GENERAL PARTNERSHIPS and LLPs. Chapter 3

Topics - Chapter 3

Formation of partnership. Partnership liability Personal liability of partners Agreements in the Ordinary course of business of partnership Partnership fiduciary duties

Partnership Agreement - Non-Waivable Provisions

See RUPA Section 103 for non-waivable provisions.

Events Causing Dissociation Examples:

1) A partner at a law firm is suspected of overbilling a client after another partner conducts a review of her billing reports and time records. The other partners unanimously vote to expel the partner from the partnership due to her ethical violations related to the partnership business. The partner is dissociated from the partnership. [See Bohatch v. Butler & Binion,

LLP Liabilities Examples: (2)

2) A law firm registers as a limited liability partnership. One of the partners enters into several financial agreements with the limited liability partnership and, upon leaving, enters into a withdrawal agreement that promises a set level of compensation for a period of time. However, the limited liability partnership does not adhere to the withdrawal agreement. Although the limited liability partnership shields its partners from individual liability to third persons, there is no limited liability regarding obligations to the partners and the partnership itself. The partner is entitled to the agreed-upon compensation. [See Ederer v. Gursky

Liability of Dissociating Partner

A dissociating partner who leaves an existing partnership remains personally liable for partnership obligations that were incurred before dissociation. Otherwise, a dissociating partner is not personally liable for partnership obligations that are incurred after dissociation, unless the other party: (1) believes that the dissociated partner is an actual partner, (2) did not have notice of the partner's dissociation, and (3) is not deemed to have knowledge or notice of the dissociation under the UPA. Note also that a dissociated partner may be released from liability for a partnership obligation by agreement. [See Uniform Partnership Act § 703 (

Partnership Dissolution

The dissolution of a partnership begins with the occurrence of an event that causes dissolution and continues with the winding up of partnership business. The partnership is terminated when the winding up of partnership business is completed. [See Uniform Partnership Act § 802(a) (1997)]

Duty of care

The duty of care requires each partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law related to partnership business. [See Uniform Partnership Act § 404(c) (1997)]

Dissolution

The termination of a partnership typically begins with the dissociation of one of the partners from the partnership, which often leads to the dissolution of the partnership and the winding up of partnership business. Under the UPA, partner dissociation and partnership dissolution are considered to be separate events. [See Uniform Partnership Act § 603 (1997)]

Duty of care:

"refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law." (RUPA §404(c))

Management - cont'd

Managing partner or committee structure will typically require a partnership vote on matters outside of the ordinary course of business. (for example, admitting a new partner, expelling a partner, or selling the business). The partnership agreement will specify the required vote for approval. (majority, supermajority, or unanimous). Default rule for partnership management- if the partnership agreement is silent on a particular issue each partner has equal rights in the management of the partnership business. See RUPA 401(f).

Partnership by Estoppel example

Two lawyers, who are not partners, purchase a billboard advertisement that displays their portraits and names, seeking new clients who have been in car accidents. A client relies on the representation in the billboard advertisement that the two lawyers are partners in a partnership in hiring the two lawyers. There is a partnership by estoppel between the two lawyers, who may be held liable to the client.

Liability to Third Persons example

Two partners enter into a general partnership to sell groceries at a store. Several months prior to ending the partnership, one of the partners notifies a seller that he will not be personally responsible for any additional bread purchased by the store. However, his co-partner purchases additional bread from the seller and fails to pay in full. The partner and partnership are liable for the debt incurred in the ordinary course of partnership business by the co-partner, regardless of the partner's notification to the seller. [See Nat'l Biscuit Co. v. Stroud

Events Causing Dissolution example

Two partners enter into an oral partnership agreement without specifying a definite term or particular purpose of the partnership. Subsequently, one of the partners attempts to terminate the partnership, even though current business is profitable. Although the other partner argues that the partnership may not be terminated, either partner may dissolve the partnership at will with a notice of his express will to do so, regardless of the business's current profitability. [See Page v. Page,

