BA - Partnerships

Rule #1

(1) Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not by itself establish a partnership, even if the co-owners share profits made by the use of the property.

Rule #2

(2) The sharing of gross returns does not by itself establish a partnership, even if the persons sharing them have a joint or common right or interest in property from which the returns are derived.

Rule #3

(3) A person who receives a share of the profits of a business is presumed to be a partner in the business, unless the profits were received in payment: (i) of a debt by installments or otherwise; (ii) for services as an independent contractor or of wages or other compensation to an employee; (iii) of rent; (iv) of an annuity or other retirement or health benefit to a beneficiary, representative, or designee of a deceased or retired partner; (v) of interest or other charge on a loan, even if the amount of payment varies with the profits of the business, including a direct or indirect present or future ownership of the collateral, or rights to income, proceeds, or increase in value derived from the collateral; or (vi) for the sale of the goodwill of a business or other property by installments or otherwise.

§ 801. Events Causing Dissolution and Winding Up of Partnership Business

(3) an event agreed to in the partnership agreement resulting in the winding up of the partnership business; (4) an event that makes it unlawful for all or substantially all of the business of the partnership to be continued, but a cure of illegality within 90 days after notice to the partnership of the event is effective retroactively to the date of the event for purposes of this section; (5) on application by a partner, a judicial determination that: (i) the economic purpose of the partnership is likely to be unreasonably frustrated; (ii) another partner has engaged in conduct relating to the partnership business which makes it not reasonably practicable to carry on the business in partnership with that partner; or (iii) it is not otherwise reasonably practicable to carry on the partnership business in conformity with the partnership agreement; or (6) on application by a transferee of a partner's transferable interest, a judicial determination that it is equitable to wind up the partnership business: (i) after the expiration of the term or completion of the undertaking, if the partnership was for a definite term or particular undertaking at the time of the transfer or entry of the charging order that gave rise to the transfer; or (ii) at any time, if the partnership was a partnership at will at the time of the transfer or entry of the charging order that gave rise to the transfer.

Sec. 1.01(6) Partnership

(6) "Partnership" means an association of two or more persons to carry on as co-owners a business for profit formed under Section 202, predecessor law, or comparable law of another jurisdiction.

Sec. 1.01(7) Partnership Agreement

(7) "Partnership agreement" means the agreement, whether written, oral, or implied, among the partners concerning the partnership, including amendments to the partnership agreement

Sec. 204 When Property is Partnership Property (3 ways)

(a) Property is partnership property if acquired in the name of: (1) the partnership; or (2) one or more partners with an indication in the instrument transferring title to the property of the person's capacity as a partner or of the existence of a partnership but without an indication of the name of the partnership.

Sec. 404(a) General Standards of Partner's Conduct

(a) The only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care set forth in subsections (b) and (c). (b) A partner's duty of loyalty to the partnership and the other partners is limited to the following: (1) to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity; (2) to refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership; and (3) to refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership.

Sec. 807. Settlement of Accounts and Contributions Among Partners

(a)... the assets of the partnership ... must be applied to discharge its obligations to creditors, including, to the extent permitted by law, partners who are creditors. Any surplus must be applied to pay in cash the net amount distributable to partners ... (b) ... In settling accounts among the partners, profits and losses that result from the liquidation of the partnership assets must be credited and charged to the partners' accounts. The partnership shall make a distribution to a partner in an amount equal to any excess of the credits over the charges in the partner's account. A partner shall contribute to the partnership an amount equal to any excess of the charges over the credits in the partner's account ...

Sec. 807. Settlement of Accounts and Contributions Among Partners

(c) If a partner fails to contribute the full amount required under subsection (b), all of the other partners shall contribute, in the proportions in which those partners share partnership losses, the additional amount necessary to satisfy the partnership obligations ... (e) The estate of a deceased partner is liable for the partner's obligation to contribute to the partnership.

Sec. 204 When Property is Partnership Property (3 ways)

(c) Property is presumed to be partnership property if purchased with partnership assets, even if not acquired in the name of the partnership or of one or more partners with an indication in the instrument transferring title to the property of the person's capacity as a partner or of the existence of a partnership.

When Property is NOT Partnership Property

(d) Property acquired in the name of one or more of the partners, without an indication in the instrument transferring title to the property of the person's capacity as a partner or of the existence of a partnership and without use of partnership assets, is presumed to be separate property, even if used for partnership purposes.

e. Sec. 804. Partner's Power to Bind Partnerships After Dissolution i.

... a partnership is bound by a partner's act after dissolution that: 1. (1) is appropriate for winding up the partnership business; or 2. (2) would have bound the partnership under Section 301 before dissolution, if the other party to the transaction did not have notice of the dissolution.

