Partnerships Flashcards

Question

Actual reliance | PARTNERSHIP BY ESTOPPEL /partnerships

Answer 1

The party claiming partnership by estoppel needs to actually rely on the manifestation. (AKA not enough for the party to claim that he, she or it would have relied on the manifestation)

Answer 2

The third party may not assert that partnership by estoppel exists because (for example) the third party thought X looked like A, B, or C, so the third party assumed they were partners, EVEN IF the third party truly did make that assumption

Answer 3

- The alleged partner must act or fail to act in some way, which conveys the (albeit incorrect) message that such individual or entity is a partner. - Even if the manifestation is not made directly to the third party, it must be traceable back to some action or inaction of the alleged partner.

Answer 4

- situations in which a partnership may be held liable for the actions of a non-partner (“non-partner” is treated as though he or she had the authority of an actual partner to bind the partnership) = partnership that creates the (albeit incorrect) appearance that an outside non-partner is in fact a partner - may be held liable for the actions of that non-partner taken on behalf of the partnership IF the third party dealing with the non-partner reasonably believes that the non-partner is a partner

Answer 5

For apparent partner to be able to bind partnership, requires 1. partnership must have done (or failed to do) something to make it appear that there was a partnership with the non-partner 2. a third party must have reasonably believed that the “non-partner” had the authority to act on behalf of the partnership in the transaction in question

Answer 6

1. one involves the possibility that a non-partner will be held liable as a partner by estoppel = issue in partnership by estoppel is reasonable understanding of the third party (AKA the understanding of the third party must be traceable back to something the non-partner did or failed to do to create that understanding) 2. other involves the ability of a non-partner to bind the partnership = issue in the apparent authority of a purported partner is (although still interested in the reasonable understanding of 3P) it must be traceable back to something the partnership did to create that understanding PLUS no requirement that the party claiming apparent authority show detrimental reliance 3. not necessarily reciprocal concepts, exist independently of one another

Answer 7

1. Duty of loyalty | 2. Duty of care

Answer 8

The duty of loyalty encompasses the obligation of each partner = 1. To account to the partnership for profits, property, or benefits from the conduct (or winding up) of partnership business or the use of partnership property; 2. To refrain from acting as or on behalf of a party with an adverse interest to the partnership (e.g., avoiding conflicts of interest); 3. To refrain from competing with the partnership in the subject matter of the partnership business; 4. To perform all duties to the partnership and the other partners consistent with the obligation of good faith and fair dealing.

Answer 9

- seminal case about the rights of other partners in a partnership opportunity and the right and/or ability of one partner to seize an opportunity that might rightfully belong to the partnership - Judge Cardozo coined the famous punctilio of honor phrase = “Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties…. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior”

Answer 10

- Part of duty of loyalty - Key Q = what is the nature of the opportunity 1. If opp is just info about the potential to profit in an enterprise outside the scope of the partnership business = disclosure alone might be sufficient 2. if biz opp falls within scope of partnership’s biz = disclosure alone is probably NOT enough 3. If opp belongs to the partnership, no partner may take the partnership opportunity for him or herself

Answer 11

- First, disclose the business opportunity to the other partners; - Second, decide whether or not to act on behalf of the partnership and take the opportunity - NOTE = partners owe a fiduciary obligation to partnership, decision by any partner whether or not to take advantage of the opportunity must be made in good faith

Answer 12

- encompasses the standard by which a partner must evaluate and make partnership decisions - partner typically does not violate his duty of care for mere negligence

Answer 13

section 404(c) of RUPA = a partner must not engage in: 1. gross negligence 2. reckless conduct 3. intentional misconduct 4. knowing violation of the law

Answer 14

every partner has the obligation to discharge his or her duties to partnership/other partners (and to exercise any rights under partnership law/agreement) consistent with the obligations of good faith and fair dealing

Answer 15

- While waiver/limitations of duties is permissible, there are limitations regarding the extent to which fiduciary duties may be waived - Generally (variation among states), partners are permitted to waive specific duties, but not general duties (like duty of loyalty)

