Partnerships Flashcards
What is a partnership?
What law governs in Florida?
An association of two or more persons to carry on as co-owners a business for profit.
mutual intent not necessary
Revised Uniform Partnership Act - these are default rules that apply in the absence of a partnership agreement
Conflict between RUPA and partnership agreement, what controls?
Partnership agreement
Except that certain RUPA provisions cannot be waived - e.g., duty of loyalty, the right of a court to expel a partner; right to inspect books and records
Is a formal agreement required to conduct a partnership?
No. Parties intent may be inferred from conduct
Is any writing required ?
Generally, no, but if partners want to remain so for more than a year, SOF applies
What if someone who lacks capacity enters into a partnership agreement?
Partnership remains intact (until steps are taken to dissolve it), but that person’s liability is limited to their capital contribution
What if a partnership is formed for an illegal purpose?
It is void, and courts will not compel an accounting or settlement of a void p’ships affairs
Is consent needed to add partners?
Yes, no one can be added as a partner without the express or implied consent of all partners
What is a Statement of Partnership authority?
-can be filed with Dep’t of state to give constructive knowledge of the extend of a partner’s authority to enter into real estate contracts on behalf if the partnership
When parties’ intent to form a partnership is not clear, what will courts consider?
- Sharing of profits raises a PRESUMPTION of partnership (can be rebutted)
- Evidence indicative of partnership (but does not rise to level of presumption):
- title to property held in JT or TIC - parties designate their relationship as a partnership
- venture requires extensive activity
- sharing of gross returns
What is the personal liability of a person held out as a partner?
- When a person by WORDS or CONDUCT represents himself as a partner OR CONSENTS to being represented by another, he will be liable to third parties who extend credit to the partnership who relied on the representation.
It is not enough that person merely fails to deny a representation of a partnership, he MUST consent or he is not liable.
If you hold out someone else as your partner, is that person able to bind you to third parties?
YES - but that person who you hold out as your partner, is only bound if he knows of or consents to this holding out.
Property deemed to be partnership property under RUPA
- Property titled in partnership name
- Property titled in name of partner but instrument transferring title notes the partner’s capacity or existence of partnership
Property presumed to be partnership property under RUPA
-if it was purchased with partnership funds, regardless of whose name it is held in
Property presumed to be partner’s separate property under RUPA
- held by partner
- instrument transferring title DOES NOT note the partner’s capacity or existence of partnership
Partnership funds WERE NOT used
For UNTITLED property, the Common Law applies. What criteria will court look at to determine ownership of property?
- Purchase property with partnership funds
- Use of the property by the partnership
- Entry of property in partnership books
- Close relationship between property and business operations
- Improvement of property with partnership funds
- Maintenance of property with partnership funds
What are a partner’s rights in partnership property
He IS NOT a co-owner and has no transferable interest; his creditors cannot reach property
What is a partner’s interest in the partnership?
- interest is comprised of his share of partnership profits, losses and distributions, shared equally with other partners.
- interest is personal property, transferable and attachable
How are management rights handled between partners?
-Equal rights to management unless agreement says otherwise
Decisions in ordinary course of business- what vote?
Majority
Decisions outside ordinary course of business
Outside
What fiduciary duties does partner owe to the partnership
Duty of care - refrain from engaging in reckless, negligent or unlawful conduct
Duty of loyalty
What is duty of loyalty?
- account for all profits
- do not deal with partnership as if its adverse
- do not compete with partnership
What does a partner’s account consist of?
partner’s contribution plus partner’s share of profits minus partnership liabilities
Does partner have right to remuneration?
No, except for winding up business
Is a partner entitled to indemnification from other partners ?
Yes, for payments made and personal liabilities reasonably incurred in the ordinary and proper conduct of the business
Where are books and information kept?
At the chief executive offices
Do partners have a right to copy inspect partnership books and records?
Yes, and upon demand, each partner must render true and full information of all things affecting the partnership
Does a judgment against partnership reach individual partner?
No - must sue partners; can do so in same action
Can partnership sue another partner?
