Rights & Duties of Partners

Question 1

Governing Rules

Answer 1

Relations among the partners and between the partners and the partnership are governed by the partnership agreement itself or, in the absence of such an agreement the Uniform Partnership Act.

Question 2

Things a Partnership Cannot Do (SBFGDCLT)

Answer 2

• (Statement)- vary the rights and duties of filing the statement of partnership, except to eliminate the duty to provide copies of statements to all partners
• (Books)- unreasonably restrict the right of access to books and records
• (Fiduciary)- eliminate or reduce a partner’s fiduciary duties
• (Good Faith)- eliminate or reduce the obligation of good faith and fair dealing
• (Dissociation)- vary the power to dissociate as a partner, except require notice in writing
• (Court)- vary the right of a court to expel a partner
• (LLP)- vary the law applicable to a LLP
• (Transfer)- restrict the rights of a person, other than a partner and transferee of a partner’s transferable interest

Question 3

UPA Provisions that Will Always Apply (Can Be Limited But cannot be Destroyed)

Answer 3

Include:

• Partner’s right to have reasonable access to the partnership’s books and records
• Partner’s duty of loyalty
• Partner’s duty of care
• Right to dissociate

Question 4

Rights of General Partners

Answer 4

Subject to partnership agreement, each general partner has an equal right to manage and conduct the partnership’s business (for GPs, LPs, or LLPS)

Question 5

GPs as Agents

Answer 5

Each GP is an agent of the partnership in the conduct of its business. A partner’s act in the ordinary course of business binds the partnership unless there is no authority to act and the person with whom the partner is dealing with knows of no such authority. An act outside ordinary course of business binds the partnership only if all GPS consent to action.

Question 6

Rights of Limited Partners?

Answer 6

• Limited partners do not have a right to co-manage the partnership business along with the general partners.
• But limited partners do have the right to seek information for a purpose reasonably related to their interest.

Question 7

LPs Right to Seek Information

Answer 7

Includes:

• the right to inspect and copy the required partnership records and tax returns, and
• obtain true and full information as to the financial condition and state of the business of the partnership

Question 8

Duties Within the Partnership

Answer 8

For GPs, LPs, LLPs include:

• the duty of care (general partners only)
• the duty of loyalty (general partners only)
• the duty to disclose
• the duty to account
• the duty to keep books and right of inspection

Question 9

Partner’s Duty of Care

Answer 9

Each partner owes to the partnership and the other partners a duty of care in the conduct of the partnership business. Cannot engage in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.

Question 10

Partner’s Duty of Loyalty

Answer 10

Partners:

• cannot compete with the partnership in the conduct of its business or usurp a partnership opportunity
• cannot engage in dealings with the partnership IF their dealings are intended to serve adverse interests
• cannot appropriate partnership assets for personal use
• must account for any benefit and hold as trustee any profit derived from any transaction connected with the partnership’s business OR the use of partnership property.

Question 11

Partner’s Duty to Disclose (Disclosure to General Partners)

Answer 11

Partners (& Partnership) have a duty to furnish to a partner, without demand, any info that is related to the partnership business and reasonably required for the proper exercise of a partner’s rights and duties under the partnership agreement.

Partners (& Partnership) have a duty to furnish to a partner, on demand, any info that concerns the partnership business so long as the demand is not unreasonable or improper under the circumstances.

Question 12

Partners Duty to Disclose (Disclosure to Limited Partners)

Answer 12

Given a limited partner’s right to inspect, general partners and the partnership have a duty to provide limited partners with the opp. to inspect the company’s financial and tax records and any other info reasonably related to the finances of the business and their interests therein.

Question 13

Duty to Account

Answer 13

• Every partner must account to the partnership for any benefit and holds as trustee for the partnership any profit, derived by him without the consent of the other partners from any transaction connected with the conduct and winding up of the partnership business or from any use by him of its property.
• This is also true of a deceased partner’s rep engaged in the winding up of partnership affairs

Question 14

Duty to Keep Books and Right of Inspection

Answer 14

The partnership books and records must be kept, subject to any agreement between the partners, at the partnership’s principal office, and every partner shall, on reasonable notice, have access to and may inspect and copy any of the books and records.

Question 15

When a Partner Breaches the Duties

Answer 15

They are liable to both the partnership and other partners.

Question 16

Enforcing a Partner’s Rights

Answer 16

A partner may maintain an equitable or legal action against another partner or the partnership to enforce the partner’s rights under the partnership agreement, the UPA, and any other rights.

Question 17

Profits, Losses, & Contributions

Answer 17

Absent an agreement to the contrary:

• each partner is entitled to share equally in the profits generated by the partnership business
• the partners share losses in proportion to their share of the profits

Question 18

Distinguishing Partner’s Personal Property from Partnership Property (Partnership Interest)

Answer 18

A partner’s PP includes his partnership interest which consists of:

• his financial interest in his share of the partnership’s profits and losses; and
• his right to receive distributions from the partnership

Question 19

Transferring the Partnership Interest

Answer 19

Unless prohibited in the partnership agreement, a partner may transfer to another party his partnership interest. Such a transfer does not dissolve the partnership.

Question 20

Rights of a Transferee Who Acquires a Partnership Interest

Answer 20

• A transferee is entitled to those disbursements or distributions that the transferring partner would not otherwise have been entitled.
• However, a transferee of a partner’s partnership interest acquires NO right to participate in the management and control of the business and no right to require access to partnership info, books, or records

Question 21

Dormant Partner

Answer 21

One who is not active in managing the partnership business and who is not known to the world as a partner. Is still liable on partnership obligations.

Question 22

Incoming Partner

Answer 22

One admitted as a partner into an existing partnership. Is not personally liable for any partnership obligation incurred before the person’s admission as a partner.

Question 23

Retiring Partner’s Obligations

Answer 23

Usually a retiring partner remains liable on all obligations incurred before his retirement.

Question 24

Ways in Which a Retiring Officer’s Obligations Can be Discharged

Answer 24

• The remaining partners may agree to assume the obligations of the retiring partner (the retiring partner will remain a surety)
• Inferring an agreement to discharge retiring partner from course of dealing between a creditor having knowledge of the dissolution and the partners continuing the business
• When a partnership creditor, knowing of the agreement, consents to any material alteration in the nature or time of payment of the obligations (retiring partner is released from any liability)