Partnerships

Dissolution by Act of a Partner

A partner always has the "power" to withdraw from a partnership before its terms expires but a partner who leaves without the contractual "right" to do so may be sued for money damages for breaching the partnership contract For a FIXED TERM partnership, where a partner does not have the right to withdraw but do so anyway, the remaining partners may continue the partnership for the remainder of time period. The remaining partners must buy out the breaching partner's interest, minus damages owed.

Right to Use Partnership Property

A partner has no right to possess, use or convey away partnership property for non-partnership purposes (e.g. personal usage) The partner cannot pass title in a will, by an AID gift, or sell partnership property for personal purposes

Liability of Retiring Partners

A partner who retires remains personally liable for all partnership debts up to the time she retired For debts arising after the partner's retirement, the retiring partner remains personally liable to any partnership creditor who: 1 a) Previously extended credit to the partnership; and 1 b) Had no ACTUAL notice of the partner's retirement; and 1 c) Extended new credit to the partnership in reliance on the credit of the retiring partner OR 2) Never previously extended credit to the partnership but knew of and relied upon the partner's association with the partnership and the creditor had no CONSTRUCTIVE notice of the partner's retirement

The Statute of Frauds and Partnership Agreements

A signed writing satisfying the Statute of Frauds is required for partnership agreements ONLY IN TWO SITUATIONS: 1) Partners agree to do something which cannot, but its express terms, be completed in one year (e.g. 2-year partnership agreement); or 2) Where a partner agrees to transfer to the partnership either an interest in real property or a lease exceeding one year BUT the partnership agreement does not have to be in a signed writing since the interests of partners is deemed only personal property and the agreement does not fall under SMART FLYS (this is true even where the partnership's express purpose is to buy and sell realty)

Partnership Accounting

An accounting of a partnership "strikes a balance" on the partnership books by determining what the partnership assets are and assigning them value, and then determining what the debts and liabilities of the partnership are Order of paying off partnership debts: 1) Wages owed to partnership employees; 2) Debts owed to partnership creditors; 3) Debts owed to partners other than for the return of capital contributed (e.g. loan to partnership) 4) Partners' capital contributed Where there isn't enough money to pay all of the capital contributed then it is a loss and the partners simply divide up the capital equally The partners are equally liable for Any debt that can't be paid by selling the partnership assets

What is a Partnership

An association or two or more people, each possessing the power to bind the other(s) to a contract and they carry on business as co-owners for their mutual profit ANYONE can become partners Look for suffix "Co." or "and Associates"

Dissolution by Operation of Law

Can occur in three ways: 1) Anytime the partnership becomes illegal to continue 2) Bankruptcy of a partner; 3) Death of a partner (unless the partnership agreement provides otherwise)

Liability of Partners

Each partner is jointly and several liable for partnership torts and contracts

Property Rights of Partners

Every partner has PMS property rights: P - right to use partnership property for PARTNERSHIP PURPOSES; M - right to participate in MANAGEMENT; and S - right to return of capital invested and right to SHARE in profits

Existence of a Partnership

In determining whether a partnership exists between the parties look to if the parties intended to create a partnership Sharing of profits is prima facie evidence of a partnership except where profits were received in payment of DRAWS: D - a Debt; R - Rent; A - an ANNUITY paid to the partner's surviving spouse; W - Wages; or S - paid from the SALE OF GOODWILL of a business

Management Rights

Management is an equal right of each partner, regardless of how much each contributed to the capital and regardless of each partner's percentage of profits A majority vote governs the management of partnership affairs and absent a contrary provision in the partnership agreement a unanimous vote is needed to bring in a new partner or undertake an activity that goes against the partnership agreement

Liability of New Partners

New partners are not personally liable for prior debts incurred by the partnership except to the extent of any contribution paid into the partnership (S in PMS) Thus partnership creditors whose claims originate before the entrance of the new partner cannot go after the personal assets of that new partner A new partner is liable on the partnership lease but only for rent payments coming due after she entered the partnership

Dissolution by Court Decree

ONLY WHEN PARTNERSHIP IS FOR FIXED TERM (not for indefinite partnerships) The court will dissolve the partnership prior to its expiration date based on CLUB J: C - a partner cannot CARRY ON his share of the partnership work; L - the partnership can only be carried on at a LOSS (losing money); U - a partner is of UNSOUND MIND (incompetency does not dissolve as a matter of law, need court order to dissolve) B - a partner's persistent BREACH of the partnership agreement; J - any other grounds the court finds JUST AND EQUITABLE

Duty of Loyalty Owed Between Partners

Partners are fiduciaries to one another and owe each other the highest degree of loyalty

Assignment and Dissolution

The assignment of a partner's interest does NOT cause dissolution, but the assigning partner may NOT thereafter: 1) Interfere in partnership business 2) Demand an accounting; or 3) Inspect partnership books or records until the partnership expires

Partnership Dissolution

The death of the partnership but business must be wound up by honoring partnership executory contracts, paying off creditors and collecting partnership accounts receivable. Three kinds of dissolution: 1) Dissolution by operation of law 2) Dissolution by court decree 3) Dissolution by act of a partner

Profit Sharing

Unless otherwise agreed in the partnership agreement, profits and losses are shared equally The right to share in profits and return of capital invested in the partnership (S in PMS) is the only partnership property right that: 1) Is subject to attachment or judgment of a partner's personal creditor; 2) Can be assigned away by a partner; 3) Passes through the decedent-partner's estate

Rights of a Deceased Partner's Estate

When a partner dies but the partnership is continued by the surviving partners, the deceased partner's estate can recover either: 1) The contributions to the partnership of the partner and any profits owed, plus 9% interest from the date of death; or 2) The partnership profits attributable to the use of the deceased partner's interest (S in PMS) plus return of the S in PMS

Setting Aside the Actions of a Single Partner

Where one partner acts without the consent of the others in conveying a partnership interest, the other partners may set aside that action if it is something the partnership does not regularly deal in Ex: Partnership sells used cars. Unknown to partners X and Y, Z sold the realty on which one of the used car lots was located. Z has authority to sell the land as a partner since he is both a principal and agent of the partnership. However X and Y may set aside the sale because the partnership did not regularly deal in sale of realty, it dealt in sale of cars. Thus Z had CIA notice that he should have checked with the partners before making the sale. BUT if the partnership dealt in the sale of realty then the sale could not be set aside because it was conveyed by Z in the regular course of the partnership's business.

Termination of a Partnership "At Will"

Where the partnership agreement does not provide a specific ending date or fixed duration for the partnership, then ANY partner can call upon the partnership's termination at will