Duty of loyalty:

duty "to account to the partnership and hold as trustee for it any property, profit, or benefit . . . derived from a use by the partner of partnership property." (RUPA §404(b)) no self-dealing no competing against the partnership

Management of Partnership

-Generally specified in the partnership agreement. Common approaches include: -The partners select a managing partner generally vested with the authority to make all decisions -The partners select a management committee composed of partners generally with the authority to make all decisions. -The partners all get a say in managing the business, with each partner having an equal vote -The partners all have a say in managing the business with each partner having voting power in accord with the partner's capital contribution to the partnership

Partner Dissociation

Any partner may leave a partnership: (1) by exercising the power to dissociate or (2) as a result of other events causing dissociation. There will be certain effects after dissociation if the partner's dissociation does not lead to the dissolution and winding up of the partnership under the UPA.

Partnership Formation - General Partnerships

-A general partnership, like an agency relationship, may be created through express agreement of the parties or may arise by operation of law when the parties have entered into an arrangement having the legal attributes of a partnership. UPA 303, 304. -Persons entering into a partnership should always execute a partnership agreement to address issues such as: -Management -Voting, -Sharing of profits and losses, -The continuation of the business when a partner withdraws, retires or is expelled -Valuation of interests in the partnership

Governing Law

-A limited partnership (LP) is governed by the limited partnership statute of the state of organization (state in which the LP filed its certificate of limited partnership) -All states but Louisiana base their statutes on some version of the uniform limited partnership act

Fiduciary Duties

-Can contract around, but Section 103(b)(3) of RUPA -States that the duty of loyalty many not be eliminated by the partnership agreement but can specify types or categories of activities that do not violate the duty of loyalty if not manifestly unreasonable.

Liability Exposure - Joint and Several

-General partners in a general partnership may be held personally liable for a company's debts. -Each partner is personally liable for the obligations of the partnership. UPA 18 (e), RUPA 306 (a) (torts and contracts.) -E.g. if a general partnership business fails, and it defaults on a bank loan, the bank can sue any of the partners personally to collect on the loan. -Will have to pay out of his or her own personal assets -Under RUPA, partners are jointly and severally liable for all partnership obligations. (Note: use RUPA rules on the quizzes and exams, unless told otherwise). -Creditors must first exhaust partnership assets before partners' personal assets may be used to satisfy creditors claims (known as the "exhaustion rule"). -Partners entitled to contribution and indemnification

General Partnership

-Governed by the partnership statute of the state in which it is organized (each state has its own partnership statute) -Uniform partnership Act (UPA) (still used in some states) - superseded by: -Revised Uniform Partnership Act (RUPA) -A for profit business with two or more owners who have not filed the paperwork to operate the business in some other legal form -Also called a general partnership to distinguish it from a limited partnership -Owners are referred to as partners -This is a default entity - do not need a written or even oral agreement. As long as you associate together to carry on as co-owners of a business for profit, there is a partnership. -Written agreement signed by each partner -Each partner personally liable for the obligations of the partnership

Liability - Contribution

-In the absence of an agreement, partners share profits equally, and losses are split in the same ratio as profits -Where one partner pays the entire amount of a partnership debt, she may require the other partner to contribute her pro rata share of the payment

Agency Principles

-In the partnership context, each partner is an agent of the partnership. -Contract Context: Agency rules are applicable (actual and/or apparent authority). If neither: -Ratification -estoppel

Partnership Agreement.

