Partnerships Flashcards
Partner’s Power to Dissociate
A **partner has the power to dissociate from the partnership at any time, even if the dissociation is wrongful.
**
For a partnership that is unlimited by time or undertaking, **a partner’s dissociation is wrongful only when it is in breach of an express provision of the partnership agreement. **
**Any partner who has not wrongfully dissociated may participate in winding up the partnership’s business. ** He may also may dispose of and transfer partnership property and may discharge the partnership’s liabilities.
A partnership at will is an open-ended partnership that does not have a fixed termination based on a period of time or particular undertaking.
**==> A partnership at will is dissolved when a partner chooses to dissociate from the partnership by giving notice of his withdrawal. **
Partners duties x termination
A **partner’s duty not to compete terminates upon dissociation. **
The dissociated partner’s other duties of loyalty and care terminate with respect to post-dissociation events
==> unless the partner participates in winding up the partnership’s business if the partnership itself dissolves.
Winding up
**A person winding up the P business may dispose of and transfer P property and may discharge the P’s liabilities; ** the person may distribute P assets to settle the partners’ accounts
**After dissolution, the P is bound by a partner’s act that is appropriate ** for winding up the P as well as any act undertaken by a partner that would have bound the P before dissolution, if the other party does not have notice of the dissolution (each partner is liable to the other partners for his share of P liability)
Still obligated by duty of care & duty of loyalty, with the exception of the noncompete aspect of the duty of loyalty.
Creditors have priority over partners to the P’s assets a person who is winding up the partnership business may dispose of and transfer partnership property and may discharge the partnership’s liabilities.
A partner must perform the windup consistently with the contractual obligation of good faith and fair dealing.
Duty of loyalty
Under the duty of loyalty, a partner is required to refrain from
(i) **competing **with the partnership business,
(ii) advancing an interest adverse to the partnership; and
(iii) **usurping a partnership opportunity or otherwise using partnership property or business to derive a personal benefit, **without notifying the partnership.
Duty of Care
Duty to refrain from engaging in grossly negligent or reckless conduct, intentional conduct, or a knowing violation of the law
==> The PA may not unreasonably reduce this duty
Profit Sharing Test
A partnership is an association of two or more persons to carry on a for-profit business as co-owners.
The key test applied to ascertain whether a business arrangement is a partnership is whether there is a sharing of the profits from the business;
==> if so, such an arrangement generally is presumed to be a partnership, and persons who share in the profits are partners.
However, **a partnership does not exist between persons when one person receives profits in payment of a debt. **
RE if it a just a loan or not ==> look at when payments end
General versus other Partnerships
A **general partnership **is an association of two or more persons to carry on a for-profit business as co-owners. It is not necessary that such persons have the specific intent to form a partnership. The only agreement necessary to create a partnership is the agreement to conduct a for-profit business as co-owners. This agreement may even be implied by the conduct of the parties when they have not entered into a written or oral agreement.
An LLC is formed by filing a signed certificate of organization with the state.
A limited liability partnership (LLP) is a partnership in which a partner’s personal liability for obligations of the partnership is eliminated. To enjoy LLP status, the partnership must file a statement with the state. In other respects, an LLP is governed by the same rules as a partnership.
==> However, a limited partner is personally liable for his own personal misconduct.
IF partnership was formed without the formalities required of other types of partnerships ==> it is a general partnership.
** no fixed end date = at will partnership
Transfer of Partnership’s Interest
A** partner has a transferable partnership interest,** i.e., a partner may transfer the right to share in the profits and losses of the partnership and to receive distributions.
==> The transfer of that partnership interest **creates in the transferee a right to receive distributions to which the transferor would otherwise be entitled. **
But…**a transfer of a partner’s partnership interest does not make the transferee a partner unless the other partner or partners consent to making the transferee a partner. **
==> a transferee is **not entitled **to participate in the management or conduct of the partnership business or access partnership records.
Partnership Property
Property is partnership property if it is **acquired in the name of the partnership. **
**A partner may use or possess partnership property only on behalf of the partnership. **
A partner cannot derive a personal benefit from the use or possession of P property; the partner must compensate the P for such use or possession
Does filing of statement of qualification create new partnership?
The filing of a statement of qualification, which transforms a partnership into an LLP, does not create a new partnership.
==> liability persists post transformation
Limited liability partnership status is generally only effective on the date that the statement of qualification is filed with the state and not before.
New Partner x Personal Liability x Prior Obligations
A person admitted as a partner into an existing partnership is not personally liable for any prior partnership obligations. However, any capital contribution made by an incoming partner to the partnership is at risk for the satisfaction of such partnership obligations.
Partner’s authority
A partner is an agent of the partnership for the purpose of its business and can contractually bind the partnership when the partner acts with either actual or apparent authority.
TYPES OF ACTIVITIES
A. Acting individually ==> a partner has the actual authority to commit the partnership to usual and customary matters, unless the partner has reason to know that other partners might disagree.
B. On the other hand, ** each partner has equal rights in the management and conduct of the partnership’s business. **
C. If there is a** decision as to a matter outside the ordinary course of the partnership’s business, the decision requires the consent of all partners. **
When Partner Breaches Duty ==> Who can they be sued by?
A partnership may pursue a legal action against a partner for breach of the partnership agreement or for violating a duty owed to the partnership that caused the partnership harm.
A partner may pursue a legal action against the partnership or another partner to enforce the partner’s rights under the partnership agreement or the RUPA.
Apparent Authority
For apparent authority to apply, the partner must perform the unauthorized act** in the ordinary course of apparently carrying on either the partnership business or business of a kind carried on by the partnership. **
==> However, the third party with whom the partner was dealing cannot hold the partnership liable when that party knew or had received notification that the partner lacked authority. For the partnership to escape liability, the third party generally must possess actual knowledge of the partner’s lack of actual authority.
Withdrawal
**A partner’s notice to the partnership of the partner’s express will to withdraw can trigger a partner’s dissociation from the partnership. **
==> A partnership at will is dissolved when a partner chooses to dissociate from the partnership by giving notice of her withdrawal.
==>** A partnership agreement cannot prevent a partner from withdrawing** from the partnership, but it** can require that the partner’s notice of withdrawal be in writing. **
==> For a partnership that is unlimited by time or undertaking, a partner’s dissociation is wrongful only when it is in breach of an express provision of the partnership agreement.