§ 601. Events Causing Partner's Dissociation

A partner is dissociated from a partnership upon the occurrence of any of the following events: (1) Express will to withdraw (2) An event agreed to in the partnership agreement (3) The partner's expulsion by unanimous vote of the other partners if [four reasons] (5) The other partners get a judicial determination because [3 reasons] (6) Partner bankruptcy (7) [Individual] partner death/incapacity

§ 801. Events Causing Dissolution and Winding Up of Partnership Business

A partnership is dissolved, and its business must be wound up, only upon the occurrence of any of the following events: (1) in a partnership at will, the partnership's having notice from a partner, other than a partner who is dissociated under Section 601(2) through (10), of that partner's express will to withdraw as a partner, or on a later date specified by the partner; (2) in a partnership for a definite term or particular undertaking: (i) within 90 days after a partner's dissociation by death or otherwise under Section 601(6) through (10) or wrongful dissociation under Section 602(b), the express will of at least half of the remaining partners to wind up the partnership business, for which purpose a partner's rightful dissociation pursuant to Section 602(b)(2)(i) constitutes the expression of that partner's will to wind up the partnership business; (ii) the express will of all of the partners to wind up the partnership business; or (iii) the expiration of the term or the completion of the undertaking;

Salmon Dissent (Andrews)

Argued that the partnership was for a fixed period of time and this was not a general partnership and the new lease was different because it contained new property and new terms which was evidence that this was not a renewal of a partnership.

"Association"

Association: organized body of persons who have some purpose in common. A partnership is created by agreement, either express or implied

Owen v. Cohen (1941)

Facts: Owen and Cohen are partners in a bowling alley and they begin fighting and the profits start dropping off and Owen files to dissolve the partnership because it is not working. Holding: The Court ordered the dissolution of the partnership because there was no way for the partnership to continue on because of the fighting which was hurting the operation of the business.

Meinhard v. Salmon (1928)

Facts: Salmon and Meinhard were partners in a joint adventure for which both completed their end. Salmon became aware of a new adventure to make money and he decides to withhold this information from Meinhard and Salmon went in on his own. Meinhard sued for breach of the partnership agreement. Holding: Joint adventurers, like co-partners, owe to one another, while the enterprise continues the duty of the finest loyalty. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty. Salmon prevented Meinhard from having an opportunity to participate in the new joint adventure.

Prentiss v. Sheffel (1956)

Facts: Shopping center is losing money and Sheffel and other partner want to get Sheffel out of the partnership. They sue for dissolution and win and the shopping center is sold. Sheffel and other partner buy the shopping center. Prentiss gets mad and sues to stop them from being able to do this because they forced the sale and then bought the assets to keep Prentiss out of the partnership. Holding: Court says that the two majority partners in a partnership-at-will, who had excluded third partner from partnership management and affairs, were properly allowed to purchase the partnership assets where the exclusion of the minority partner was not done for wrongful purpose and where minority partner failed to demonstrate how he was injured.

What kinds of partnerships are there?

General Partnership A partnership in which all participate fully in running the business and share equally in the profits and losses (although the partners' monetary contributions may vary). Limited Partnership A partnership composed of one or more persons who control the business and are personally liable for the partnership's debts (general partners) and one or more persons who contribute capital and share profits but who cannot manage the business and are liable only for the amount of their contribution (limited partners)

§ 603. Effect of Partner's Dissociation

If dissociation results in winding up the partnership, use Section 801. If not, Section 701 applies (Purchase of dissociated partner's interest)

"Persons"

Individuals, Corporations, Other Partnerships, With the capacity to contract (because the partnership agreement is a contract)

Example: 3 partners: Adam, Brian and Charles. Adam and Brian find Charles hard to work with, uninformed, unhelpful. Adam and Brian are inclined to avoid discussing partnership business with Charles at all, since they outvote Charles if there is a disagreement so it is a waste of time. Can Adam and Brian do this?

Must give every partner an opportunity to participate in the partnership. Do not have to listen to Charles though because they can just out vote him. But they can't hide it from him.

Sources of Law

National Conference of Commissioners on Uniform State Laws (NCCUSL) Uniform Partnership Act (1914) (UPA) Revised Uniform Partnership Act (1997) (RUPA) - Adopted by 2/3 states, Including Kansas, Remaining 1/3 uses UPA 1914 (Except Louisiana) Make sure you understand the difference: Restatement; Uniform Law; Kansas Law; Federal Law

Example: Anna, Betsy and Caroline are equal partners in a firm that owns a shopping center. Partnership terminable at will. Anna and Betsy get along, but have an unpleasant and unproductive relationship with Caroline. Anna and Betsy want to buy Caroline out. Anna and Betsy are willing to pay $700,000 for Caroline's interest. They would prefer to pay less. Anna and Betsy think an outsider would pay at most $1,800,000 for the center ($600,000 each.

