Week 3 - Unincorporated Firms Flashcards
three types of unincorporated firms?
- sole prop
- trust
- p-ship
essentialia of a pship contract?
- agreement/contract
- at least 2 persons
- contribution (not only $)
- mutual benefit (profit purposes)
requirements for valid pship agreement?
- each partner must contribute
- bus must be carried on for joint benefit of partners
- objective is to make profit (intends to)
- contract must be legitimate
what will courts look at to determine if pship has been formed?
substance – if it is the real intention of the parties from agreement as whole
how do the rights and duties of partners work?
- rights imply reciprocal duties
- usual breach remedies apply
what do partners have the right to?
- share in pship profits
- participate in mgmt
- inspect pship books
- distribute assets upon dissolution
what duties do partners have?
- contribution
- sharing of mgmt
- reasonable care, good faith
what are extraordinary pships?
universal pships – people are together, never marry; one dies and this helps w property distribution
liability in anonymous pships?
- liable only to co-partners, not creditors of pship
- indirect liability to creditors in context of insolvency – partner cannot claim concurrently w creditors against pship
- can’t participate actively in mgmt
incorporated partnership characteristics?
- inc under Comp Act
- used for professional firms (lawyers, accs)
- personal liability for directors
how do pships become authorized to be liable to third parties?
when its members have a valid agreement to be in a pship and the authority to bind the pship in name of/on behalf of the pship.
pship as a separate entity?
not treated as one – contract is with each individual partner, separately
what is joint liability?
all held liable at the same time
liability in regular pship?
they will be jointly liable.
jointly and severally liable after disbanding.
how many authority arise in a pship?
- express
- implied
- estoppel
how does express authority occur in a pship?
through the provision of a pship agreement
how does implied authority occur in a pship?
from the pship agreement or mutual mandate where each partner has the authority to do all acts incidental to proper conduct of pship
estoppel in a pship?
3P may raise estoppel against pship, estopping partners from denying their liability even in absense of authority
when does a contract with 3P become binding for the pship?
- contract between partners and 3P must be valid
- the obl is contracted in the name of the pship, not the individual partners
- both pship and 3P must intend to be contracting w the pship
what causes dissolution of a pship?
- agreement
- operation of law
- renunciation
renunciation of a pship?
will not be breach if lawful case, such as:
- fulfilment of the term in agreement
- breach of essential term in agreement
- conduct causing loss of confidence; can’t work as well together
consequences of dissolution of pship?
both partners still liable for debts to creditors and co-partners
what is a trust?
a legal relationship created in a trust deed
types of trust?
- inter vivos
- mortis causa
- bewind trusts
how does a trust work and how is it created?
- relationship created by a founder/donor
- founder places assets under the control of a trustee during the founder’s life or after death
- purpose of exercise is to benefit the beneficiairies
- trustee gets ownership of assets in trust
parties to a trust?
- trustee (can be multiple, can be founder)
- founder/donor
- beneficiary
requirements for the creation of a value trust?
- intention by founder
- expressed in a way that is legally binding
- trust property (assets, essential to trust)
- objective must be certain and lawful
testamentary trusts?
child can be beneficiary to parent’s assets, except child is a minor and will have a trustee to manage the estate that the child inherits
bewind trusts?
trustee only manages the trust and beneficiaries get ownership of the assets
how to make a trust?
- trust deed (doesn’t have to be written)
- lodge a trust instrument with Master of High Court
what if no document is lodged to Master?
there can still be a valid trust but trustees cannot perform any valid legal functions for the trust
duties of a trustee?
- act with care, dil, skill
- open a separate trust account
- have independent discretion at all times
- not expose assets to undue risk
- invest trust property productively
powers of trustee?
- limited at common law
- preserve, protect, manage assets free from risk
what is included in trust deed?
- powers and duties of trustee
- either be v specific or allow trustee use their own judgement
- nature and extent of rights of beneficiary
when does the beneficiary acquire the right to benefit from the trust?
- when they accept the right offered in trust document
- before acceptance, founder can revoke or vary rights
what are the rights of the beneficiary subject to?
terms of trust doc
exercise of discretion by trustee
what are vested rights?
assets in the beneficiary’s estate
remedies the beneficiary has?
- enforcement rights in trust doc after acceptance
- damages for breach of trust, where they suffer a financial loss because trustee was not acting according to fiduciary duty
business trust
- basically the same as normal trust
- beneficiaries can sell/cede their interest in the trust (same as SH and shares)
trustee powers in a business trust?
those excluded under common law will be included:
- sell trust assets
- enter into loan agreements, mortgage assets
- expose trust assets to risk by conducting a business
structuring trust to resemble company / cc?
can be done through using the trust deed
what is the partnership fund?
represents the property owned by individual partners in their own names, but jointly
what is a universal partnership?
involves parters contribting all their property/profits to the pship for an open-ended period and wide-ranging purposes, with them sharing the profits of the enterprise
what does aggregate theory do?
treats the pship as a collection of individual parties who are the owners of pship property. the pship is not a separate legal person, cannot own property, partners hold pship assets as co-owners in undivided shares.
if the court sequestrates the estate of the pship?
it simultaneously sequestrates the estate of every member of the pship. the creditors of the pship can prove claims against pship estates only.
express authority in a pship?
if partner is given express authority to enter into legal relationship and acts ito mandate given to them, pship is bound even if transaction falls outside scope of pships usual business.
general authority in a pship?
only extends to trnasactions which fall in scope of the pships business. if it can be proven that partner acted outside of scope, they have exceeded their general authority.
implied authority in a pship?
can be varied or limited based on express agreement by the partners
ostensible authority in a pship?
they appear to the outside world as having the authority to act on behalf of the pship
creditors suing the pship?
must sue all members, cannot only sue some members. does not apply on dissolution though.
if a partner has limited express authority?
if partner B exceed it by contracting with a 3P (who is unaware of the limit), the pship has no defense on the basis of private instruction that might be given to B, if it can be shown that B acted within implied authority. tge pship will be bound to contract with 3P
