Partnerships MEE Flashcards
General Partnership
association of two or more persons to carry on as co-owners of a business for profit
General Partnership Formation Timing
formed as soon as it happens, regardless of whether the parties subjectively intended to form a partnership
General Partnership Determination
courts generally look to the intent of the parties
General Partnership Determination Question
“did the parties intend to carry on as co-owners a business for profit is just another way of asking whether their association meets the definition
Factors for Deciding Whether Partnership Exists
(1) sharing of profits raises presumption of partnership
(2) Right to Participate in Control
Sharing of Profits Raises Presumption of Partnership
sharing of profits raises a presumption of partnership unless the share was received as payment of a debt, as wages or compensation, for services rendered, as rent payment, as an anunity or other retirement benefit, as interest on a loan, or for the sale of goodwill of a business
Profit Sharing - Rebuttable Presumption
if there is profit sharing, and therefore a presumption of partnership status, one can try to rebut that presumption with evidence suggesting the lack of co-ownership relationship
Additional Evidence of Partnership
these do not raise a rebuttable presumption:
(A) title to property is held in joint tenancy or tenancy in common
(B) parties designate their relationship as a partnership
(C) venture undertaken by the parties requires extensive activity
(D) sharing of gross returns
Writing if More Than One Year
if partners wish to have an enforceable agreement to remain partners for more than one year, they generally must execute a writing reflecting their agreement
Partnership by Estoppel
if no partnership was formed in fact, parties may still be liable as if they were partners to protect reasonable reliance by third parties
Liability of Person Held out as Partner
when a person by words or conduct represents himself as a partner or consents to being represented by another as a partner, he will be liable to third parties who extend credit to the actual or apparent partnership in reliance on the representation
No Presumption of Partnership When “Holding Out”
a person held out by another as a partner is not liable as a partner unless they actually consent to the holding out - mere failure to deny a representation of the partnership does not give rise to liability as a purported partner
Partnership Agreement Form
partnership agreements may be written, oral, or implied
Partnership’s Entity Status
partnership is a legal entity distinct from its partners - may sue or be sued in the partnerships name
Additional Formation Considerations
(a) capacity - anyone who is capable of entering into a binding contract may be a partner
(b) legality of purpose - must have legal purpose or its void
(c) consent - no one can become a partner without the express or implied consent of all partners
(d) Statement of partnership authority
Statement of Partnership Authority
may choose to file a statement of partnership authority with the secretary of state, which can give constructive knowledge of the extent of the partner’s authority with regard to the partnership
Governing Law of Partnership - No Agreement or Silent Agreement
the Revised Uniform Paternship Act provides a default set of rules - if agreement RUPA will provide for issues not in the agreement
Governing Law - Partnership Agreement
partners are free to agree through a partnership agreement - to abide by different rules for governing the relationships among themseleves
Partner’s Equal Rights
all partners have equal rights in the management decisions of the business and equal votes (one vote - one partner)
Decisions within Ordinary Course of Business
decisions regarding matters within the ordinary course of partnership business requires a majority vote of the partners
Decisions outside the Ordinary Course of Business
matters outside the ordinary course of partnership business require the unanimous consent of all partners
No Right to Salary/Compensation
unless otherwise agreed, a partner has no right to compensation for services rendered to the partnership
Partner Who Fails to Follow Through Promise
if a partner has impliedly or expressly promised to devote time to the partnership, and fails to do so, they may be charged in accounting for damages caused to the partnership
Partners’ Accounts
each partner is deemed to have an account that is credited with an amount equal to the partner’s contribution plus his share of any profits and debited with the partner’s share of any losses and partnership liabilities
Partner Profits at Partnership’s Expense
where a partner personally profits at the expense of the partnership, the partner must account to the partnership for those profits
Partner’s Entitlement at Dissolution
upon dissolution, a partner is entitled to settlement of their account
Indemnification of Partners
a partnership must indemnify every partner with regard to payments made and obligations reasonably incurred in carrying on the partnership business
Partner’s Advance
if a partner makes a payment or advance on behalf of the partnership beyond the contribution the partner agreed to make, the payment or advance constitutes a loan that must be repaid
Rights to Books and Information
each partner has a right to inspect and copy the partnership books stored at the cheif executive office
Demand Full Information
upon demand, each partner must render true and full information of all things affecting the partnership
Legal Actions Against Partner by Partnership
a partnership may sue a partner for breach of the partnership agreement or of a duty owed to the partneship
Legal Actions Against Partnership by Partner
a partner may sue the partnership or other partners to enforce a right created by partnership act or agreement, or a right otherwise belonging to the partner
R.U.P.A. Agency Presumption
generally provides that each partner is an agent of the partnership for the purposes of its business
Partnership Liability in Tort
a partnership is liable for loss or injury caused to a person as a result of the tortious conduct of a partner (or an employee) acting in the ordinary course of business of the partnership or with authority of the partnership
Partnership Liability in Contract
a partnership is liable for all contracts entered into by a partner in the scope of the partnership business or with actual or apparent authority of the partnership
Partnership Liability in Contract - Actual Authority
actual authority is the authority a partner reasonably believes they have based on communications between the partnership and the partner
Partnership Liability in Contract - Actual Authority Sources
(a) partnership agreement
(b) vote of the partners
(c) statement of partnership authority
Partnership Liability in Contract - Actual Authority - Statement of Partnership Authority
actual authority can also be created by the partnership’s filing of a statement of partnership authority with the secretary of state
Partnership Liability in Contract - Transactions Involving Reall Property - Third Parties
grants of and restrictions on partner authority to transfer partnership real property in the statement are binding on third parties if the statement is also recorded in the county where the property is located
Partnership Liability in Contract - Apparent Authority
RUPA provides that a partner is an agent of the partnership, and that a partner has apparent authority to bind the partnership to transactions within the ordinary course of the partnership’s business or business of the kind carried out by the partnership (unless the third party is knew or was notified that the partner lacks actual authority to do so)
Partnership Liability in Contract - Knowledge under R.U.P.A.