Answer 16

Even when permitted by statute, courts tend to frown upon blanket waivers of rights, such as the duty of care and the duty of loyalty

Answer 17

- can waive SPECIFIC ACTIONS that would otherwise fall under the duty of loyalty - BUT Many states require = waiver not be “manifestly reasonable” - EXAMPLE = right to start a competing business

Answer 18

- Partner’s ability to ratify an action that would otherwise violate a duty - to be effective, the partners ratifying an action must be fully informed

Answer 19

- waiver usually occurs before the fact - ratification occurs after the fact (theoretically a more informed action) - Because it occurs after an action has been taken, ratification almost always involves a specific action (= thus may encompass broader actions than might be allowed in a more general waiver)

Answer 20

1. what lawyers may do with regard to the cases and clients of a firm they are leaving while preparing to leave that firm and after leaving that firm 2. what, if anything, the lawyers who leave the firm are entitled to receive with regard to work that remains at the firm and what, if anything, the departing partner’s former partners are entitled to receive with regard to clients/cases that accompany the departing partner

Answer 21

1. Notice must be mailed to each client with whom the lawyer had an active attorney-client relationship. 2. The notice should not encourage the client to sever relations with the firm. 3. The notice should be brief, dignified, and not disparage the former firm.

Answer 22

1. Communicating with clients before giving notice to the firm that they are leaving 2. Taking client files 3. Lying 4. Not letting clients know they have a choice about whether to stay with the firm or move with the departing attorney NOTE = planning to do something is not a breach (yet)

Answer 23

1. Looking for and obtaining office space 2. Setting up a merger or an affiliation with another firm 3. Negotiating with partners (this is distinct from negotiating with associates to join the departing group which might be questionable) 4. Reminding clients that they have a right to choose their lawyer NOTE = planning to do something is not a breach (yet)

Answer 24

= might get attorneys into trouble but not per se improper 1. Contacting clients after notice to the firm, but before leaving 2. Talking to associates about accompanying the lawyer NOTE = planning to do something is not a breach (yet)

Answer 25

1. Pursuant to the partnership agreement 2. By unanimous vote of the other partners if it is unlawful to carry on the partnership business with that partner, if there has been a transfer of all (or substantially all) of the partner’s transferable interest, or if the partner to be expelled is another entity that is ending its existence 3. By judicial determination if certain circumstances are satisfied involving the wrongful conduct of the partner to be expelled

Answer 26

- may be altered = if the partners agree, the partnership agreement may make it much easier (or more difficult) to expel a partner - Typical partnership agreements will provide for expulsion under certain circumstances

Answer 27

- Generally, agreement provisions are permissible - NOTE = even permissible expulsion provisions (and all partnership rights/remedies) must be exercised consistent with the obligation of good faith and fair dealing

Answer 28

- if the power to expel is exercised in bad faith or for predatory reasons = duty of good faith and fair dealing present in every partnership agreement is violated, giving rise to an action for damages the affected partner has suffered as a result of his or her expulsion - REGARDLESS of whether a partner is expelled under RUPA or pursuant to the partnership agreement

Answer 29

Partnership interests are comprised of two sets of rights = 1. “economic rights” 2. “management rights”

Answer 30

include the right to receive money that is distributed from the partnership to the holder of the economic right

Answer 31

include the right to vote and participate in management of the partnership

Answer 32

Generally, economic rights are transferable and management rights are not (UNLESS the other partners consent)

Answer 33

- When a partner transfers economic rights, the recipient (transferee) has the right to obtain money (or other distributions) that otherwise would have been paid by the partnership to the transferor partner - NOTE = economic rights do NOT entitle the holder 1. to any right in any of the specific property of the partnership (fun fact: no single partner has an interest in, or right to, any specific property owned by the partnership) 2. to the right to vote or 3. to become a partner merely by holding economic rights in the partnership

Answer 34

1. By a voluntary transfer by the transferor partner; 2. By an involuntary transfer by the transferor partner, which may occur due to the enforcement of a judgment against him or her; or 3. By the death of the transferor partner.