-Most partnerships have a written agreement signed by each partner -Agreement addresses, inter alia: -Management structure -Allocation of profits and losses among the partners, -Partner taxation, admission and withdrawal of partners, and dissolution -The partnership statutes are default rules, which the parties can contract around. -The partners can tailor these rules to their specific desires. For example: -Sharing of profits

Formation

-No formalities are required to form a partnership. -Formed when: (1) two or more people associate to carry on as co-owners a business for profit, and (2) they do not file the paperwork (i.e. articles of incorporation/organization) to operate the business in some other form. (UPA 6, RUPA 202). -Once these elements are met, the parties have created a partnership even if they did not know that they were actually forming a partnership (inadvertent partnership). -If parties had the intention to form a partnership, normally, they would express that intention in a written partnership agreement.

Fiduciary Duties

-Partners owe each other and the partnership fiduciary duties -RUPA codified these duties as follows: -The only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care. -Duty of Loyalty: -Duty to account to the partnership and hold as trustee for it any property, profit, or benefit ... derived from a use by the partner of the partnership property and -Prohibitions against self-dealing and competing against the partnership.

Partner As Agent of the Partnership

-RUPA 301 -(1) -Each partner is an agent of the partnership for the purpose of its business -An action by one partner . . . For apparently carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership, unless the partner had no authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority.

What if no intention to form a partnership?

-See RUPA 202(c). -" [a]person who receives a share of the profits of a business is presumed to be a partner in the business. . .. " (this is an evidentiary requirement, not an element of formation) Rebuttable presumption -Exceptions: profits paid on a debt or as compensation.

Agreement.

-Statute is relevant because there are some rules that the partners cannot contract around -If there is a partnership agreement, this is the starting point in providing advice on any issues that may arise -If no agreement in place, then start with the statute (default) -Agreement can be oral, but advisable to put in writing -For future disputes -To allow for rule tailoring (harder to tailor the agreement to your needs if it's oral)

Duties of Loyalty example

1) A partner in a consulting firm is required to "devote his whole time and attention" to the partnership business and "at all times give to the other partners full information and truthful explanations of all matters" regarding the partnership. However, the partner forms multiple, outside real estate development partnerships and hires the consulting firm to work on several real estate projects without informing the other partners of his dual role. The partner has violated his fiduciary duty to the consulting firm by self-dealing and failing to account to the partnership regarding his dual role in the other partnerships. [See Vigneau v. Storch Engineers,

LLP Liabilities Examples:

1) A plaintiff brings a suit against a law firm for malpractice by one of the attorneys. The malpractice allegedly occurred after the formal dissolution of the law firm, which was a limited liability partnership. Even though the partnership had dissolved by the time of the malpractice, the law firm may still be held liable, because the attorney's representation of the plaintiff was appropriate for winding up the partnership business and fulfilling the binding obligations of the partnership, particularly because the attorney failed to notify the plaintiff of the law firm's dissolution. The law firm may thus be held liable to the plaintiff for malpractice that occurred after the dissolution of the limited liability partnership. [See Dow v. Jones

Events Causing Dissociation Examples (2):

2) A family-owned farming partnership asks a court to expel one of the partners based on evidence that the partner threatened his family members and that the familial relationship has been irreparably broken. The court makes a judicial determination that the partner should be expelled from the partnership due to his wrongful conduct. The partner is dissociated from the partnership. [See Giles v. Giles Land Co.,

Duties of Loyalty example (2)

2) A partnership owns an office building as its sole asset and rents the property to various tenants. However, some of the partners rent the office building to themselves at less than the fair market value, thereby causing a loss of profits to the partnership. The partners have violated their fiduciary duty to the partnership by self-dealing and causing the partnership to lose profits. [See Enea v. Superior Court,

Duties of Loyalty example (3)

3) Two partners in a law firm decide to leave the partnership and form a new law firm, thereby dissociating from and dissolving the old law firm. However, the partners begin secretly preparing to take some of their clients to their new law firm while still employed at the old law firm. The partners have violated their fiduciary duty to refrain from competing with the old law firm before dissolution of the partnership. [See Meehan v. Shaughnessy,

