Partnerships Flashcards
Requirements for forming partnership
- Intent - two or more persons intend to carry on a for profit business as co-owners but do not need specific intent to form a P
- Partnership agreement - can be implied by conduct
- Reminder SOF applies
- Exclusive activity- amount of related activities directed toward achieving business end goal
- Profit sharing test - if there is profit sharing, it is presumed to be a P UNLESS it is for debt payments, interest or loan charges, rent, wages, goodwill payments from sale of business, and annuities/other retirement benefits
Elements of a partner by estoppel
- Representation that person is partner in a P
- Person makes or consents to representation
- Third party reasonably relied on rep; and
- Third party suffered damages as result of reliance
But no duty to actively deny representation. Not a defence that the partner did not know they were being held out as a partner to the specific third party if the rep was made in a public manner
Is partnership seperate legal entity?
Yes - can sue and be sued and partners are not protected from personal liability from the partnership’s obligations
Partnership duties:
- Duty of loyalty - cannot compete with P business, advance interest adverse to partnership, or usurp opportunity
- Duty off care - duty to refrain from engaging in grossly negligent or reckless conduct, intentional conduct or knowing violation of law
Partnership duties - Disassociation or dissolution
Upon partner’s disassociation or the partnership’s dissolution, duties do not apply unless the partner is engaged in winding up the partnership’s business
Partnership - profits and losses
If there is no partnership agreement or partnership agreeement is silent, each partner is entitled to an equal share of profits and losses. If partnership agreement only specifies division of profits, then losses are shared in the same manner as profits
Partnership - profit distributions
Partner cannot demand profit distribution but is entitled to have their account credited with their share of profits
Partnership - Transfer of partnership interest to third party
A partner can transfer all or part of their partnership interest (absent restriction in agreement). Partner retains all rights and duties of a partner except for an interest in distributions.
Transferee has right to receive distributions, to seek judicial order for dissolution, and to accounting on dissolution, but no right to participate in management or conduct of P’s business.
Partnership - Property ownership
Property acquired by partnership belongs to partnership and not to individual partners - property can be titled in name of one or more partners who indicate their capacity as partners or existence of partnership.
Property presumed to be partnership property if it is purchased with partnership assets or if partnership credit is used to get financing, but court can also consider other factors
Partnership - new partner
Needs consent of all existing partners
Partnership - ordinary business decisions vs decisions outside course of business
Ordinary business decisions - Need majority of partners
Matters outside ordinary course of business - need consent of all partners
Partnership - Reimbursement and indemnification
P must reimburse partner for loans made in furtherance of P’s business, P is required to indemnify partners for personal liability incurred in ordinary course of P business
Partnership suing partner
Partnership can sue a partner for breach of partnership agreement or for violating duty. Partner can sue partnership or another partner to enforce partner’s rights under partnership agreeent or RUPA
Partnership - events causing dissociation
- Partner notice of withdrawal
- Partner’s expulsion due to PA, unanimous vote or bankruptcy
- Partner’s death
- Appointment of guardian for partner
- Termination of an entity partner
Partnership - wrongful disassociation
Partner is liable to partnership and other partner for damages caused by wrongful disassociation.
If partnership is unlimited by time or undertaking, disassociation is wrongful only when it is in breach of express provision of partnership agreement.
If partnership is for a definite time or undertaking, partner’s disassociation is wrongful if, before expiration of term or comp;eton of undertaking, partner’s disassociation withdraws, is expelled, or terminated
Partner ship - effect of disassociation
Disassociated partner is not permitted to participate in the management or conduct of partnership business. Partner’s duty not to compete terminates upon disassociation.