Answer 35

the transferor will often still hold management rights in the partnership

Answer 36

- PROBLEM = dynamic can create difficult situations for the transferee b/c the transferee does not have the right to vote or even to enforce fiduciary obligations that might be owed to the transferor partner; transferee is, therefore, dependent on the transferor to enforce certain fiduciary protections and to vote in the transferor’s interest - EXAMPLE = In the case of an involuntary transfer or the death of the transferor, the “support” of the transferor is not available to a transferee; thus, the transferee is often at the mercy of the remaining partners and can only receive a share of the funds, if any, that the partnership decides to distribute - NOTE = these restrictions may be altered by the partnership agreement that could provide for free transferability or for a different vote on the admission of a new partner

Answer 37

- A transferee of a partnership interest may not become a new partner without the vote of all of the other partners in the partnership. - NOTE = these restrictions may be altered by the partnership agreement that could provide for free transferability or for a different vote on the admission of a new partner

Answer 38

- Any partner has the authority to bind the partnership in the ordinary course of business (UNLESS partnership agreement says otherwise) - BUT approval of a majority of the partners typically is required for decisions made by the partnership relating to the day-to-day operations of the partnership business

Answer 39

standard default rule = that each partner will have one vote, regardless of the amount of money he or she contributed to the partnership

Answer 40

- Matters relating to the day-to-day operations of the partnership business = typically requires majority approval - Matters outside the ordinary course of business (like selling all of the partnership assets) = typically requires unanimous approval

Answer 41

- EXAMPLE = if there are two partners who each own 50% of the partnership, and one wants to stop doing business with a certain supplier, the consent of the other partner would be required. - The other partner’s consent is necessary because, even though this matter is in the day-to-day business of the partnership, it would require a majority vote, and 50% is not a majority.

Answer 42

- Because any partner has the right to bind a partnership, one partner might be able to act with apparent authority to bind the partnership. - If such an act was in violation of the partnership agreement, the partnership would have a claim against the partner who acted without actual authority. - However, the partnership might still be bound if the third party reasonably believed that the partner was acting with actual authority.

Answer 43

- because unanimity is required for matters outside the ordinary course of business, it is less reasonable for a third party to rely on the apparent authority of a partner purporting to act on behalf of the partnership with regard to a transaction outside of the ordinary course of business. - EXAMPLE = if a “rogue” partner attempting to act with apparent authority tried to sell all of the assets of the partnership, and the third party knew or should have known that the attempted sale involved all of the assets of the partnership, it might not be reasonable to rely on the rogue partner’s authority because the third party should have known that unanimous consent is required for such an action.

Answer 44

When a partnership ends, it goes through three “phases” = 1. dissolution 2. winding up 3. termination

Answer 45

signals the end of the prior constitution of the partnership

Answer 46

- a neutral period prior to termination when the partnership must conclude its business, sell its assets, pay creditors, and make distributions to its partners - Once the winding up phase has been concluded = partnership is terminated (BUT partners may vote before then to continue the partnership rather than proceeding to termination, requires vote of all partners) - NOTE, during this phase, partnership may not embark upon new business

Answer 47

whenever a partner left a firm, it was deemed to be a “dissolution,” and the remaining partners could vote to either continue the partnership or wind up and terminate the partnership.

Answer 48

AKA withdrawn - Introduced by RUPA to apply to partners who withdraw or otherwise terminate their partner status - When a partner leaves a firm, either voluntarily or involuntarily (by expulsion or even death) = dissociation, doesn’t necessarily trigger dissolution

Answer 49

- If the partner does not have the right to leave the partnership, the dissociation is “wrongful,” - the dissociated partner might be liable to the partnership for damages.

Answer 50

1. if the partnership is for a term (like 5 years) or an undertaking (like buying, repairing, then selling house), dissociation prior to the completion of the term or the undertaking would be “wrongful.” 2. any dissociation in violation of the partnership agreement would be “wrongful.”

