Rights and liabilities between General partners

Question 1

legal status of GPs to each other

Answer 1

A. general partners are fiduciaries of each other and the partnership

a. Therefore general partners owe each other and the partnership: the duty of loyalty, which means that general partners may never engage in self-dealing, may never usurp general partnership opportunities, and can never make a secret profit at the partnership’s expense.
b. Action for accounting – breach of duty between general partners
i. Partnership may recover
1. Losses caused by the breach including indemnity
2. May disgorge profits from the breaching partner

Question 2

Partners’ rights in partnership property and liquidity

Answer 2

a. Specific partnership assets—things like land or leases or equipment which are owned only by the partnership itself. Therefore, may not be transferred by individual partners without partnership authority.
b. Share of profits—this IS personal property. Owned by individual partners. Therefore, it MAY be transferred by individual partners to 3rd party. Can give, leave to loved one or sell to someone.
c. Share in management—asset owned only by the partnership itself. Therefore it may not be transferred. Cannot force the other general partners to enter a partnership with someone else by leaving it to someone in a will for ex or assigning it to someone else.
d. In order to determine whether the facts involve property owned by the general partnership or personal property, the test is: whose money was used to buy the property
i. If partnership money was used, it becomes partnership property. If personal money was used, it becomes personal property.
ii. For ex: John buys a car in his name with his own money which he uses for partnership money. John dies. His spouse can get the car.
1. Its not an asset of the partnership.
2. He bought with his own money in his name, so it’s his car
3. Therefore he may leave it to yoko through inheritance.

Question 3

Management of partnership

Answer 3

Absent an agreement, each partner is entitled to EQUAL control (vote)

a. Hypo: A, B and C agree to contribute money and share profits 60-30-10. They still vote equally!!
b. Majority vote governs ordinary affairs. Unanimous consent is required for fundamental partnership matters.

Question 4

Partners salary

Answer 4

D. Salary: Absent an agreement, partners get NO SALARY

a. Even if one is working a lot more than the other.
b. Exception: partners do receive compensation for helping to wind up the business.

Question 5

Partners share of profits and losses

Answer 5

a. Absent an agreement, profits shared equally
b. Absent an agreement, losses shared like profits.
c. Hypos:
i. If an agreement is silent on profits and losses—apply rules step by step
1. Profits shared equally, losses shared equally
ii. If an agreement states that profits are shared 60/40 but is silent on losses
1. Profits and losses are both shared 60/40
iii. If an agreement sates that losses are shared 60/40 but is silent on profits
1. Profits shared 50/50
2. Losses shared 60/40.
iv. Partner a puts up all money. B does all work. C gives partnership its name. d does nothing
1. Profits still shared equally.