Partnerships

IX. How does dissociation from the partnership happen?

Can be voluntary and can be involuntary. a. Happens when: i. Partner gives notice of desire to withdraw ii. Triggered by agreement iii. Expulsion under agreement iv. Expulsion by unanimous vote if illegal to continue with them v. Expulsion by court order (for misconduct, or breach of partnership agreement/duty) vi. Death vii. Partner bankruptcy, assignment of interest for creditors, or appointment of a trustee viii. Appointment of guardian or conservator for the partner (incapacity) ix. Termination of partner if entity (e.g. LLC). b. *Limitations in partnership agreement:* i. Cannot prevent partner withdrawing, but can require it be in writing. ii. Cannot prevent seeking judicial expulsion of the partner. c. *Partner can dissociate at anytime whether wrongful or not* i. Unlimited time partnership: breach dissociation is wrongful ii. Limited time: withdrawal, expulsion by court order, bankruptcy, or wilfully dissolved are all wrongful. d. *What if dissociation was wrongful*: i. Partnership has right to windup by majority vote in 30 days. ii. Partner NOT entitled to payment of any portion of buyout price early unless shows no undue hardship would result. iii. If partner wrongfully dissociates, is liable for damages

XI. How can a partner bind the partnership - what is his power with respect to third parties and what are the resulting liabilities therefor?

Every partner is an agent of the partnership, and agents as you know can enter shit for which they have authority. So what is the authority: a. *Actual authority*: partner's act as agent of partnership can bind partnership. Can be express or implied (reasonable belief necessary to do duty) - *EXPRESS could be in agreement, or by the partners at a meeting, filing a statement of authority* - *IMPLIED based on partner's reasonable belief something is necessary to carry out the duty given*, based on principal (partnership's) reasonable belief of necessity to do it. b. *Apparent*: Business must be of kind carried out by partnership, and other party cannot know there is lack of authority (or have had partnership send letter telling them even if they haven't read it). e.g. using the firm letterhead - apparent authority. One partner might not be able to tell someone to stop - might need whole partner. *No revocation = still authority - might have to have partnership tell whole partner* c. *transfer of titled partnership property* i. Held in partnership name: Partner can do that in partnership name. ii. Held in partner's name: Partner can do that too, regardless of whether the transfer instrument reflected existence of partnership/status of transferees as partners. iii. Recovering partnership property transferred without authority: 1. In partnership name: can recover from any initial transferee. 2. Not in partnership name: only if aware it belonged to partnership and done without authority (BFP protected) 3. Shelter rule: cannot get from subsequent transferee if couldn't from initial. d. *How can knowledge of a partner be imputed to the partnership*: anything partner knows is imputed, unless it's fraud on partnership by partner. e. *Person owning all partnership interests* can just transfer it to himself. f. *Statements of partnership authority/denial)*: specifies extent of partner authority, but statements of limitation generally ARE NOT constructive notice of such limitation, except in real estate (when notice is important anyway) NBNB. i. Can also file statement of denial denying that

XIX. How do General Partners within LPs work?

a. *Admitted*: on creation OR on written consent of all partners (like LP) b. *Assignment*: assignee can become LP (NOT GP) but not GP if all other partners consent (often this actually just terminates instead) c. Has same rights as a regular partner in a regular partnership. d. Can lend money/transact business like normal partner. e. *Liable* to third parties for the obligations of the partnership unlike LP. f. *Termination of status*; i. Withdrawal by written notice and LPs don't agree to continue 1. If violates agreement, then can be liable. 2. Sole GP withdrawal doesn't trigger dissolution (Unlike regular partnership by default) - LPs have 90 days to continue business and appoint a new GP. ii. Assignment of partnership interest can be basis for removal iii. Removal under the agreement iv. Bankruptcy or insolvency of partner v. Death or incompetency of natural person vi. Termination of business entity partner

XV. How is a partnership terminated?

*a. Dissolution then winding up. * *b.* Dissolution caused by: i. *Partnership at will*: no fixed term or purpose. General rule is dissolution when *one partner leaves with notice*. (rare) ii. *Fixed term/purpose partnership*: undertaking completed, term expires, all partners agree to dissolve it, or, *after death, bankruptcy of a partner etc. and 50% of partners agree to dissolve within 90 days of that. * 1. can continue it after term/purpose and is presumed to become a partnership at will. iii. *Dissolving event in partnership agreement* iv. *Illegality uncured within 90 days* v. *Judicial determination* of frustration of purpose, of finding that it's not reasonably possible to carry on business with a particular partner, or not reasonably practicable to carry on the agreement. vi. Judicial determination of equitability of termination