Answer 51

- neither for a term or an undertaking is considered “at-will” - partner may dissociate from an at-will partnership at any time (provided the partnership agreement does not provide otherwise)

Answer 52

Whether or not the dissociation was wrongful, the dissociated partner is entitled to receive funds that represent his or her share of the partnership (minus any damages)

Answer 53

1) to what amount is the dissociated partner entitled, and | 2) when is it due

Answer 54

Although partnership agreements may, and often do, provide differently, under RUPA dissociated partners are usually entitled to the greater of their share of the “going concern” value of the partnership or the liquidation value of the partnership.

Answer 55

the value of the partnership as an operating entity (without the dissociated partner)

Answer 56

the value one could get for selling all of the assets of the business

Answer 57

at-will = shortly after dissociating term/undertaking = not until the end of the term or the completion of the term/undertaking (BUT common exception to delay IF the dissociated partner can show that payment for his or her share would not create a hardship for the partnership)

Answer 58

The general rule, unless it is altered by the partnership agreement, is that a dissociated partner is entitled to receive: - The value of its partnership interest (measured as the greater of their share of the going concern value or the liquidation value of the partnership); minus - The dissociated partner’s share of any liabilities; minus - Any damages for wrongful dissociation; plus Interest paid from the date of dissociation to the date of payment; - Payable within 120 days provided the partnership is at-will or at the end of the term or undertaking, unless payment would not create a hardship for the partnership.

Answer 59

- When partners dissociate, they are no longer partners in the partnership. - Because they have changed status, they are not personally liable for debts of the partnership that arise following dissociation.

Answer 60

- May have liability to any third party who does not have actual or constructive notice of the partner’s dissociation and enters into a transaction with the partnership within two years after the dissociation in reliance upon that third party’s reasonable belief that the dissociated partner is a partner. - only applies if the third party did not have notice (regardless of his reasonable belief) of the partner’s dissociation OR is not deemed to have constructive notice based on a notice of dissociation

Answer 61

- This structure provides an incentive for dissociated partners to provide notice of their dissociation to third parties. - ALSO dissociated partner might also have apparent authority to bind a partnership = provides additional incentive for the partnership to provide notice of the dissociation to third parties.

Answer 62

- The dissociated partner is still liable to creditors of the partnership for partnership debts that arose prior to the dissociation. - This might seem unfair if the dissociated partner’s share of these liabilities has already been deducted from any payments to the dissociated partner. - However, the law does not allow an agreement between the partnership and a departing partner to alter a third party’s claim or potential claim. - Therefore, the dissociated partner remains personally liable for pre-dissociation debts, even after receiving payment for his or her interest from the partnership, but the dissociated partner has the right to seek indemnification from the partnership and, ultimately, from the partners for any claims made against that dissociated partner, following the purchase of that dissociated partner’s interest in the partnership.

Answer 63

New partner ONLY personally liable for new debts that are incurred once that person joins the firm (Of course, any capital contribution made by the new partner will be subject to a judgment against the partnership irrespective of whether it arises out of an event that occurred before the new partner joined the firm)

Answer 64

In general, once a partner has dissociated from a partnership, that partner no longer has an ownership interest in the partnership, and, therefore, is no longer owed any fiduciary duties by the partners or the partnership.

Answer 65

in certain situations, the dissociated partner might still claim that he or she is owed limited fiduciary duties

Answer 66

- when there is a delay in the buyout of a dissociated partner’s interest in the partnership and the final buyout price will be determined by the future earnings of the partnership - BUT dissociated partner (even one with some continuing interest in the partnership) might also only be entitled to the rights of a transferee of an economic interest and would not be entitled to fiduciary claims relating to alleged mismanagement of the partnership - depends on the specific facts of the buyout/language of partnership agreement/jurisdiction

Answer 67

partners are owed certain fiduciary duties during the winding up of the partnership business (RUPA § 404)

Answer 68

The burden of proof to prove that a partnership exists is preponderance of the evidence standard, this burden is on the person attempting to prove that the partnership exists

Answer 69

1. The intention of the parties 2. The right to share profits from the partnership 3. Obligation to share losses/liability 4. Ownership/control over partnership property/business 5. Power to administer business affairs 6. Language in the agreement 7. Conduct towards third parties 8. Rights upon dissolution

Answer 70

While the UPA generally requires complete disclosure of all information material to the partnership’s business operations, the partnership agreement may temper this requirement

Answer 71

- Identify reasonable types of activities that do not violate duty of loyalty. - Authorize/ratify procedures (after full disclosure of material facts). - Narrow and contract away the duty of loyalty (but if K says nothing about it the court will read it into the K). - Reasonably reduce duty of care. - Prescribe reasonable standards of good faith and fair dealing. - Require notice to be in writing.

