Partnerships: Issues and Rule Stmts Flashcards
A partnership is formed when
- two or more persons
- associate to carry on as cow-owners
- a business for profit
even if they have “we are not partners” written everywhere; irrelevant
To determine whether a partnership exists, the courts consider the following (in order of importance)
- sharing of profits is presumed to be a partner unless you recieved those profits as a payment of a debt
- joint ownership of property
- sharing of control of business
When does a partnership need to be in writing
to satisfy the SOF; impossible to complete in one year
Partnership voting depends on whether the decision
- one partner, one vote
- ordinary business decision = majority
- extraordinary business decision = unanimous
Partner’s are entitled to a share of the profits but not….
- entitled to a salary
- unless pship agreement says otherwise
No one may become a partner without
the consent of all partners
Unless otherwise agreed, profits are shared ……… and losses are shared….
- equally
- losses shared same way profits are
Each partner is an agent of the partnership.
Therefore, the actions of every partner that are made in the ordinary course of business will bind the partnership.
An act of a partner will not bind the partnership when….
- partner had no authority to act; AND
- third party knew or had recieved nortification that partner lacked authority
go through all authority types*
When a partner breaches the duty of care and/or duty of loyalty
he may be held personally liable
A partnership agreement that says its eliminate duty of care and loyalty
not enforceable!
Each partner owes a limited fiduciary duty of care to the partnership and other partners.
This duty of care requires that each partner REFRAIN from engaging in:
- grossly negligent or reckless conduct
- intentional misconduct; OR
- knowing violation of law
Each partner owes a fiduciary duty of loyalty to the partnership and other partners, requiring them to:
- **act in good faith **and deal fairly
- account for any property, profit or benefit derived from business or property
- Refrain from: (a) competing with Pship within scope of business and (b) usurping business opportunities that rightfully belong to partnership
All partners have an equal right to . . . unless agrmt provides otherwise
1) right to participate in management and control of partnership (management rights)
2) right to a share in profits, losses and receive distributions (financial rights)
A partner can unilatelly transfer his [xxxxxxx] rights but the transferee is not [xxxxx].
- financial
- transferee is not a partner
- transforor still holds management rights
A partner dissociates when
- express their will to leave
- happening of an agreed upon event
- valid expulsion of partner
- partner becomes bankrupt, dies, incapable of performing duties/incapacitated
Dissolve or Continue
At-Will Partnerships → Dissolve automatically if a partner leaves by choice.
Term Partnerships → Continue by default unless a majority votes to dissolve.
Death, expulsion, unable to perform duties, or bankruptcy → Does not automatically trigger dissolution unless the majority partners decide to end it w/in 90 days
Always check the partnership agreement—it can override default rules.
When a partner dissociates, the pship will either
- continue (buy out the disociated partner); OR
- dissolve (wind up and end)
If a question asks what happens when a partner leaves, ask:
- Does the partnership dissolve or continue?
- If it dissolves, know the winding-up rules.
- If it continues, the dissociating partner gets bought out.
When partnership dissolves, it must wind up:
1) sell all assets
2) pay off debts
3) distribute leftover money:
- First: pay creditors
- Second: repay partner capital contributions
- Third: split remaining money based on how profit/loss is shared
