Rights and Liabilities Between Partners

Question 1

What duties are owed by partners and to whom?

Answer 1

Partners are fidcuaries of each other AND the partnership and owe duties of loyalty and care

Question 2

What is the duty of loyalty the partner owes to other partners and the partnership?

Answer 2

Requires that the partner not do the following three things:
1. No-self dealing–cannot deal with the partnership as one with an adverse interest
2. No secret profits at expense of partnership
3. No usurping partnership opportunities

Question 3

What is the duty of care the general partner owes to other partners and the partnership?

Answer 3

Duty of Care requires the partner to refrain from engaging in negligent, reckless, or unlawful conduct or intentional misconduct

Question 4

What is the remedy if a general partner breaches its fiduciary duties?

Answer 4

Action for accounting
1. May recover losses that are caused by the breach, including indemnity
2. Partnership may disgorge profits by breaching partner (i.e., account for profits made by breaching partner)

Question 5

What is “specific partnership assets?”

Answer 5

Assets like land, leases, or equipment, which are owned only by the partnership itself
* May not be transferred by a partner without partnership authority

Question 6

What is the “share of profits?”

Answer 6

This is personal property–your share of profits (owned by individual partners)
* May be transferred by partners to third parties

Question 7

What is “share in management?”

Answer 7

Asset owned only by the partnership itself
* May NOT be transferred
* Can’t transfer your right to participate in management to a third party (i.e., your right to vote)

Question 8

How do you determine whether property is partner’s personal property or partnership property?

Answer 8

• If personal funds, it is personal property
• If partnership funds, it is partnership property

Question 9

Without agreement to the contrary, what is the default rule on control?

Answer 9

Equal–one partner gets one vote
* Does NOT matter how much each partner contributed–look for agreement on control, otherwise 1:1
* Majority vote governs for ordinary matters
* Unanimous consent needed for fundamental matters

Question 10

What is the default rule for salaries?

Answer 10

NO salary except for reasonable compensation for services performed in winding up partnership business
* TRAP is where one partner does a ton of work and another sleeps all day–there’s still no salary

Question 11

What is the default rule for a partner’s share of profits and losses?

Answer 11

• (1) Default is profits are shared equally
• (2) Default is losses share just like profits (look to agreement on profits, but nothing on losses)