knowledge means subjective knowledge - what the person actually knew - not what they should have known based on the circumstances
Partnership Liability in Contract - Notification under R.U.P.A.
a notification is effective either when it comes to the persons attention or when it is duly delivered
Partnership Liability in Contract - Transfers of Partnership Property Lacking Authority
if the transferring partner lack authority, the partnership may recover the porperty from the initial transferee but not from the a subsequent bona fide purchaser
Liability of Partnerships - Joint and Several
a defining characteristic of a partnership is that each partner is jointly and severally liable for all obligations of the partnership wither arising in tort or contract
Plaintiff’s Recovery Against Partners and Partnerships
a plaintiff must first try to recover from the partnership’s assets before seeking to recover from personal assets - a judgment is not personally binding on a partner unless they have been served and the creditor has exhausted partnership assets, or exhaustion is excused by agreement or court order because the partnership is bankrupt
Extent of Partnership Liability
each partner is personally liable and individually liable for the entire amount of partnership obligations
Liabilities of Newly Admitted Partners
a newly admitted partner is not personally liable for partnership obligations that arose before their admission - they can only lose the amount of their investment in the partnership
Liabilities of Disassociating Partners
an outgoing or disassociating partner remains liable for obligations arising while they were a partner unless there has been payment, release, or novation - an outgoing partner can also be liable for acts done after dissociation
Criminal Liability of Partners
partner is generally not liable for partners crimes unless the other partners participated in the commission of the crime either as principals or accessories
Notice Under R.U.P.A.
a partner has notice of a fact when the partner:
(1) has actual knowledge of the fact
(2) is notified of the fact
(3) has reason to know of the fact based on the surrounding circumstances
When is Notice Effective?
notification is effective not only if and when it comes to a partner’s attention, but also when it is delivered to a place of business held out by the partner as a place for receiving communications
Impute of Notice
a partner’s notice of a fact relating to the partnership is imputed to the partnership immediately unless the partner having notice is participating in a fraud against the partnership
Four Fiduciary Duties Owed to the Partnership/Partners
(i) duty of loyalty
(ii) duty of care
(iii) duty of disclosure
(iv) duty of obedience
Fiduciary Duty - Duty of Loyalty
requires each partner:
(1) to account to the partnership for any benefit derived by the partner in conducting the partnership business, using the partnerships property, or appropriating a partnerships opportunity
(2) to refrain from dealing with the partnership in the conduct of its business as a party having an interest adverse to the partnership and
(3) to refrain from competing with the partnership in the conduct of its business
Fiduciary Duty - Duty of Care
requires each partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law
Fiduciary Duty (Statutory) - Duty of Disclosure
a partner also has a duty to provide complete and accurate information concerning the partnership
Fiduciary Duty (Statutory) Duty of Disclosure under R.U.P.A.
each partner and the partnership shall furnish to a partner:
(1) without demand, any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties and (2) on demand, any information concerning the partnership’s business and affairs (except to the extent demand or the information demanded is unreasonable or otherwise improper under the circumstances)
Fiduciary Duty - Duty of Obedience
duty of obedience requires the partner to obey all reasonable directions of the partnership and not act outside the scope of his or her authority
Partnership Agreement - Elimination of Duties
May eliminate: duty of disclosure
May Not eliminate: duty of loyalty or care
Partnership Capital
property or money contributed by each partner for the purpose of carrying on the partnership’s business