Formation

A limited liability partnership may be formed pursuant to the procedures set forth in a state statute that specifically provides for the creation of limited liability partnerships. Typically, states require the filing of a statement of qualification, such as a certificate of limited liability partnership or articles of organization, and often require a partnership agreement as well. Alternatively, a limited liability partnership may be formed by converting a general partnership into a limited liability partnership with the vote necessary to amend the partnership agreement and the filing of a statement of qualification. [See Uniform Partnership Act § 1001 (1997)] Note, however, that a limited liability partnership may not have a similar statement of qualification in any other jurisdiction. [See id. § 101(5)] Typically, this means that a limited liability partnership may only exist in one state and must rely on obtaining status as a foreign limited liability partnership to conduct business in other states. [See id. § 1101]

Dissolution

A limited liability partnership may generally be dissolved or terminated in the same manner as a general partnership. [See Business Associations Outline, General Partnerships, Dissolution, for a discussion of partnership dissolution,

Liability of Dissociating Partner example

A partner dissociates from a law firm but fails to notify one of his clients of the dissociation. When another partner violates a duty to that client, the dissociated partner may be held liable if the client still believes that the dissociated partner is an actual partner of the law firm.

Power to Dissociate

A partner has the power to dissociate at any time by giving notice to the partnership of the partner's express will to withdraw. If the partner's dissociation is wrongful, the partner is liable to the partnership and the other partners for any damages caused by the dissociation. Examples of wrongful dissociation include a dissociation that breaches an express provision of the partnership agreement, as well as a dissociation that results from a judicial determination of wrongful conduct. [See Uniform Partnership Act § 602 (1997)]

Liabilities

A partner in a limited liability partnership is not individually liable for the obligations of the partnership to third persons, regardless of any capital contributions or active role in management of the partnership. Instead, the limited liability partnership itself is liable as an entity for any obligations of the partnership, whether arising in contract, tort, or otherwise. Note, however, that the partners may remain individually liable for their own personal misconduct. Additionally, there is no limited liability regarding partner obligations to the other partners and the partnership itself. [See Uniform Partnership Act § 306(c) (1997); Merriam-Webster's Dictionary of Law (Kindle ed. 2011), limited liability partnership] Many states also require an annual report to be filed with the state to provide up-to-date information regarding the limited liability partnership. [See Uniform Partnership Act § 1003 (1997)]

Events Causing Dissociation

A partner is dissociated from a partnership upon the occurrence of any of the following events: (1) a notice of the partner's express will to withdraw from the partnership; (2) an event specified in the partnership agreement as causing the partner's dissociation; (3) the expulsion of the partner pursuant to the partnership agreement; (4) the expulsion of the partner by the unanimous vote of the other partners due to unlawful business, transfer of the partner's interest, or a certificate of dissolution; (5) the expulsion of the partner by judicial determination due to wrongful conduct or a material breach of duties; (6) the partner's bankruptcy or other loss of property; or (7) the partner's death, incapacitation, or termination. [See Uniform Partnership Act § 601 (1997)]

Partnership by Estoppel

A partnership by estoppel is created by the operation of law when a person purports to be a partner through words or conduct, or otherwise consents to representation as a partner, and another party relies on the representation to enter into a transaction with the actual or purported partnership. [See Uniform Partnership Act § 308(a) (1997)]

Distribution of Assets example

A partnership dissolves with $100,000 in assets after liquidation. However, the partnership also has a $10,000 debt to a third party, a loan of $10,000 from a partner, and capital contributions of $20,000 each from the two partners. The partnership must pay the $10,000 debt and $10,000 loan before paying $40,000 to each of the two partners ($20,000 each in return of the partners' capital contributions and $20,000 each in the remaining partnership assets).

