BUSLAW Ch 37 Partnerships

Uniform Partnership Act

-(UPA) governs operation of partnerships in absence of express agreement, provides limited liability for partners in a limited liability partnership

Partnership Formation & Operation

--agreements to form partnership can be oral, written, or implied by conduct

Family Limited Liability Partnerships

-FLLP: a limited liability partnership, partners are related to each other - for example, as spouses, parents and children, siblings, or cousins -all partners must be natural persons,

Dissociation & Dissolution

-GP has the power to voluntarily dissociate, from LP unless partnership agreement

Liabilities of Partners in a LP

-Gen partners are personally liable to creditors, one GP is necessary in LP so that someone has personal liability -Liability of LP is limited to capital she/he contributes or agrees to contribute to partnership

Rights of Partners

-In general partnership, all partners have equal rights -Each partner has one vote in management matters -For ordinary Decisions: majority rul controls decision -Unanimous Consent is required for: altering nature of business, change capital strict, amend terms -Each partner entitled to proportion of business profits and losses that is specified in the partnership agreement -Property acquired by a partnership is the property of the partnership and not of the partners individually. -partnership property cannot be used to satisfy the personal debt of an individual partner

Limited Liability Partnerships

-LLP is a hybrid form of business, allows a partnership to continue as a pass-through entity for tax purposes but limits personal liability of partners

Limited Partnerships

-LP: consists of at least one general partner & one or more limited partners -general partner assumes management responsibility for the partnership & has full responsibility for the partnership -Limited partner contributes cash or other property & owns an interest in the firm, not involved in the management responsibilities, not personally liable for partnership debts

Partnership Termination

-Referred to as Dissolution --> commencement of the winding up process -winding up is the actual process of collecting, liquidating, & distributing the partnership assets -Under the UPA, court may order dissolution when it becomes obviously impractical for the firm to continue

Effects of Dissociation

-Rightful or wrongful, dissociation terminates rights of dissociated partner, requires partnership purchase his/her interest (UPA 701), & alters liability of parties to third parties

Partnership Buy-Sell Agreements

-Under UPA 701 (a), if a partner's dissociation does not result in a dissolution of the partnership, a buyout of the partner's interest is mandatory

Rights & Duties in a LP

-With the exception of the right to participate in management, limited partners have essentially the same rights as general partners

Formation of LP

-a public & formal proceeding that must follow statutory requirements -partners must sign a certificate of limited partnership & filed with the designated state official

Limited Liability Limited Partnerships (LLLP)

-a type of limited partnership -differs from a LP in the liability of all partners is limited to the amount of their investments in the firms

Liability of LLP

-allows professionals to avoid personal liability for the malpractice of other partners -Liability from state to state, may have to register in second state if want to do business with LLP out of state

Defining a Partnership

-an association of 2 or more persons to carry on as co-owners a business for profit -corporations are seen as persons, but not natural persons

Duties & Liabilities of Partners

-duties and liabilities of partners are derived from agency law -Each partner is an agent of every other partner and acts as both a principal and an agent in any business transaction within the scope of the partnership agreement -All partners have fiduciary duties: duty of care & duty of loyalty -Under the UPA, a partner's duty of care is limited to refraining from "grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law" -duty of loyalty can be breached by self dealing, misusing partnership property, disclosing trade secrets, or usurping a partnership business opportunity -Disadvantage: partners are personally liable for the debts of the partnership -Joint and several liability means that a third party ahs the option of suing all of the partners together (jointly) or one or more of the partners separately (severally)

Events that Cause Disassociation

-express will to withdraw -occurrence of an event specified in partnership agreement -unanimous vote of partners -order of the court if partner has engaged in wrongful conduct -partner's declaring of bankruptcy, becoming ill

Formation of LLP

-must be formed & operated in compliance with state statutes -appropriate form must be filed -relatively easy to convert partnership to LLP b/c firm's basic organizational structure stays the same

Wrongful Dissociation

-partner has right to dissociate at any time, but if he/she lacks the right to dissociate, then the dissociation is considered wrongful under the law

Duration

-partnership for a term: agreement can specify the duration of the partnership by stating that it will continue until a designated date or until the completion of a particular project -ii. If no fixed duration is specified, the partnership is a partnership at will, which means that the partnership can be dissolved at any time.

Agency Concepts

-partnership relationship is similar to an agency, each partner is deemed an agent of company -partners bound by fiduciary ties -difference between agency & partnerships is there is no ownership interest in an agency like there is in a partnership

Partnerships by Etoppel

-persons who are not partners nevertheless hold themselves out as partners and make representations that third parties rely on in dealing with them -a third person has reasonably and detrimentally relied on the representation that a nonpartner was part of a partnership, a court may conclude that a partnership by estoppel exists and impose liaibilty - but not partnership rights - on the alleged partner -NONpartner Agents: When a partnership by estoppel is deemed to exist, the nonpartner is regarded as an agent whose acts are binding on the partnership [UPA 308]

Essential Elements of Partnership

-sharing of profits and losses -joint ownership of business -equal right to be involved in management of business

Tax Treatment

-treated as aggregate of individuals and never a separate legal entity -Pass-Through Entity: business entity with no tax liability, income is passed through to owners

Disassociation of a Partner

-when a partner ceases to be associated in the carrying on of the partnership business