Partnerships Flashcards
Partnership Formation
Formed when 2+ people associate to carry on as co-owners of a business for profit. Need capacity to enter K, no formalities, no writing (unless other law requires), consent to enter partnership.
Proof of Partnership
Receipt of right to share in profits,
Express intent to be partners
Participate in control of business
Agree to share losses
Contributing money/property to business
Don’t consider: right to receive repayment of debt, share in gross receipts, rent, wages, interest, former partner, joint/common tenancies, mineral interests
Advantages of Partnership
No formalities in formation
Partnes can allocate management by agreement
General partnership does not pay federal income tax (income passed on to partners)
Disadvantages:
ALL PARTNERS ARE JOING AND SEVERALLY LIABLE FOR ALL OF PARTNERSHIP’S TORT AND CONTRACT OBLIGATIONS.
Partnership by Estoppel
Partner held out as partner: When a person represents himself/allows himself to be represented as a partner, he is liable to 3rd parties who extend credit to the partnership. Liability of someone who holds another out as partner: Holder outer makes the held out an agent to bind holder outer. If partnership, only those partners who know of or consent will be bound.
Partnership Property
Property deemed to be partnership property if acquired in the partnership name or name of 1+ partners with indication that person acting for partnership.
Property presumed to be partnership’s when acquired with partnership cash, credit, or other property.
Property purchased in sole name of Partner, without partnership funds, is presumed to belong to Partner (even if used by partnership).
Characterization of Partnership Interest
Each partner has an interest in the partnership, which consists of his share of partnership profits, losses, and distributions Like any other financial asset If acquired during marriage, it’s community property Can be transferred upon death or it can be sold If acquired by a 3rd party, merely an assignment of profits (3rd party doesn’t automatically become a partner)
Adding New Partners
UOA, unanimous consent required. New partners not liable for debts from before they were partners, old partners still liable even when they leave.
Rights of Partner in Partnership Property
Partner is not a co-owner of partnership property, no transferable interest in specific property No right to use property other than for the benefit of the partnership.
Partnership Share Profits and Losses
UOA, partners split profits equally (not in proportion to capital contributions). Losses follow profits in the same manner. A partnership agreement that absolves one party from from any losses is not enforceable against a 3rd party w/out party’s consent.
Partners Paid for Services/Indemnification
Partners generally not paid for his service to the partnership. Partners have right to be indemnified by fellow partners for expenses incurred on behalf of the partnership. Partner entitled to contribution when he has paid more than his fair share of a partnership liability.
Partners Management
UOA, all partners have equal management rights. Majority vote (by shares) rules. Each partner has right to inspect and copy partnership books.
Partners Duties to Partnership
Duty of loyalty and duty of care
Duty of loyalty
Account for any benefit derived by sue of partnership property, not deal with partnership on behalf of party who has adverse interest to partnership, not compete with partnership in a manner adverse to the partnership
Duty of care
Requires partner to act with the degree of care of an ordinarily prudent person; act on informed basis act in GF act in manner that’s in best interest of partnership
Partnership Lawsuits
Partnership may sue or be sued in its own name
To reach partner’s personal assets, must get judgment against individual partner
Partnership can sue partner for breach of partnership agreement or breach of duty owed
Partner may sue partnership to enforce rights created by partnership