Yes for breach of the partnership agreement or fiduciary duty
Can partner sue another partner?
Yes, to enforce rights granted in partnership agreement, RUPA or any other right belonging to partner
What are the rights of partner
- Management
- Distributions
- Remuneration
- Indemnification
- Contribution
- Inspection
- Lawsuits
What acts bind partnership and other partner
Acts taken with actual or apparent authority
-acts ratified by the partnership
What is the standard for finding apparent authority under RUPA
- The act of any partner
- For apparently carrying on in the ordinary course of partnership business or bsuiness in kind
- Binds the partnership UNLESS
a. partner had no authority AND
b. the person KNEW (actual knowledge) or had RECEIVED NOTIFICATION that the partner lacked authority
Under RUPA, when does a partner have notice of a fact
- actual knowledge
- when he is notified , or delivered to his place of business
- had reason to know based on the surrounding circumstances
When is Notice imputed to Partnership
Immediately upon a partner receiving notice
Can a partnership be held liable for a partner’s fraud?
Yes, when the partner is acting within the scope of partnership business.
Not when he is acting outside scope
When can a partnership be liable for a breach of trust?
Partnership is liable if a partner misapplies money or property of a third person received by him within the scope of his apparent authority, or within the ordinary course of business
What types of civil liability do partners face?
Partners are liable for all contracts, all torts, and fraud, when partner is acting w/in scope of apparent authority or actual authority, or in the ordinary course of partnership’s business
Liability is JOINT AND SEVERAL, but partner needs to be sued directly, and partnership assets are exhausted first
What is the liability of an outgoing (dissociated) partner
Remains liable for obligations arising while he was a partner, unless there has been payment, release or novation. Liability generally continues for 90 days after he has filed a notice of dissociation with the state
What is the liability of an incoming partner
No liability for debts incurred before she became partner (except to extent of capital contribution)
Are partners liable for the crimes of another partner?
Not unless they participated as principals or accessories
Can a partner dissociate without the partnership being dissolved?
Yes
Events of dissociation?
- partner’s express will to withdraw;
- expulsion of partner pursuant to partnership agreement
- happening of an agreed upon event
- bankruptcy, death, incapacity
- appointment of receiver of partner’s interest
- termination of an entity partner
Consequences of of dissociation?
- right to participate in management ceases
- partnership must purchase interest either at liquidation or going concern value;
- interest must be paid from date of dissociation to date of payment
- partnership must indemnify partner for pre and post liabilities not incurred by his acts
Can a partnership be bound by a dissociated partner’s acts?
A partnership can be bound by act of dissociated partner undertaken within TWO years after dissociation if:
- act would have bound partnership before dissociation
- other party reasonably believed dissociated partner was still a partner
- other party did not have notice of the dissociation
Can a dissociated partner still be liable to other party’s?
A dissociated partner can be liable for obligations incurred by partnership within TWO years after dissociation if:
- other party reasonably believed dissociated partner was still a partner
- other party did not have notice of the dissociation
How can dissociated partner cut short this liability to third parties?
File Notice of Dissociation with the Department of state. All persons are deemed to have notice of dissociation 90 days after such notice is filed
What is a statement of dissociation
Either dissociated partner or partnership may file a Statement of Dissociation which limits the authority of the dissociated partner. Third party is deemed to have notice 9- days after statement is filed.
What events can cause dissolution of partnership?
- notification by an at will partner of an intent to withdraw
- happening of an event agreed to in partnership agreement
- consent of partners
- happening of even that makes partnership illegal
- judicial decree that business is to be would up
Partner’s power to bind partnership after dissolution
A partnership will be bound by partners post dissolution acts if either:
1. the acts are appropriate for the winding up of the business OR
2. third party did not have notice of the dissolution
A third party will be deemed to know if a dissolution 90 days after statement of dissolution is filed.
Who may wind up partnership
Generally all (surviving) partners have the right, except a partner who wrongfully dissolves the partnership
Can the partners waive dissolution and continue the business?