Events Causing Dissolution

A partnership is dissolved upon the occurrence of any of the following events: (1) a notice of a partner's express intent to withdraw from a partnership at will; (2) the express will of all of the partners, or at least half of the remaining partners within 90 days after a partner's dissociation; (3) in a partnership for a definite term or particular undertaking, the expiration of the term or completion of the undertaking in a partnership for a definite term or particular undertaking; (4) an event specified in the partnership agreement as dissolving the partnership; (5) an event that makes continuation of the partnership business unlawful; or (6) a judicial determination that the partnership business has become unreasonably frustrated or impracticable or must be wound up in the interest of equity. [See Uniform Partnership Act § 801 (1997)] However, it is important to note that even if one of the above events occurs, all of the partners may waive the right to have the partnership wound up and terminated, thereby continuing the partnership as if the event causing dissolution had never occurred. [See id. § 802(b)] Note also that the rights and duties of the partners remain the same if a partnership for a definite term or particular undertaking is continued after expiration or completion, at which point the partnership converts to a partnership at will.

Formation

A partnership is formed by the association of two or more persons to carry on as co-owners of a business for profit, regardless of whether the persons have intended to form a partnership. Any person who receives a share of the profits and has contractual capacity is generally presumed to be a partner of the business, unless the payment is for: (1) a debt, (2) services by an independent contractor or compensation to an employee, (3) rent, (4) an annuity or other benefit to a deceased or retired partner, (5) a loan, or (6) the sale of a business or property. Note, however, that joint or common ownership of property does not establish a partnership by itself, even if the co-owners share profits from the property. [See Uniform Partnership Act § 202 (1997)] Additionally, the partnership must typically be for a legal purpose.

Liability in Partnership by Estoppel

A purported partner is subject to the same liability as an actual partner and may be held jointly and severally liable to a person who relies upon the purported partnership to enter into a transaction with the actual or purported partnership. Typically, the purported partner must have represented the purported partnership through words or conduct or consented to such a representation by another person. However, if the representation is made in a public manner, the purported partner may be held liable to any person who relies upon the purported partnership, regardless of whether the purported partner is aware of being held out as a partner. [See Uniform Partnership Act § 308 (1997)]

Winding Up

After an event causes the dissolution of the partnership, the accounts and assets of the partnership must be settled and distributed in a process referred to as winding up. Typically, the process of winding up includes: (1) prosecuting and defending actions and proceedings, (2) settling and closing the partnership business, (3) disposing of and transferring the partnership property, (4) discharging the partnership's liabilities, (5) distributing the assets of the partnership, and (6) settling disputes regarding the partnership. It is important to note that partners may not enter into any transactions that continue or engage in new business and are limited to winding up old business. [

After Dissolution

After dissolution, a partnership may be bound by a partner's action that: (1) is appropriate for winding up the partnership business or (2) would have bound the partnership before dissolution, if the other party to the transaction does not have notice of the dissolution. [See Uniform Partnership Act § 804 (1997)] Each partner will liable to the other partners for the appropriate share of any partnership liability that is incurred after dissolution. [See id. § 806]

Liability to Third Persons

All partners in a general partnership are jointly and severally liable for the obligations of the partnership, unless otherwise agreed by the claimant or provided by law. This means that a judgment against a partner or the partnership may be enforced against any one of the partners, typically for tort or contract liability. [See Uniform Partnership Act § 306(1) (1997)] Note, however, that the partner may seek contribution from the other partners. [See Merriam-Webster's Dictionary of Law (Kindle ed. 2011), contribution] Additionally, the partnership itself is liable for loss or injury resulting from a wrongful act or omission, or other actionable conduct, by a partner acting in the ordinary course of business or with the authority of the partnership. [See Uniform Partnership Act § 305(a) (1997)]

RUPA 301 (2)

An act of a partner which is not apparently for carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership only if the act was authorized by the other partners.