Answer 72

- Unreasonably restrict books & records access. - Eliminate duty of loyalty w/o expressly stating/defining it in the K (but you can call it back and define it). - Unreasonably reduce duty of care (must do the job w/ reasonable diligence). - Partake in grossly negligent or wrongful conduct. - Eliminate good faith and fair dealing obligation. - Vary the rights and duties of the partnership.

Answer 73

1. general partnership 2. limited partnership 3. limited liability partnership 4. fixed-term partnership 5. partnership by estoppel

Answer 74

- Default form - A partnership in which all partners participate fully in running the business and share equally in profits and losses (though the partner’s monetary contributions may vary) - Unlimited liability

Answer 75

- Allows people to passively invest, without a GP - Partnership is composed of one or more persons who control the business and are personally liable for the partnership’s debts (GP), and one or more persons who contribute capital and share profits but who cannot manage the business and are liable only for the amount of their contribution (limited partners) - The chief purpose is to enable persons to invest their money in a business without taking an active part in managing the business, and without risking more than the sum originally contributed, while securing the cooperation of others who have ability and integrity but insufficient money - Liability: LP’s are not personally liable (same as shareholders in a corporation)

Answer 76

- Limited liability for all partners - A partnership in which a partner is not liable for a negligent act committed by another partner or by an employee not under the partner’s direct supervision - A partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for such a partnership obligation solely by reason of being or acting as a partner

Answer 77

- A partnership formed for a definite period of time | - When the term expires, the partnership automatically ends

Answer 78

- A partnership implied by law when one or more persons represent themselves as partners to a third party who relies on that representation - A person who is deemed a partner by estoppel become liable for any credit extended to the partnership by a third party

Answer 79

- Treated as a partnership BUT for a limited purpose and for a limited duration - Like partners, joint adventurers owe one another the duty of loyalty FOUR elements = 1. Contribution by the parties of money, property, time or skill in come common undertaking but the contributions need not be equal or of the same nature; 2. Proprietary interest and right of mutual control over engaged property; 3. Express or implied agreement to share profits and sometimes losses; AND 4. Express or implied agreement to form a joint venture

Answer 80

- Members of a partnership owe a duty of loyalty to one another and so must disclose opportunities arising related to the partnership so that both have an equal chance to take advantage of it. - -- Like partners, joint adventurers owe one another a duty of loyalty; partnership principles apply. - The duty of loyalty is breached when a partner appropriates the benefit of the partnership w/o making any disclosure to the other party. - -- This was a breach of loyalty b/c Salmon failed to disclose the secret negotiations and also appeared to be the owner to be acting on his own behalf even though the owner came to Salmon in his capacity as partner. - -- Not honesty alone but the punctilio of honor the most sensitive - The duty of loyalty required a good faith disclosure.

Answer 81

A partner must render on demand true and full information of all things affecting the partnership to any partner

Answer 82

- Re: grabbing and leavings - A partner has a fiduciary duty to render on demand true and full information of all things affecting the partnership to any partner. - There is a duty to disclose all of the options available to your clients. - Meehan and others breached their fiduciary duty of good faith and loyalty to their partners by inducing the partnership’s clients to withdraw their business from the partnership w/o ample time for the partnership to compete to retain the business. - They should have given the clients a fair and real opportunity to choose who was going to represent them

Answer 83

The general rule under the UPA is that the partner’s property rights include (a) rights in specific partnership property, (b) interests in the partnership, and (c) the right to participate in the partnership’s management

Answer 84

Partnership Property if it was purchased: - in the partnership name, - under his capacity as a partner, and - was purchased with partnership assets