At any time before winding up is complete, partners may decide to waive dissolution by unanimous vote of the partners who have not wrongfully dissolved.
Such waiver does not effect the rights of persons who relied on dissolution before receiving notice.
Order of distribution of assets
Assets reduced to cash and liabilities paid in the following order:
- creditors, including partners who are creditors; and
- partner contribution
- split profits equally
If partner has a negative balance, he must pay partnership until partner creditors and partner contributions are repaid. Services partner may get screwed.
When there is an insolvency of a partner, do partnership creditors have priority or individual creditors?
Partnership creditors have priority with regard to partnership assets
What is the act that governs limited partnerships”?
Florida Revised Limited Partnership Act. LP is a creature of statute; that’s the only way it can exist
How is a limited partnership formed?
A certificate of limited partnership, signed by each general partner, setting forth name of partnership, registered agent and each general partner must be filed with the state.
Where is LP required to maintain records
-at an office in the state.
If you change office, you need to file statement of change with the department of state
Is Agreement required?
YES. It must set out:
- the amount of cash or agreed value of all property or services to be contributed by each partner
- the times at which future contributions will be made
- for anyone who is a GP and LP, a specification of transferable interest the person owns in each capacity; and
- any events of dissolution
Absent compliance with statute, can a LP be properly formed?
No, if there is no statutory compliance, a general partnership is created, and partners are subject to tfull liability.
What must name of partnership contain?
Limited Partnership Limited L.P. Ltd. -must be unique name - check database!
Can a partner be both general and limited partner?
Yes, and he is subject to the restrictions of each when he works in that capacity.
Can you add a general or limited partner?
Yes -
- as provided in agreement
- as a result of conversion or merger
- with consent
- For GP, following dissociation of last GP, by provisions for nonjudicial dissolution
What can be accepted as a partner’s contribution?
cash, property, services rendered, or a promise to contribute such in the future
What is required for an LP’s promise to contribute to be enforceable?
Must be in writing and signed by limited partner
If partner receives improper return of contribution, can she be held liable to partnership?
Yes, for 6 years
General partner’s liability?
J and S liability for all obligations of partnership. Same as in a general partnership
Limited partner’s liability?
Not personally liable, even if LP participates in management and control
Liability limited to contribution
Rights of both GP andLP
- share in distribution
- transfer rights to distributions
- transact business with partnership
- apply for dissolution
- maintain direct or derivative action
How are distributions divided between GP and LP
Unless agreement says otherwise, distributions are made in proportion to value of each partner’s contribution.
Before Partnership can make a distribution, what are solvency requirements?
Pship cannot make distribution, if after making it:
- partnership would not be able to pay its debts as they become due OR
- Total assets less than (total liabilities plus preferential rights upon distribution)
Can LP or GP be held responsible for improper distribution?
- BOTH can if they knew it was improper
- NEITHER can if appeared to have been proper based upon reasonably prepared financial statement
- GP can be personally liable if he consents to improper distribution
Can a Partner in a Limited Partnership Maintain a Derivative Action?
Yes, if:
1, partner first makes a demand to the GPs to bring an action to enforce the right and they don’t w/in a reasonable time
2. Demand would be futile
Rights specific to limited partners
- to participate in the management and control w/o becoming personally liable and
- to receive info
Duties of GP in a Limited Partnership
- Duty of care
- Duty of loyalty
Although GP does not breach duty merely because his conduct furthers his own interest
Duties of LP in a Limited Partnership
- generally no fiduciary duties
- if he has management duties, he must exercise those duties with loyalty and care, and act in good faith and fair dealing
What if partner mistakenly believes she is an LP but finds out she is not?
-can avoid GP liability by filing certificate of LP, or certificate of amendment. However, she is still liable to any 3rd party who actually and in good faith believed she was a GP prior to filing certificate/amendment/withdrawal
Upon dissociation of limited partner, what rights does he have?
