Rights & Liabilities Between General Partners Flashcards
General partners are fiduciaries of each other and the partnership— so the owe each other & the partnership what?
- duty of loyalty! Meaning no self-dealing, no usurpation, and no secret profit
What does the partnership do if a partner breaches his duty?
Action for accounting– recover for losses caused by the breach & also may disgorge profit
Specific Partnership Assets
such as land, leases, equipment
- each partner holds an interest in specific partnership property as a tenant in partnership with all other partners
- no partner may possess partnership property for other than the partnership purposes w/o the consent of all other partners
- A partner’s interest as tenant in partnership is nontransferable
Partners’ Share of Profits & Surplus
- personal property owned by each individual partner
- may be transferred by individual partners to third parties
- Share of profits and surplus is the only liquid, transferable personal property in the partnership
Share in Management
General Partners have a right to share in management. It is an asset owned by the partnership and therefore may not be transferred to third parties.
In order to determine whether the fact pattern involves specific partnership assets or personal property, the test is:
Whose money was used to buy the property? If partnership money was used to buy it, it becomes partnership property. If by contrast, personal money was used to buy it, it becomes personal property.
How many votes does each partner have when it comes to management decisions?
Absent an agreement as to control, each partner is entitled to EQUAL control meaning one vote per partner.
Partnership Salary
Absent an agreement, partners get NO SALARY
exception– partners receive compensation for helping to wind up the business following dissolution
What is the default share in profits?
Absent an agreement, profits are shared EQUALLY
What is the default share in losses?
Absent an agreement, losses are shared however profits are shared.
Partner’s right to sue the partnership?
- ROL
- Exceptions
General ROL- a partner may not sue the partnership. The sole remedy of a partner who has a claim against the partnership or another partner is an action for accounting.
EXCEPTIONS:
- disputes over one fully completed, but unadjusted, transaction where the partnership dealt with the partner as though he were a third person
What if a would-be partner lacks capacity (ex- under age)?
He is not personally liable for the obligations of the partnership. However, such a partner is bound to the extent of his capital contributions.