Answer 85

At the end of the partnership, each partner has the right to receive the value of any property whose ownership the partner transferred to the partnership

Answer 86

1. The power to terminate the partnership always exists, but not always the legal right to dissolve 2. Generally, the partners may dissolve a partnership by unanimous consent - In the absence of unanimity, a partner may seek judicial dissolution for a number of reasons

Answer 87

- Under the IPA, there is a default partnership agreement when a partnership does not write one - However, you can deviate from the UPA by writing your own partnership agreement

Answer 88

1. Generally, any party may ask for dissolution (Unless it is a partnership for a term, so the partnership cannot dissolve before the term ends without breaking the partnership agreement) 2. Operation of Law, OR 3. Judicial/Court Ordered

Answer 89

- 1997: basically not you can be voted out of the partnership, but the partnership still exists - Allows a partner to withdraw or be expelled without having to completely dissolve the partnership

Answer 90

Partnership expulsion is virtually always guided by the terms of the partnership agreement - Partners can contract through terms and conditions however they want to - Most well-drafted partnership agreements provide the manner in which a partner can be expelled and the rights to be afforded the partner upon expulsion

Answer 91

In absence of an agreement; however, the law generally requires only that the partnership act in good faith (No notice or cause is generally required, although proof of bad faith by the partnership can create a cause of action for damages)

Answer 92

Lawlis was expelled properly b/c the partnership agreement provided for involuntary expulsion of a partner w/o cause and further, although the agreement said no chance they gave him one any way.

Answer 93

If you are disassociated, you have no opportunity to buy back into the business

Answer 94

(2 alternatives) 1. The existence of a partner engaged in wrongful conduct that adversely and materially affected the partnership business 2. The existence of a partner engaged in conduct relating to the partnership business, which makes it not reasonably practicable to carry on the business in the partnership with the partners

Answer 95

1. The existence of a partner engaged in wrongful conduct that adversely and materially affected the partnership business Bad faith example: - One partner dissolves the partnership to force a sale when they know the other partner cannot afford to bid on the partnership’s assets - Dissolution being filed gives the court jurisdiction

Answer 96

2. The existence of a partner engaged in conduct relating to the partnership business, which makes it not reasonably practicable to carry on the business in the partnership with the partners Ask: what is your partners’ conduct likely to do to the economic interests of the partnership

Answer 97

1. Under Kansas law, dissociation is appropriate if a partner engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business w/ the partner. 2. Must be so bad it is threatening, abusive, extreme lack of trust

Answer 98

- Any partner may bid on the partnership assets at a judicial sale upon dissolution - Unlike instances when partners freeze out another partner and seize partnership assets or opportunities without the other partner’s knowledge, all parties have equal purchasing power in a judicial sale - If one partner is deprived of the opportunity to compete for business assets, the other partners have breached their fiduciary duties

Answer 99

1. UPA § 401(b): profits are shared equally and losses are shared in proportion to each partner’s share of the profits 2. Generally, when there is no explicit agreement as to losses, losses are to be divided equally between partners without regard to the amount each partner contributed to the venture - That rule though, is only applied in cases where each of the partners contributed capital to the enterprise - In cases where one party contributed only labor and the other capital, the rule is not applied because the partner contributing labor takes a loss in the form of his lost labor 3. Monetary losses will be apportioned equally between partners who make capital contributions:

Answer 100

Buy-sell Agreement should contain: 1. Trigger events: what is going to trigger this agreement (at will or is it some external event) 2. Should there be an option or obligation to buy or sell (right of first refusal is an option) 3. What price: how to you go about the evaluation 4. What the method of payment will be used 5. Protections from the debts of the enterprise

Answer 101

A partner’s capital account is calculated by adding up the cost basis of all contributions the partner has made to the partnership, then subtracting all distributions the partner received - Calculated on a “cost-basis” - NOT calculated by fair market value of their contributions

Answer 102

= total amount of partner’s contributions (Partnership profits MINUS partnership losses MINUS any distributions received = capital account)