He has no further rights, and any interest he owns is as a mere transferee
Additional event of dissociation of Limited Partnership for GP or LP
-conversion or merger of LP
How can a Limited Partnership be Dissolved?
- Administratively dissolved for failure to pay fees, file records or deliver an annual report
- Judicially dissolved by application of partner if not reasonably practical to continue
When can a Nonjudicial Dissolution happen?
- The happening of an event specified in the partnership agreement
- consent of all GP and LP
- upon dissociation of last GP, the passage of 90 days, unless new GP is admitted
4 upon dissociation of last LP, the passage of 90 days, unless new LP is admitted
What can limited partnership do during winding up phase?
- may preserve business or property as a going concern for a reasonable time;
- prosecute and defend actions, settle disputes, transfer property
- Address liabilities, settle and close activities, distribute assets
- File a statement of termination
Does GP have any power to bind Limited Partnership After Dissolution
-only for those acts appropriate for winding up, or where other party did not have notice of dissolution
Same of dissociated GP, within first 2 years of dissociation
A GP or dissociated GP who causes partnership to incur inappropriate obligation during winding up is liable to the partnership and any GP.
How are a Limited Partner’s Assets Distributed after Dissolution
-Creditors first
2. Surplus paid in cash as a distribution.
GPs must contribute if there is a shortfall to creditors.
What must Foreign Limited Partnerships do to transact business in Fla?
-File certificate of authority to transact business in Florida.
If they fail to do so,
- it bars partnership from suing in Fla, but may defend itself
- contracts ARE NOT impaired
- partnership is deemed to have appointed Dep’t of state as agent for service of process.
What is the Limited Partnership’s filing obligation
Between 1/1 and 5/1 of each year, must renew certificate of authority by filing a report with the dep’t of state and paying required fee.
Who must consent to conversion/merger of a limited partnership to another entity?
All GPS plus all LPs who own a majority of rights to receive distributions
In a merger, the merger plan must be approved.
Who must consent to conversion/merger of a general partnership?
All partners
In a merger, the merger plan must be approved.
Does conversion or merger destroy personal liability?
No.
Limited Liability Company - what law governs?
Limited Liability Company Act
-rules parallel those of corps.
Can a member transfer his LLC interest?
He may freely transfer his interest in profits and losses, but may not transfer his interest in managing the company without the unanimous consent of other members.
Who manages an LLC
By default, management vested in members, but Articles of Organization or operating agreement may provide for management by manager
What decision by managers or members is controlling?
A majority of members in interest
Who is liable for debts on an LLC?
Only the company. Except managers or members remain liable for:
- breach of duties
- violation of criminal law
- transactions where they deprived an improper personal benefit
- acts in conscious disregard of the bext interests of LL
- recklessness
- willful or wanton conduct
What needs to be filed with the state to create an LLC
Articles of Organization
Is a special name required?
LLC or Limited Liability Company
How do members share profits and losses
According to value of contributions
What must be in the articles of organization?
- name
- principal office address
- registered agents, and written statement from agent accepting appointment
Does a member have any appraisal rights?
Yes, a member who has a right to vote on a plan of merger or conversion is entitled to vote against the plan and obtain appraisal rights for payment of fair value of member’s interest
Who has authority to bind the LLC?
If management is vested in membership, individual members have apparent authority to bind the company contractually, otherwise, only the elected managers normally have such authority
Events that cause dissolution of an LLC
- event specified in the operating agreement
- upon passage of 90 days when there are no members
- court ordered dissolution
- dep’t of state files statement of administrative dissolution
Fiduciary duties of members/managers
duty of care - refrain from grossly negligent, reckless or intentional conduct
duty of loyalty - can’t compete or deal with LLC as an adverse interest, or usurp LLC opportunity
How is voting conducted
Member managed LLC - all members entitled to vote, and each vote is weighed in proportion to percentage or allocable interest in profits
In manager managed LLC - each manager has equal rights in the management and conduct
May vote by proxy
What is the capital of a partnership? What is its property
Capital - amounts contributed by partner
Property - capital and retained earnings (so not draws or disbursements)