XVI. How does winding up work?

*a. Dissolved partnership exists only to wind up.* b. *Who can wind up?* Any partner who hasn't wrongfully dissociated can wind up, a representative of the last surviving partner, or someone appointed by judge. c. *Powers* Can dispose of partnership property, dispose of liabilities etc, preserve business for a reasonable time to maximise value. d. *Duties* Partnership remains bound by partner acts appropriate for winding up, a e. Partnership bound for any act the partner could have entered into before dissolution (if the other person doesn't have notice) f. Inappropriate acts can make liable to the partnership. g. *Partners not wrongfully dissociated may make statement of dissolution* - basically limits their authority - it's giving notice 90 days after filing - why? Notice limits partner's authority and liability. You wanna put it on file. So people won't know. Basically, no more incurring obligations. h. NB general rule *notice for filing shit seems active 90 days after filing lol* i. *Distribution of partnership assets*: Creditors have priority. j. *Settlement of partner accounts*: accounts must be adjusted to reflect profits and losses resulting from liquidation of the partnership assets. If negative, it must be contributed to the partnership or distributed if positive k. *RESUMPTION OF BUSINESS*: can resume once dissolved but before winding up BUT ALL PARTNERS MUST WAIVE RIGHT TO TERMIANTE. Everything happens as though the partnership dissolution never occurred, except stuff for third parties who acted in reliance on it (e.g. loans made callable by dissolution are still callable)

XIII. How do partnerships convert to and from an LP?

*a. Partnership to limited partnership:* i. Unanimity ii. File articles of conversion iii. General partner who becomes limited partner is still liable for shit before the conversion, and 90 days after. *b. Limited partnership to partnership: * i. Unanimity of all partners ii. Cancel certificate of limited partnership iii. Limited partner remains not liable for stuff that happened before conversion. c. Effects: No change on property or legal proceedings

XIV. How do partnerships merge?

*a.* Can merge into another entity. Need: i. *Plan of merger*: (who, what, how) ii. *Approval required*: GP unanimity, LP whatever statute says, if not agreement, if not unanimity. iii. *Filed* iv. Effective when approved, filed, or specified (whatever is later) *b. Effect of merger:* properties merged, proceedings merge, partners dissociated if not mergerd, partner of surviving entity is liable for ALL surviving entity's obligations

XX. How do contributions and distribution work in an LP

a. *GP and LP can contribute. * b. *Obligated with respect to any promise of future contribution* ( but can compromise if all the other partners consent) c. *Profits and losses:* i. Partners can choose allocations on any basis. ii. No right to distribution before withdrawal or dissolution unless otherwise provided. iii. At dissolution or withdrawal there is a right to FMV of that interest as at the time of withdrawal. iv. *liability to outside creditors extends one year after the return of the partner's contribution* d. *Assignment*: you cease to be a partner. Assignee only has rights to distribution and no others, but can generally become LP with consent of all other partners. *Assignee becoming LP assumes the continuing obligations of the LP (like the contributions liability for one year etc.) unless made by fraud*

VI. How do sharing of distributions, interest, and losses and transfers of that work

a. *If there's an agreement the agreement controls and share of profits and losses can differ* b. If no agreement or it's silent, partners are all entitled to equal shares of profits and losses. If only profits addressed, losses shared in same proportion. c. *Account*: Each partner has a partnership account and their contributions and shit are there. d. *Partnership distributions not allowed by right*: *NB a partner cannot demand a distribution of the partnership profits, but is entitled to have their partnership account credited with that share* - also cannot demand specific partnership assets be distributed to them. i. But of course the agreement can specify distributions e. *The partnership right: it's personal property regardless of the nature of the partnership's assets* f. *Transfer*: *A partner has a right to transfer/convey all or a part of their interest to a third party by default but of course can agree otherwise* i. Transfer DOES NOT TRIGGER DISSOLUTION nowadays ii. Transferor retains all partnership rights except interest in the distributions. iii. Transferee has right to receive partnership assets AND right to seek dissolution to get those assets. If a court orders it, he can get accounting but only for since the date of the last accounting. iv. Transferee can only become a new partner proper when the partners approve it. g. *Restrictions on transfer*: ineffective if the person it's transferred to knows this. h. *Partner's own creditors*: Can get can get judgment lien on his partnership interest

