have the power to unilaterally revoke another’s authority.
*I.e., partners are bound by contracts entered into with authority by their co-partners and are liable for torts committed by their co-partners within the scope of the partnership.
Partnership duties
Partners owe the partnership and their other partners fiduciary duties of loyalty and care.
Partnership duties: Duty of care
A partner owes a duty of care to act as a reasonably prudent person would in similar circumstances.
**E.g., refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.
**BJR applies if partner’s duties are in business setting.
Partnership duties: Duty of loyalty
A partner owes a duty of loyalty to further the partnership interests over his own (can’t compete, advance interest adverse to partnership or usurp opportunity)
- If a business opportunity is presented to a partner that is the type of the business the partnership engages in, the partner must present the opportunity to the partnership; he cannot take the opportunity for himself without first informing the other partners and receiving their permission to do so.
Partnership relations with third parties: Debts
general partners are personally liable for the debts of the partnership (although limited partners are not, see below).
PArtnership relations with third parties: Contracts
A partner is an agent of the partnership (the principal) for business purposes and can contractually bind the partnership when the partner acts with actual (express or implied) or apparent authority. As an agent, the partner can commit the partnership to binding contracts with third parties.
PArtnership relations with third parties: Contracts (3 authorities)
- Actual express authority: arise from the partnership agreement or authorization by partners.
- Actual implied: based on a partner’s reasonable belief that an action is necessary to carry out his express authority. (belief can be based on partnership agreement or vote by partners)
- Apparent authority: If a partner performs the unauthorized act in the ordinary course of partnership business and the third party reasonable believes the partner has authority to act, there will be apparent authority, unless:
1. Partner had no authority to act for the partnership in the matter and 3P knew or received proper notice that partner lacked authority.
Estoppel
if a person represents to a 3P that a GP exists, she will be liable as if it does exist.
Torts
Partners are treated as agents of the partnership, which is the principal. A principal is liable for an agent’s torts committed within the scope of the P-A relationship.
*partnership members are also jointly and severally liable for torts committed by a partner in the scope of the partnership (e.g., fraud)
**an act is within scope of relationship if
- conduct was of the kind agent was hired to perform
- tort occurred on job
- agent intended his action to benefit P
Partnership liability
- Ks: partners liable for all K’s entered into by a partner within scope of partnership business and/or made with authority of partnership.
- Torts: partners liable for all torts committed by any partner or partnership employee that occur within course of partnership business or are made with authority of partnership.
- Joint and several: partnership liability is joint and several for all obligations. Each partner is personally liable for the entire amount of partnership obligations. But partner paying more than his share can seek contribution or indemnification from others.
Liability of incoming partners
Not personally liable for debts incurred prior
Liability of outgoing partners
can be liable