Answer 103

- An amount contractually stipulated as a reasonable estimation of actual damages to be recovered by one party if the other party breaches - If the parties contract to have agreed on liquidated damages, the sum fixed is the measure of damages for a breach, whether it exceeds or falls short of actual damages

Answer 104

1. These principles are for investor partners who don’t want to risk their personal assets 2. General partnership: unlimited liability for GP’s 3. Limited partnerships: LP’s are not liable (only contribute capital) but always have one GP who is (same as shareholders in a corporation); permits the capital investment to b the limit of what’s at risk - UNLESS, you start participating in management, you may lose your shield to liability (this prevents limited partnerships from stepping on toes and having control like a general partner, but without the liability of a general partner)

Answer 105

- re: liability - A limited partner is not L as a general partner unless, in addition to exercising his rights and powers as a limited partner, he takes control of the business. - Therefore, to hold a limited partner L for the partnership’s debts, a court must draw a line between activities in control of the business and those in control of the limited partner’s investment. - Activities that are NOT sufficient to hold limited partner L as a general partner: 1. Consulting w/ general partners, 2. Acting as a general partner’s agent, 3. Voting or conferring on business decisions that relate to financing or dissolution, or 4. Deciding on a change in the business.

Answer 106

however, if the limited partner takes control of the business and is not also a general partner, the limited partner is liable only to persons who transact business with the limited partnership and who reasonably believe, based upon the limited partner’s conduct, that the limited partner is a general partner (Typically, only general partners will have liability)

Answer 107

- Formed under the auspices of a state statute by filing of a specified public document with a specified public official, AND - Structured under that statute to allow one or more managing owners (general partners) to run an enterprise and build on money and other property contributed by those owners and one or more essentially passive owners (limited partners)

Answer 108

- re: standards for good faith 1. Under Delaware law, the standard of good faith for a fiduciary requires a subjective belief that the determination is in the best interests of the limited partnership. 2. A bad faith determination is a determination that is objectively, egregiously, unreasonable. - A reasonable disagreement does not amount to bad faith. - This determination should be based on the information the entity making the determination had at the time. 3. This decision is a reminder that, although contractual flexibility afforded to Delaware limited partnerships can be used to provide general partners w/ significant protections, there is still room for courts to scrutinize compliance w/ contractual standards. 4. The value the court used is fair market value --> the price that the asset would have been agreed upon between two willing parties (a buyer and a seller) who are not compelled to buy or sell.

Answer 109

1. Partnerships are distinguishable from contractor/contractee relationship based on terms of the arrangement, including sharing of profits and loss, intended duration, and exclusivity of arrangement 2. An individual who represents him/herself as a partner can be liable to third parties who, on the faith of the representation, believed such individual to be a partner in the partnership

Answer 110

1. Partnerships (for a common purpose until such time that the parties terminate) and joint ventures (for a specific purpose until such purpose is accomplished) are distinguishable based on the nature of their relationship, but both are governed by partnership principles - -- Including obligations regarding fiduciary duties among partners 2. Partners have a fiduciary obligation to one another to be fair, honest, and forthcoming of information necessary to the partnership - -- Including information regarding potential exiting of the partnership

Answer 111

1. Unless such action is prohibited under law, partnerships are permitted to handle expulsion of individuals in the partnership under the partnership agreement, even if such expulsion is a “guillotine method” (see Lawlis) 2. Partners typically have equal rights and duties to bind the corporation, unless such duties are expressly and specifically limited - -- Must be actually limited and known to a 3rd party

Answer 112

1. Partners typically have equal rights and duties to bind the corporation, unless such duties are expressly and specifically limited - -- Must be actually limited and known to a 3rd party 2. Partners can vest control in an executive committee, so long as expressed in the agreement 3. To the extent that one partner’s actions make ongoing operations of the partnership not reasonably practicable, one partner can seek judicial dissolution - -- Note that simply losing money is not enough 4. Partners can also be dissociated for wrongful conduct and business will continue 5. Absent language regarding how a company will wind up operations, courts will divide assets based on equity and depending on whether one party was the bad actor