V. What are the duties between partners

a. *Partner is agent of the partnership for business purposes (can bind)* b. Fiduciary duty: i. *duty of loyalty *- 1. no competing, no advancing adverse interests, no usurping partnership opportunities for personal benefit or using partnership property for personal benefit without notification. 2. *Partner can make loans to the partnership in addition to contributing capital - is treated as a creditor here* 3. *Limitation of duty of loyalty*: Cannot be waived - but there can be certain permissions allowed if not unreasonable. 4. *Partnership agreement can provide ratification safe harbor* for full disclosure of info. So that can help. 5. *Cannot eliminate but can redescribe them in a way that changes them a bit as long as not manifestly unreasonable NBNBNB* ii. *duty of care *: No grossly negligent, reckless conduct. Partners cannot reduce this duty unreasonably, but can a little bit. c. *Fiduciary duties generally only apply to CURRENT partners* i. NOT Prospective partners (about to make a partnership) and NOT former partners - they don't owe it, nor are they owed it. ii. Winding up - no, unless doing the winding up (and even then the non-compete doesn't apply) d. *Duty of good faith and fair dealing*

X. What is the effect of dissociation

a. Dissociated partner doesn't have management rights anymore. b. *fiduciary duties of dissociated partner cease* Can compete. Other post-dissociation duties end, unless participating in winding up. c. *Partnership must buy out partners's interest* - valued as if business was wound up (greater of liquidation value or value of partnership as going concern) d. Unless agreed, *have to pay partner his estimate of interest*, minus offsets, *within 120 days by default* e. Dissociated partner can sue to figure out buyout price. f. Indemnification: once partner bought out, partnership must indemnify dissociated partner against liabilities of the partnership regardless of before or after dissociation g. Pre-dissociation actions of the partner: usually liable for obligations (debts and shit?) incurred before dissociation. Can get release. h. Dissociated partner's post-dissociation status: *partner can act with authority to bind the partnership when the reasonably believes and doesn't have notice of the dissociation/lack of authority* i. Statement of dissociation with the state constitutes notice to third parties (like record notice) 90 days after filing

XXI. How does an LP terminate

a. Dissolution i. Occurrence in agreement ii. Consent of members iii. Withdrawal of GP if there is only one GP and the LPs don't agree to go on within 90 days. iv. Decree by a judge of not reasonably practicable to carry on the thing in accordance with the partnership agreement

XXII. How does LP winding up happen

a. Falls to GPs who haven't wrongfully left, if not then to the LPs. Or can petition the court to do it. b. Distributed to: creditors, then partners and former partners entitled to already-accrued payments, then partners for their contributions, then partners for any of the surplus

XVIII. How do LPs work (formation and LPs)?

a. Governed by RULPA. b. *Formed by certificate containing name, address, agent info, name and address of GPs, statement of duration. * *need at least one limited partner and one general partner* c. *Effective on effective date - when FILED.* d. *Only SUBSTANTIAL COMPLIANCE needed on certificate.* ------------------------------- *LIMITED PARTNERS* i. *LP has NO RIGHT TO VOTE BY DEFAULT* ii. *Becoming an LP* must be unanimous or on creation of the LP. iii. Like regular partnership, *assignee must receive unanimous consent to become LP.* iv. LP has right to inspect records, LP can lend money to partnership v. *LP generally not liable for obligations unless serves as GP or acts to control the business* vi. *Safe harbor*: merely being contractor, consulting, asking for meeting, acting as surety, asking for meeting of partners, doing the winding up, or doing shit related to the limited partners (asset transfers) *IS A SAFE HARBOR NBNBNB* *ALSO NB: removing the GP is also fine* f. *Extent of LP liability*: Only to people who reasonably believe they are a general partner. g. *Using partnership name to do business makes LP liable to that creditor* h. *WITHDRAWAL*: 6 months written notice unless agreement provides

XXIII. How do Limited Partner derivative actions work

a. LP can bring a derivative action on behalf of the LP. b. If GP has refused to do something or if attempt to try to get them is likely to be futile. (like in corporate law) c. LP must be partner at time of wrongful transaction d. Can get reasonable expenses including attorney's fees

VIII. How do new partners get added and what are the management and use rights

a. New partners must get consent of ALL existing partners (unanimity) b. Management decisions - default rule is equal vote. i. *ordinary business (e.g. distribution) = majority* ii. *Special business (e.g. amendment/winding up) etc. = UNANIMITY No quorum by default. c. No right to payment unless in agreement. But If winding up, get reasonable compensation. d. *Loans to partnership*: Partner can loan and get paid back for it. Including interest. e. *Indemnification*: personal liability incurred in ordinary business the partnership must indemnify the partner for. f. *Use of partnership property*: partner may use or possess partnership property only on behalf of the partnership. - must compensate it for personal benefit gained. g. *Access to records MANDATORY*: Partnership must provide partners and agents with access to all records and allow inspection and copying. Partnership MUST furnish without demand info reasonably necessary to doing duties, and everything else on demand. h. *Lawsuits*: i. Partnership as plaintiff: can sue partner for breach of duties ii. Partner as plaintiff: can sue partnershop for all rights, to protect interests, *seek an accounting at anytime*, or sue another partner in tort. Cannot impute the tortfeasor partner's negligence to the other partner to prevent them from suing

