Rights of partners among themselves Flashcards
Equal rights to manage and control general partners v limited partners
Absent an agreement to the country, general partners have equal rights to manage and control the partnership business, while limited partners generally have no say in such matters.
Disagreements relating to ordinary matters connected with the business of the partnership are decided by a majority of the partners
Use of partnership property
Absent an agreement to the contrary, a partner may ONLY use partnership property:
(1) On behalf of the partnership; OR
(2) To carry on the business of the partnership
Any person use of partnership property requires the consent of the other partners.
Books and Records
Absent an agreement to the contrary, every partner MUST have access to the partnership books and records during normal business hours; and upon reasonable demand the partnership MUST under true and full information of all things regarding the affairs of the partnership that is just and reasonable under the circumstances
Equal profits and losses
Absent an agreement to the country, each partner is generally;
(1) Entitled to an equal share of the partnership profits; AND
(2) Responsible for a share of the partnership losses in proportion to the partner’s share of profits
Duty of care
Each partner owes a limited fiduciary duty of care to the partnership and other partners, which requires that each partner REFRAIN from engaging in:
(1) Grossly negligent or reckless conduct
(2) Intentional misconduct; OR
(3) A knowing violation of the law
Duty of loyalty
Each partner owes a fiduciary duty to the partnership and other partners, which requires that each partner:
(1) Act in good faith and fairly toward the other partners
(2) Account for any property, profit, or benefit derived by the partner from partnership business or property; AND
(3) REFRAIN from:
(a) Competing with the partnership within the scope of the business; AND
(b) Usurping a business opportunity that propels belongs to the partneship
Dissolution
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 affairs is completed
Dissolution Causes
There are three main causes of dissolution:
(1) Actions taken by the partners e.g dissociation
(2) Operation of law e.g becomes illegal to continue the business of the partnership
(3) Court order (e.g court may grant a judicial dissolution)
uniform Partnership Act (UPA) and dissolution
under the UPA, any change in partner membership automatically triggers dissolution of the partnership UNLESS there is an agreement to the contrary, every partner generally has the power to dissolve the partnership at any by withdrawing from the partnership. However, if the dissolution is wrongful, the remaining partners may hold the dissolving partner liable for damages
Revised Uniform Partnership Act (RUPA)
Rupa provides a basis for continuing the partnership despite a partner’s withdrawal from the partnership where the remaining partners may buy out the withdrawn partner’s interest instead of winding up the partnership business. Under RUPA, absent an agreement to the contrary, the “disassociation” of a partner does NOT automically trigger dissolution UNLESS either of the following exceptions apply:
(1) At will partnerships - Any member of an at-will partnership can disassociate at any time automatically triggering dissolution and liquidation.
(2) will of the parties - A partnership automatically dissolve upon the occurrence of an event that the partners specified would cause dissolution in the partnership agreement
Term Partnership
A term partnership is a partnership that exists for a specified duration of time or until a specified event occurs. Under RUPA, a term partnership may be dissolved before its term expires if:
(1) At least half of the partner’s express their will to wind up the business within 90 days after a partner’s disassociation by death, declaring bankruptcy, becoming incapacitated, or wrongful disassociation; OR
(2) All of the parties agree to amend the partnership agreement by expressly agreeing to dissolve the partnership
Transfer of Ownership Interest in a partnership
A partner can only transfer
(1) his interest in the share of the profits; AND
(2) his right to receive distributions
Right to Partnership Property
- A partnership is a distinct legal entity from its partners. All property acquired by a a partnership OR with partnership assets is owned by the partnership (not the partners individually)
- Property acquired in the name of the partner is presumed to be separate property (even if used for partnership purposes) so long as:
(1) no partnership assets are used to acquire the property; AND
(2) no written title instrument for the property references the partnership or that the person is partner.
winding up
- Winding up is the process of settling partnership affairs after dissolution. The partnership is terminated when the winding up of the business is completed.
- During the winding up process, partnership assets are converted to cash and then distributed in the following order: (1) creditors; (2) partners’ capital contributions; and (3) profits to be distributed among the partners
Dissociation
Dissociation is caused by a partner ceasing to be associated with the carrying on of the business
A partner is dissociated from the partnership upon notice of his express will to withdraw as a partner