No they can't do this.

Aggregate Theory

Partnership is an aggregate of persons acting with a common purpose, sharing profits and losses, and holding partnership assets in joint ownership. The partnership is only in existence as long as the exact aggregate of partners exists. If a new partner joins, or an older partner dies, then the partnership dissolves and a new one is created.

"For profit"

Partnership law is a branch of commercial law, We are talking about associations...

Entity Theory

RUPA creates entity theory, Sec. 201 Partnership as Entity: (a) A partnership is an entity distinct from its partners. Therefore if an older partner dies, that partner is replaced and the partnership is not dissolved.

What will this Hook Up To?

Risk and risk allocation Fiduciary duties Role of law

Revised Uniform Partnership Act

Sec. 1.01 - Definitions

How do you form a partnership?

Sec. 2.02(a) Formation of Partnership 1. (a) Except as otherwise provided in subsection (b), the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership. a. Can be done inadvertently and does occur inadvertently. b. Sec. 2.02, comment 1 i. A partnership is created by the association of persons whose intent isn't o carry on as co-owners a business for profit, regardless of their subjective intention to be partners. Indeed, they may inadvertently create a partnership despite their expressed subjective intention not to do so.

How do you form a partnership?

Sec. 2.02(c) Formation of Partnership (c) In determining whether a partnership is formed, the following rules apply: Three Rules (next 3 cards)

"To carry on as co-owners a business"

Sec. 2.02, Comment 1 Ownership involves the power of ultimate control. TO state that partners are co-owners of a business of a ...."business" defined in RUPA 2.02, comment 1, A series of acts directed toward an end

Partnership Property

Sec. 203 Partnership Property: Property acquired by a partnership is property of the partnership and not of the partners individually.

Partnership Liability: When is the partnership liable for what a partner does?

Sec. 305 Partnership Liable for Partner's Actionable Conduct (a) a partnership is liable for loss or injury caused to a person, or for a penalty incurred, as a result of a wrongful act or omission, or other actionable conduct, of a partner acting in the ordinary course of business of the partnership or with authority of the partnership. Sec. 306. Partner's Liability (a) Except as otherwise provided in subsections (b) and (c), all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.

Partnership Financing: How do you organize the money?

Sec. 401. Partner's Rights and Duties (a) Each partner is deemed to have an account that is: (1) credited with an amount equal to the money plus the value of any other property, net of the amount of any liabilities, the partner contributes to the partnership and the partner's share of the partnership profits; and (2) charged with an amount equal to the money plus the value of any other property, net of the amount of any liabilities, distributed by the partnership to the partner and the partner's share of the partnership losses. (b) Each partner is entitled to an equal share of the partnership profits and is chargeable with a share of the partnership losses in proportion to the partner's share of the profits. Each partner contributes money to the partnership and each has their own account on the partnership books. This is the default rule.

How do they differ from other business associations?

They differ in: Taxation Liability Transferability Life Flexibility Centralized management Expenses

Dissociation

Under RUPA, unlike the UPA, the dissociation of a partner does not necessarily cause a dissolution and winding up of the business of the partnership. A dissociated partner remains a partner for some purposes and still has some residual rights, duties, powers, and liabilities.

What is a partnership?

Voluntary association of two or more persons who jointly own and carry on a business for profit.

Sec. 204 When Property is Partnership Property (3 ways)

b) Property is acquired in the name of the partnership by a transfer to: (1) the partnership in its name; or (2) one or more partners in their capacity as partners in the partnership, if the name of the partnership is indicated in the instrument transferring title to the property.

d. Sec. 802. Partnership Continues After Dissolution

i. (a) Subject to subsection (b), a partnership continues after dissolution only for the purpose of winding up its business. The partnership is terminated when the winding up of its business is completed.

l. Partnership Management

i. Sec. 401. Partner's Rights and Duties 1. (f) Each partner has equal rights in the management and conduct of the partnership business. 2. (i) A person may become a partner only with the consent of all of the partners. 3. (j) A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertaken only with the consent of all of the partners.

m. Partnership Dissolution

i. What happens when things go wrong? 1. Two things can happen: a. Dissociation i. This means that a partner is removed from the partnership. b. Dissolution i. This means that the partnership is destroyed or dissolved. c. Example i. If A, B, C and D are partners and D leaves the partnership, under the entity doctrine, this is dissociation. Under an aggregate doctrine, this would be dissolution because the partnership would have to dissolve and re-emerge as the new partnership.