Partnerships: internal affairs Flashcards
Formation
A partnership requires:
(1) An association of two or more persons
(2) To carry on a for-profit business
(3) As co-owners sharing profits.
A partnership does not require intent nor a formal agreement or writing.
Fiduciary duties: duty of loyalty
A partner must not:
(1) Compete with the partnership;
(2) Advance an interest adverse to the partnership; or
(3) Usurp a partnership opportunity—i.e., a partner cannot take a business opportunity that the partnership could have profited from without first asking the partnership if it is interested.
Fiduciary duties: duty of care
A partner must act reasonably: She cannot engage in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.
Fiduciary duties: good faith and fair dealing
A partner must act fairly and in good faith.
Profits and losses
Absent a partnership agreement otherwise, partners:
(1) Share profits equally; and
(2) Share losses in the same proportion as profit-sharing.
Transfer of financial interest
A partner is allowed to transfer the right to receive distributions from the partnership to a third party.
A transfer of a partner’s partnership interest does not make the transferee a partner unless the other partner or partners consent to making the transferee a partner.
The transferring partner is still a partner with her remaining rights and obligations.
Transfer of financial interest: third parties
A third party transferee does not become a partner, but she can seek judicial dissolution of the partnership.
A creditor of the partner can enforce a judgment against the partner’s financial interest.
Property ownership
Property is partnership property if it is acquired in the name of the partnership. It is property of the partnership and not of the partners individually.
Property acquired by the partnership must be used for the benefit of the partnership.
Management rights
By default, each partner has equal rights in the management and conduct of the partnership.
The division of rights can be changed by agreement. For example, partners’ rights are often allocated in proportion to their capital contributions.
Management rights: voting
Ordinary business—e.g., declaring a distribution—requires a vote of the majority of the partners, whereas extraordinary business—e.g., amending the partnership agreement—requires a vote of all the partners.
There is no default rule with respect to partnership quorums for partnership voting.
Access to records
The partnership must provide partners with access to records during business hours.
