Power and Liability of Partners

Question 1

As to tort liability, A general partnership, limited partnership, or LLP is liable for…

Answer 1

… the wrongful acts or omissions of ANY partner acting:

1. Within the ordinary course of the partnership’s business;

OR

2. With the authority of ALL other partners.

Question 2

As to tort liability, a general partner is…

Answer 2

jointly and severally liable for ALL obligations of the partnership arising from any wrongful act or omission of any partner acting:

1. Within the ordinary course of the partnership’s business;

OR

2. With the authority of ALL other partners.

Question 3

Generally, a partnership creditor must…

Answer 3

… “exhaust the partnership’s assets before levying
on a judgment debtor partner’s individual property where the partner is personally liable for the
partnership obligation” as a result of his status as a partner.

Question 4

As to the tort liability of limited partners…

Answer 4

Limited partners are NOT personally liable for obligations of the limited partnership arising from the wrongful acts or omissions of other partners.

However, limited partners are always liable for their OWN misconduct.

Question 5

Each partner is an agent of

Answer 5

the partnership.

Question 6

As to contract liability of the P’ship, the actions of every partner that are made within the ordinary course of business to carry on the partnership’s business (e.g., entering into contracts in the partnership’s name), bind the partnership, UNLESS…

Answer 6

… the partner taking the action:

1. Has NO authority to act on behalf of the partnership;

AND

2. the other side has knowledge or notice that the P lacks authority

Question 7

As to contract liability of the P’ship, When can actions outside a P’s ordinary course of business be binding?

Answer 7

Actions taken by a partner that are OUTSIDE the ordinary course of the partnership’s business do NOT bind the partnership UNLESS the other partners unanimously authorize the action with actual or apparent authority.

Question 8

As to contract liability, general partners are…

Answer 8

jointly and severally liable for ALL debts and obligations of the partnership.

Question 9

As to contract liability, limited partners are…

Answer 9

personally liable for the debts of the limited partnership ONLY to the extent of their investment in the limited partnership. However, limited partners are always liable for their OWN misconduct.

Question 10

May others be added to a partnership?

Answer 10

Yes, just need consent of the existing partners.

Question 11

Absent an agreement to the contrary, a partner may transfer…

Answer 11

… his interest in the profits and losses of the partnership (including the right to receive distributions) to a third party.

Upon transfer of such interests, the transferee does NOT automatically become a partner nor does the partnership terminate or dissolve.

Question 12

What is the liability incurred by a transferee of profits and losses?

Answer 12

A transferee does NOT become liable for the obligations of the partnership incurred before or after the transfer, because he is not a partner.

However, a transferee may become a partner if the other partners unanimously consent. If the transferee becomes a partner, he will be liable for the obligations of the partnership incurred AFTER his admittance pursuant to the normal rules of agency and partnership.

Question 13

Does dissolution terminate the P’ship?

Answer 13

NO. Dissolution of a partnership does NOT immediately terminate the partnership. Rather, the partnership enters a “winding up” phase, which continues until the winding up of the partnership’s affairs is completed.

Question 14

What is a P’s actual authority during winding up phase?
Apparent authority?

Answer 14

During the winding up phase, a partner’s actual authority to bind the partnership is limited to actions that are necessary to wind up the partnership’s affairs.

However, a partner may still have apparent authority to bind the partnership so long as the other side does not have notice of the partnership’s dissolution.

Question 15

can general P’ship convert to LLP?

Answer 15

Yes, if the partners approve the conversion by a vote equivalent to that
necessary to amend the partnership agreement and the partnership then files a statement of
qualification that specifies the name of the partnership, its principal office, and its election to be
an LLP.

another way to effectuate a “conversion” (as suggested by Ben’s lawyer) is to form a
new LLP and transfer the assets of the old general partnership to the new LLP,