Partnerships Flashcards
General definition
Association of 2 or more persons to carry on as co-owners in a business for profit. Not a legal entity.
Formation: requisities
- contract capacity: P who lacks capacity is only liable to extent of capital contribution
- No formalities (can be express or implied). SOF only applicable for 1 year rule
- Legality of purpose
- Consent
Proof of partnership existence
Express intent governs. If no express intent look to
- Title to prop
- designation of entity by parties
- amount of activity
- Sharing of gross returns
- sharing of profits
- Sharing of losses
Prima facie evidence of partnership
Sharing of profits unless sharing is actually repayment of debt, payment of wages, rent, consideration for sale of goodwill of business
Partnership by estoppel: Liability of person who holds himself out at partner
or allows another to do so = liable to 3rd parties who extend credit in reliance
Partnership by estoppel: liability of person who holds another out as partner
Makes that person his agent to bind him to third parties
Partnership property: capital vs property
Capital = $ contributed by partners for purpose of carrying on business property = everything partnership owns including the capital
What is included in partnership property?
No limits. Controlling factor is parties intent to devote property to partnership purposes
Partner’s rights in partnership property
Partners own property as tenants in partnership
Partner’s rights in partnership property: incidents of ownership
P’s have
- right to possession for PS purposes
- Not assignable, mortgageable, attachable or subject to any individual claims of the partners
- Right of ownership vests in the surviving partner after death of another
Partner’s interest in the partnership
P has interest in the PS (his share of profits and surplus). Treated as personal property. Assignable without dissolving PS and attachable.
Relations between Partners: Fiduciary duty
Owe each other F duty. P can not gain for himself at the expenses of the PS
Relations between Partners: Management rights
Equal rights in mgmt absent agreement
Relations between Partners: distributions
Each partner shares equally in profits and surplus absent agreement
Relations between Partners: losses
contribute to losses according to share of profits
Relations between Partners: Renumeration
no general right of renumeration for services rendered to PS. Surviving partner has right to renumeration for winding up
Relations between Partners: breach of agreement to work for PS
Where P has impliedly or expressly agreed to devote time to PS and fails to do so she may be charge in accounting for damages caused to PS
Relations between Partners: idemnification
A PS must indemnify every partner fpr payments made and personal liabilities
Relations between Partners: contribution
where one P has been required to pay more than his share of PS debt, he may require contribution for pro rata shares
Can a partner sue another partner? Can a partner sue or be sued by the PS?
No. Exception where the subject of litigation does not involve a complex accounting or unrealted to the PS
Application of agency law to partnerships
Every partner is an agent of the partnership for the purpose of its business. The act of every partner for apparently carrying on in the usual way of business will bind the PS and thereby bind the other partners.
Actual authority: sources
PS agreement, majority or unanimous vote of partners
Actual authority: when unanimous vote required
Unless agreement says otherwise, unanimous consent required to
- submit to arb
- assignment for benefit of creditors
- confession of judgment
- disposition of PS’s goodwill
- Generally, engage in business other than that contemplated by PS agreement
Apparent authority: real property
If title held in PS name = title may be conveyed by any partner. if Partner lacked apparent or actual authority, PS may recover from transferee so long as not a BFP
If title in fewer of the Ps names = any of them can convey.
If title in name of all partners = only a conveyance by all named passes an equitable interest as well as legal title
Apparent authority: Mortgages
same as real prop
Apparent authority: leases
contract law.
Apparent authority: Personal property
Contract laws govern
Apparent authority binds PS
to any contract within the scope of PS business. If its outside the scope, PS is not bound unless they have actual authority
When is knowledge imputed to the partnership
If P is a participant in the transaction = imputed if he acquired the information while a partner or if acquired before he became a partner, knowledge was present to his mind
If P with information is not a participant = imputed if partner reasoable could and should have communicated it to the participating partner. Fraud is exception
When is the partnership liable for the fraud of a partner on a 3rd party?
When Partner is acting within the scope of P business = PS is liable
When not, no liability to PS
When P seeks to defraud the PS in transaction with thrid party
if the 3rd party is aware of the fraud, PS is not liable.
When is the PS liable for the P’s breach of trust to third parties
IF P misapplies money or property of thrid parties received in the scope of his apparent authority or within the scope of his ordinary course of business
What is a partner’s liability?
Liable for contracts in the scope of the PS business or that are expressly authorized and tort liability of other partners and employees
Nature of partner liability
Partners are jointly and severally liable for torts and breaches of trust and joint liability for all other debts and obligations
Extent of Partner liability
personally and individually liable for the entire amount of PS obligations.
Liability of incoming partners
liable for prior obligations only to the extent of her capital contribution
Liability of retiring partners
liability of obligations incurred during his time as partner unless there has been payment, release or novation. Liable for acts after retirement unless notice is given
Criminal liability
Partner not liable for the criminal acts of another partner taken in course of ordinary business unless an accessory after the fact etc.
Dissolution by act of partners
happens pursuant to PS agreement
mutual assent of all Ps
Explusion of partner
express will of one P
Dissolution by operation of law
PS business becomes illegal
P dies
Bankruptcy of either P or the PS
Dissolution by decree of equity court
On request of P and showing of
- breach of PS agreement such that it is not practicable to go on
- unprofitability
- misconduct that prejudices the business
- incompetnace
- incapability
How to terminate apparent authority after dissolution
Notice is required. Personal notice required to current and past creditors. Publication notice for others. Failure to give notice will result in partners being personally bound to third parties who extend credit to the PS
Authority of Ps to transact business after dissolution
Dissolution terminates the authority of any P to act as agent for the either the PS or any other P. P does have authority to wind up.
Order of PS liabilities being paid
- outside creditors
- Partner’s advances
- Partner’s contribution to capital
- surplus and profits
Right to continue business after dissolution
Remaining Ps have right to continue the PS business after dissolution if
-P dissolves the PS in contravention of the agreement
-Partner is expelled
-Partners agree to continue
Creditors retain their rights as they were.