Formation (example)

An employer and employee execute an agreement that describes their association as a partnership and refers to each as "partners." However, the purpose of the agreement is merely to increase the compensation to the employee. Although the employer and employee are sharing profits, they are not carrying on as co-owners of the business and are not acting as partners. The employer and employee have not formed a partnership. [See Fenwick v. Unemployment Compensation Comm'n,

Liability of Incoming Partner

An incoming partner who joins an existing partnership is not personally liable for partnership obligations that were incurred before admission. [See Uniform Partnership Act § 306(b) (1997)]

Liability in Partnership by Estoppel example

An investor makes a bank deposit in reliance on a falsified audit letter from a Bahamian accounting firm. After losing the bank deposit, the investor brings suit in court and argues that an American firm may be held jointly and severally liable for the Bahamian firm's actions due to a partnership by estoppel. However, the two firms are separately organized and are not operating within a single partnership. Additionally, there is no evidence that the two firms have represented their association as a partnership or that the investor relied on any act or statement by the American firm regarding the audit letter or the investment transaction. Because there is no partnership by estoppel, the American firm may not be held liable for the Bahamian firm's actions. [See Young v. Jones

Limited Liability Partnerships

Another type of partnership that limits the individual liability of certain partners is a limited liability partnership (LLP), also referred to as a registered limited liability partnership (RLLP). Unlike limited partnerships, limited liability partnerships limit the individual liability of all partners. This type of business association evolved in the early 1990s to more effectively shield partners from liability. Today, LLPs and RLLPs are a popular choice for professional business associations, such as law firms and accounting firms.

Duty of Care:

Duty to refrain "from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law in connection with the partnership business."

Management Rights

Each partner has equal rights in the management and conduct of the partnership business. Note, however, that these rights may be altered by a partnership agreement. [See Uniform Partnership Act § 401(f) (1997)]

Agent of Partnership

Each partner is considered to be an agent of the partnership when conducting partnership business. This means that a partner's actions bind the partnership in the ordinary course of partnership business. However, if the partner does not have the authority to act for the partnership in a particular matter, and the other party knows that the partner lacks such authority, the partnership will not be bound. Additionally, a partner's actions outside the ordinary course of business only bind the partnership if authorized by the other partners. [See Uniform Partnership Act § 301 (1997)]

Share of Profits

Each partner is entitled to an equal share of the partnership profits and has the right to receive distributions from the partnership. [See Uniform Partnership Act § 401(b) (1997)] A partner's interest in the share of profits and distributions is transferable as personal property. [See id. § 502] Additionally, each partner has a right to obtain from the partnership any reimbursement for payments made and indemnification for liabilities incurred in the ordinary course of partnership business. [See id. § 401(c)] However, partners are not generally entitled to compensation for services that are performed for the partnership.

After Dissociation

Generally, dissociation terminates the partner's duties of loyalty and care, as well as the partner's right to participate in the management and conduct of the partnership business. However, these duties may continue regarding matters that arose before the partner's dissociation. [See Uniform Partnership Act § 603 (1997)] Additionally, a dissociated partner may bind the partnership with respect to a third party for two years after dissociation if the other party: (1) reasonably believes that the dissociated partner is still a partner, (2) does not have notice of the partner's dissociation, and (3) is not deemed to have knowledge or notice under the UPA. [See id. § 703] Keep in mind that a dissociated partner also remains liable for any obligations incurred before dissociation. Note, however, that a dissociated partner or the partnership itself may file a statement of dissociation that provides constructive notice of the partner's dissociation in order to cut off any lingering liability.

Fiduciary Obligations

Generally, partners have an obligation to act on behalf of the partnership rather than in their own interests. Each partner owes the fiduciary duties of loyalty and care to the partnership and the other partners, as well as the duty of good faith and fair dealing. [See Uniform Partnership Act § 404 (1997)] In the event that a partner breaches a fiduciary duty or otherwise causes harm to the partnership, another partner or the partnership itself may bring action against the breaching partner for legal or equitable relief. [See id. §§ 307, 405]

Partnership at Will

In a partnership at will, the duration of the partnership is not fixed by the terms of the partnership agreement and may be terminated at will by any partner.

