Partnerships Flashcards
“General partnership”
“An association of 2 or more persons to carry on as co-owners of a business for profit”
GP’ship statute
IN Uniform Partnership Act (IUPA) - default rules if no agreement by the parties
Formalities for GP’ship
No filing or writing (partnership agreement) required to form a GP’ship
Becoming a partner in a GP’ship
Unless agreed otherwise, no one can become a GP without express or implied consent of all parties (unanimous consent)
Proof of GP’ship existence - test/what controls? 5 factors?
In determining the existence of a GP’ship, the express intent of the parties governs. If no express intent, look to:
- title to property (in partnership name or in individuals?)
- designation of the entities as a partnership by the parties
- amount of activity involved in the enterprise by the parties
- sharing of PROFITS (prima facie evidence of a GP’ship) (must be PROFITS, cannot be payment of wages, rent, repayment of debt, interest on a loan, payment of annuity to surviving spouse of deceased GP, or sale of goodwill of a biz);
- sharing of losses
Partnership by Estoppel
One who represents to 3rd parties that a GP’ship exists will be liable as if GP’ship exists
What is included in partnership property - controlling factor; 7 factors?
In determining what comprises partnership property, the controlling factor is the partners’ intent to devote the property to partnership purposes
Consider:
- the source of funds used for the acquisition (ship funds or personal funds?) (*** this factor is given significant weight under IN law)
- the use of the property
- improvement, if any, of the property by the partnership
- the relation of property to the biz
- title to the property
- treatment of the property in the partnership books;
- payment of maintenance costs and expenses by the partnership
GP’s rights in partnership assets?
(1) MAY NOT be transferred by individual P’s without partnership authority
(2) equal right to possession for partnership purposes
(3) right of ownership vests in surviving partners after death of partner
GP’s interests/rights in the partnership? (profits? control?)
P’s interest in partnership is assignable* (does NOT assign right to control/management/vote; merely assigns right to receive profits assignor would be entitled to)
(1) P’s share of profits of the partnership is treated as personal property & therefore MAY be transferred by individual partner
(2) P’s share in management (control/vote) is asset owned by the partnership & therefore MAY NOT be transferred by individual P’s
(Also, P’s interest in partnership is attachable (charging order/creditors))
Relations between GP’s: fiduciary duty
Each GP owes other GP’s and GP’ship a fiduciary duty - duty of the finest loyalty; includes:
(1) no self-dealing
(2) no usurping partnership opportunities
(3) no secret profits
Rights/Duties between GP’s (6)
(1) Fiduciary duty
(2) Management Participation
(3) Distributions (profits/losses)
(4) Remuneration (typically not, but for winding up)
(5) Indemnification & contribution
(6) Books and information
Relations between GP’s: Management Participation
All P’s have equal rights in management of partnership, absent agreement otherwise (1 P, 1 vote)
Any differences arising as to ordinary matters connected with the partnership –> absent agreement, by majority vote
Any act (1) in contravention of partnership agreement OR (2) fundamental partnership matters –> require unanimous consent
Relations between GP’s: Distributions (profits/losses)
Absent agreement, GP’s share profits equally
Absent agreement, GP’s share losses in same way they share profits/according to their share of profits
Relations between GP’s: Remuneration
Generally, no right to remuneration for services rendered to the partnership (no compensation for GP’s)
Exception: in winding up the partnership biz
Relations between GP’s: Legal actions between partners
Generally, GP’s cannot sue or be sued by partnership in action at law/nor may one GP sue another GP on matters related to the partnership biz
Action for accounting - an equitable proceeding whereby liabilities between each P and the partnership are converted to liabilities btwn partners individually (generally arise upon final settlement of partnership affairs, actions for wrongful exclusion or to recover secret profits)
Relations btwn GP’s and 3rd parties: agency? liability for torts/K?
Partners are agents of the partnership; the act of every partner “for apparently carrying on in the usual way of biz of the partnership” will bind the partnership and thereby bind the other GP’s
(Therefore, GP’ship is liable for each GP’s torts in the scope of GP’ship biz & for each GP’s authorized K’s/K’s within scope of GP’ship biz)
Relations btwn GP’s and 3rd parties: fraud
When one GP defrauds a third party - GP is liable for any act/ommission by a GP “acting within ordinary course of biz of the GP’ship OR with authority of his co-partners”
