Partnerships Flashcards
Partnership: General Points
Partnership Formation and Relationships
- -Formation
- -Relationships of partner with partnership and between partners
- -Partnership/Partners’ relationships with 3rd Parties
Partnership Changes and Termination
- -Conversion
- -Merger
- -Termination of Partnership
Other Partnership Entities
- -Limited Liability Partnerships
- -Limited Partnerships
Formation of Partnership:
Partnership Requirements
–Intent: need 2 or more people/entities that intent to carry on a for-profit business as co-owners: DON’T need specific intent to form partnership
–Partnership Agreement: Need agreement to conduct for-profit business as co-owners. Can be written, oral, or implied by conduct.
–Statute of Frauds: written k not necessary to form P but contract that can’t be performed in under a year must be in writing to satisfy SoF
–Extensive Activity: If Ct determining whether P exists, will look to see how much work they’ve put in towards the partnership’s business goals
- -Profit-Sharing Test:
- **Rule: if there’s profit sharing assume it’s a P
- **Exceptions: Unless profit sharing re: debt payments, interest or loan charges, rent, wages, goodwill payments from the sale of business, & annuities/health/retirement benefits
Formation of Partnership:
Partner by Estoppel
Arises when: 1. No P but person treated as partner OR 2. P exists, but non-partner treated as partner
- -Elements: a person can be treated as a purported partner/partner by estoppel if:
1. Representation (oral/written/implied) that person is a partner in the P, &
2. Person consents to representation, &
3. 3rd P reasonably relied
4. 3rd P suffered dmgs as result - -being named as partner not enough, but can’t deny partner-status if you claim that you didn’t know but rep was public.
- -purported partner is agent of the person making rep
Formation:
Nature of Partnership
- -P is separate legal entity
- -Partners are personally liable for P’s obligations
- -If written PA, it controls
Internal affairs of P:
Agents & Duties
–Partners are agents of P (can commit to ks, etc)
–Partners owe: Duty of Loyalty (can’t compete); Duty of Care (can’t be negligent); Duty of Good Faith and Fair Dealing. Duties cease once you finish winding up or disassociate
Internal Affairs of P:
Profits & Losses; Partner Accounts; Distributions
Profits and Losses: if PA silent equal Ps and Ls. If PA says Ps, Ls shared like Ps
Partner Acct: contains partner’s contributions to P and share of profits (minus distributions, losses, liabilities
Distributions: Partners cant demand profit contributions BUT entitled to have acct credited with share of profits
Internal Affairs of P:
Partnership Interest
Personal Prop Interest: partner’s right to share in losses/profits and to distributions
Transfer of Interests to 3rd P:
- -Rule: can transfer all or part of P interest (unless restriction in PA).
- -Transferee doesnt have right to manage or conduct P business, looks at records, etc. Just has right to receive distributions, etc.
Internal Affairs of P:
Prop Ownership of P;
Use of P’s property
Ownership
–P’s prop (purchased by P assets/titled in P’s name) belongs to P not to individ partners
–Intent of partners: if not clear , look to intent of Ps.
Use of P prop: partner cant derive personal benefit from using P prop (must reimburse P if do so)
Internal Affairs of P:
New Partner;
Management Rights;
Repayment;
New Partner: must get consent of all partners
Management Rights: Partners have equal rights to manage. Need maj vote for ordinary business decisions; need unan consent for extraordinary/revisions to PA
Repayment: No rights to this except compensation for winding up business
Internal Affairs of P:
Reimbursement and Indemnification;
Access to Records;
Lawsuits
Reimbursement and Indemnification: P must– reimburse partners for loans they got for P & indemnify partners for personal liabilities
Access to Records: P has to let partners and agents access P records
Lawsuits: P vs. partner for breaching PA or for violating duty. Partner vs. P/partner to enforce partner’s rights
Internal Affairs of P:
Dissociation–cause, wrongful, effect
Events causing dissociation: Partner leaves or is expelled by unan vote; Partner dies/incapacitated/goes bankrupt
Wrongful Dissociation: partner is liable to P and other partners for dmgs caused by wrongful dissociation
- -P (time/goal) is unlimited: dissociation only wrongful if it violates PA
- -P (time/goal) is specific: dissociation wrongful if before expiration: partner withdraws, is expelled by ct order, debtor in bankruptcy; not an individual, trust, or estate and parter willfully dissolved or terminated.
Effect of dissociation:
- -can’t participate in management or conduct P business
- -Duty not to compete ends, Duty of loyalty and care term with respect to post-dissociation events
- -ongoing P has to buy out partner’s P interest,
- -P has to indemnify partner against all P liabilities
- -Dissociated partner liable for P obligations incurred before dissociation
- -if 3rd p rsbly thinks P isn’t dissociated, then partner can still bind P to stuff, only for 2 yrs after dissocation.
Relationships to 3rd Ps:
Power to Bind P
Partner is agent of P, can bind P to ks when he has actual or apparent authority
- -Actual: express or implied
- -Apparent Authority: performs unauthorized act in ordinary couse of P business, and 3rd p didn’t know partner wasn’t authorized.
–Sometimes partner can transfer P prop
–generally, if partner knows something or has notice, assume P knows/has notice.
Relationship to 3rd Ps:
Partner’s tortious Acts
P liable for partner’s tortious acts if done in ordinary course of P business or with authority
Relationship to 3rd Ps:
Liability to 3rd Ps
P obligation: P liable, all partners jointly & severally liable
Effect of Judgment: Judgment against P satisfied first from P assets, then from partner personal assets
Crime: P assets can be used to pay for crime P committed.
Partnership Changes and Termination:
Conversion
Can convert P to LP or LP to P
P to LP: consent of all partners; P has to file articles of conversion with state; former general partners are still liable for pre-conversion obligations
LP to P: consent of all limited partners; LP cancels LP certificate; lim partners liable for prechange LP obligations, and are liable as general managers for postchange P obligations
Change doesn’t affect P assets or legal proceedings