Partners

In a partnership, the partners may bind the partnership as agents and may also be held liable to third persons. Additionally, the partners have certain fiduciary obligations and may acquire partnership property, as well as exercise various rights related to the management of the partnership.

Distribution of Assets

In winding up the partnership business, each partner is entitled to a settlement of all accounts. The profits and losses that result from the liquidation of the partnership assets must be credited and charged to the partners' accounts after discharging the partnership's obligations to its creditors.

Obligation of good faith and fair dealing

RUPA 404(d) " a partner shall discharge the duties to the partnership and the other partners under this Act or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing."

RULES: SECTIONS

RUPA: SECTIONS: 102 (KNOWLEDGE AND NOTICE), 301,(Partner Agent of Partnership) , 306 (C), (Partner's liability while partnership is a LLP), 401, (Partner's rights and duties - partner entitlement to renumeration), 404, (Partner standards of conduct - fiduciary duties of partners).

Partnership Agreement

The partners may enter into a partnership agreement—a written, oral, or implied contract that governs the partners and the partnership. Although no formalities are typically required, some partnership agreements may need to be in a signed writing under the Statute of Frauds. However, keep in mind that a partnership agreement is not required for the formation of a partnership. [See Uniform Partnership Act §§ 101(7), 103 (1997)]

Partnership Agreement

Section 101. Definitions. In this [Act]: (7) "Partnership agreement" means the agreement, whether written, oral, or implied, among the partners concerning the partnership, including amendments to the partnership agreement. Section 103. Effect of Partnership Agreement; Nonwaivable Provisions. (a) Except as otherwise provided in subsection (b), relations among the partners and between the partners and the partnership are governed by the partnership agreement. To the extent the partnership agreement does not otherwise provide, this [Act] governs relations among the partners and between the partners and the partnership.

Limited Liability Partnership (LLP)

Section 101. Definitions. In this [Act]: (5) "Limited liability partnership" means a partnership that has filed a statement of qualification under Section 1001 and does not have a similar statement in effect in any other jurisdiction. Section 306. Partner's Liability. (c) An obligation of a partnership incurred while the partnership is a limited liability partnership, whether arising in a contract, tort, or otherwise, is solely the obligation of the partnership. A partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for such an obligation solely by reason of being or so acting as a partner. This subsection applies notwithstanding anything inconsistent in the partnership agreement that existed immediately before the vote required to become a limited liability partnership under Section 1001 (b)

General Partnership:Formation

Section 202. Formation of partnership (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 form as a partnership, whether or not the persons intend to form a partnership. (b) An association formed under a statute other than this [Act], a predecessor statute, or a comparable statute of another jurisdiction is not a partnership under this [Act].

General Partnership Liability Exposure

Section 306. Partner's Liability (a) Except as otherwise provided in subsection (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. -Exhaustion Rule (RUPA §307(d)): judgment creditor must first seek to recover against the partnership. -Indemnification right (RUPA §401(c)): partnership has to reimburse partner

Fiduciary Duties

Section 404. 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 subsection (b) and (c).

General Partnerships

The basic type of partnership is a general partnership, in which each partner is individually liable for all debts and obligations of the partnership. Under the UPA, a partnership is considered to be a distinct entity from its partners. However, it is important to note that a partnership is not a separate legal entity and cannot exist beyond the lives of the partners. [See Uniform Partnership Act § 201 (1997); Merriam-Webster's Dictionary of Law (Kindle ed. 2011), general partnership, partnership]

Duties of Loyalty

The duty of loyalty requires each partner to avoid self-dealing and to: (1) account to the partnership and hold all partnership property, profits, and benefits as trustee for the partnership; (2) refrain from dealing with the partnership as or on behalf of a party with an adverse interest to the partnership; and (3) refrain from competing with the partnership before dissolution. [See Uniform Partnership Act § 404(b) (1997)]