Partnership

Property Issues: Rights in Partnership Property

1. As to the partnership: Rights are totally unrestricted. 2. As to a partners: A partners is not a co-owner of partnership property and has no interest in partnership property which can be transferred. Rather, a partner may simply use partnership property for partnership purposes.

Fiduciary Duties to Partnership

1. Loyalty 2. Care 3. Disclosure 4. Obedience Partnership agreement may eliminate disclosure, but may not eliminate duties of loyalty or care.

Property issues: Rules for Determining Partnership Property

1. Property is partnership property if it is acquired in the partnership's name or in a partner's name where it is apparent from the doc that she is acting for a partnership. 2. Presumed to be partnership property if partnership funds are used. 3. Presumed to be a partner's property if acquired in her name without partnership funds and there is no sign that she is acting for a partnership.

Fiduciary Duties: Duty of Loyalty

Again, a duty to treat the other partners in the partnership fairly. Examples: Duty to-- 1. Account to the partnership for any benefit derived by partner 2. Refrain from dealing with the partnership as one with an adverse interest; and 3. Not compete with the partnership

Financial Rights and Obligations: Sharing Profits and Losses

DEFAULT RULE: Unless otherwise agreed, profits are shared equally among the partners. Unless otherwise agreed, losses are shared in the same manner as profits.

Apparent authority of dissociated partner

Dissociated partner has apparent authority to bind partnership for 2 years after dissociation. Partnership can protect itself by notifying creditors of dissociation or filing public statement of dissociation.

Financial Rights and Obligations: Liability of the Partners

Each partner is jointly and severally liable for all of the obligations of the partnership (whether arising from tort or contract) BUT: Plaintiff must first exhaust partnership resources before seeking to collect from an individual partner's assets (partners essentially guarantors). Partners cannot limit liability of one partner without third party's consent--though they can make such an agreement among the partners.

Consequences of Dissociation

Either: 1. Partnership is dissolved and its business is wound up 2. Partnership continues in existence and dissociated partner is bought out.

Partnership

Formed as soon as: 1. Two or more persons associate; 2. To carry on as co-owners; 3. Of a business for profit NOTE: Subjective intent to create partnership is irrelevant. EXCEPTION: Presumption of partnership unless profits were received in payment: 1. Of a debt; 2. As wages or other compensation; 3. As rent; or 4. As interest on a loan. Two Partnership Types 1. At-will (default): Partners have not agreed to remain partners until expiration of a definite term or completion of project 2. Term partnership: A partnership where partners have agreed, explicitly or implicitly to remain partners for definite term or until completion of particular undertaking. Partnership Agreement: While no agreement is required to form a partnership under RUPA (Revised Uniform Partnership Act), a partnership agreement can contract around almost all statutory provisions. May be written, oral, or implied. Entity Status: The partnership is considered to be a legal entity distinct from its partners.

Liability of Dissociated Partner

Generally, dissociated partner remains liable for pre-dissociation partnership obligations. He may also be liable for post-dissociation partnership liabilities incurred within 2 years after the dissociation (as long as dissolution has not occurred). However, he can shield himself by notifying creditors or filing a public statement of dissociation.

Partnership by Estoppel

If no partnership was formed in fact, parties may still be liable as if they were partners to protect reasonable reliance by third parties.

Wrongful Dissociation

Involves a breach of an express term in the partnership agreement; or In a term partnership, if the parter withdraws, is expelled, or becomes bankrupt before end of term. Partner that wrongfully dissociates is liable to partnership for any damages caused by dissociation.

Dissolution

Only required in limited circumstances. 2 particularly important ones: 1. In an at-will partnership, any partner who dissociates by express will may compel dissolution and winding up. 2. In a term partnership, if wrongful dissociation occurs or dissociation occurs due to death or bankruptcy, dissolution and winding up is required only if, within 90 days, 1/2 of the remaining partners agree to wind up. When Dissolution occurs, partnership assets must be applied to discharge of partnership liabilities. If assets are insufficient, individual partners are required to contribute in accordance with lost shares. If excess, share the profits. Priority of Distribution: Creditors-->Capital Contributions by partners-->Profits or losses, if any. Winding Up: All partners who have not wrongfully dissociated may participate in the winding up of partnership's business. Apparent authority: Even after winding up, partners have apparent authority to bind partnership to a third party.

Property Issues: Partner's Ownership Interest in the Partnership

Partnership interest is the personal property of the partner. Partnership interest is comprised of: 1. Management rights 2. Financial rights Partners cannot unilaterally transfer his management rights, but can unilaterally transfer his financial rights. However, partner remains a partner of the partnership.

Fiduciary Duties: Duty of Disclosure

RUPA states that each partner and the partnership shall furnish to a partner: 1. Without demand, any info concerning the partnership's business and affairs reasonably required for the proper exercise of the partner's rights and duties; and 2. On demand, any other info concerning the partnership's business and affairs (unless unreasonable or improper under the circumstances).

Partnership: Writing

RUPA statute does not require one, but the Statue of Frauds may

Fiduciary Duties: Duty of Care

Requires each partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.

Fiduciary Duties: Duty of Obedience

Requires the partner to obey all reasonable directions of the partnership and not act outside the scope of his or her authority.

Financial Rights and Obligations: Liability to Third Parties

TORT: Each partner is an agent of the partnership. The partnership is liable for loss or injury caused by a partner acting in the ordinary course of business of the partnership or with authority of the partnership CONTRACT: A partnership is liable for contracts entered into on its behalf by partners with actual or apparent authority. ACTUAL AUTHORITY: Can be created by the partnership agreement or by requisite vote of the partners. Actual authority can also be created by filing a "statement of partnership authority." When statement involves transfers of real property, a third party is deemed to have constructive knowledge of the statement. In other transactions, third parties only have constructive knowledge of grants of authority, not restrictions. APPARENT AUTHORITY: Partner has apparent authority to bind the partnership to transactions within the ordinary course of the partnership's business, unless a third party had reason to know that the partner lacked authority.

Management and Operation of a General Partnership--Default Rules

Voting: Unless otherwise agreed, all partners have equal rights in the management of the business and equal votes. Matters within the ordinary course of partnership require a majority vote; matters outside ordinary course require consent of all partners. Salary/Compensation: Unless otherwise agreed, partners get no compensation

Dissociation of a Partnership

When a partner withdraws or "bows out" of the partnership. Events that give rise to Dissociation: 1. Express will of one of the partners 2. Expulsion, death, or bankruptcy 3. An agreed upon event 4. The appointment of a receiver for a partner