XII. How do partner torts and crimes bind the partnership

a. Partner jointly and severally liable for partnership obligations - *torts committed within the scope of the partnership's work* NBNB - all partners are the right agent, and so liable for stuff. NB - just remember agents. *Of course this means the rest of the partners are personally liable for the debts and liabilities of the partnership. Jointly and severally* IF A JUDGMENT IS OBTAINED AGAINST PARTNERSHIP, THERE IS NO SHIELDING - but the court has to give the judgment against the partners first, b. *Incoming partner isn't liable* for prior obligations, *but capital contribution is at risk* if already made to the partnership. c. *Dissociated partner can still liable for obligations incurred before dissociation, and sometimes after (above)* d. Judgment against partnership is NOT a judgment against partners, so unless otherwise stated must be satisfied from partnership assets - but can get a judgment against the partners too e. Basically, the partner is still liable, but creditor must generally exhaust the partnership assets first. f. Exception: partnership is bankrupt, partner consent, partner liable independent of partnership (as primary tortfeasor, e.g.) g. Criminal liability: can be convicted of a crime if the crime is a penalty on partnership assets

XVII. How do LLPs work

a. Partners not liable for liabilities of the partnership (like shareholders) (BUT IF DEFECTIVE FORMATION, IT'S A GP) also don't forget you cannot escape liability by converting quickly. b. File statement with the state. c. Must be approved by vote necessary to amend partnership agreement. d. Has to be called LLP or some shit like it. e. Partnership agreement cannot vary this. f. *Obligation of LLP is solely the obligation of the partnership, regardless of the agreement.* g. Can request termination - can cancel h. *State can revoke as well*

III. Other issues /structures of partnership

a. Partnership is a distinct entity from its partners. Partnerships are NOT limited liability - partners are personally liable. b. AND *partnership agreement not necessary, but if there is one It prevails over RUPA, like a contract and the RUPA is some default rules* c. Joint venture: often a partnership for specific limited purposes. Usually a partnership when the JV has profit purpose. d. Sub-partnership - when a partner agrees to share with third party his profits. This does not make the person a partner of the main partnership. e. Joint ownership doesn't make a partnership e. *Liability: just remember partners liable for the obligations of the entity, but have flow-through tax* f. *What state laws can you not contract out of in the partnership agreement? NBNB) i. *Liability to third parties* ii. *Access to books and records* iii. *Fiduciary duties* Most other shit can be waived. Exam NB: "The partnership agreement is the law of partnerships. With a few exceptions, the partners themselves may determine the laws by which they are governed"

VII. How does property ownership work?

a. Partnership property contributed by partners belongs to partnership and not the partners. b. Partners cannot transfer ownership interest in partnership property. c. *Titled property designated as partnership property*: Partnership property can be acquired either i. by partnership name or ii. partner in their capacity of partners as long as name of partnership is indicated iii. Or anytime the property interest says the partnership basically d. *Presumptions as to property - intent of partners* i. Presumed partnership property If bought using partnership funds ii. *Presumed separate IF acquired in name of one or more partners, doesn't indicate capacity as partner, and partnership assets weren't used to get it* (basically none of the above shit for making partnership property lol)

IV. What is a purported partner/partner by estoppel

a. Person who isn't a partner can be treated as one for liability purposes if: i. *There is a representation that person is a partner* ii. Purported partner makes or consents to it* iii. *Third party reasonably relied on the representation* iv. *Third party suffered damages as a result. * b. Merely being named as such doesn't create liability (no duty to deny) c. Unawareness not a defense . d. The purported partner also constitutes an agent of any person holding him out as such (so potentially could be liable too I guess is the point here)

II. What does the formation of partnership need

a. Person with capacity to contract (entities chill) b. *At least two persons w/ capacity to contract* c. *Required intent to carry on a business for profit as co-owners* d. *Necessary agreement to conduct a for-profit business as co-owners - division of control is necessary* e. *Sharing of profits* i*NOT partners for non-profit money shit*: debt payment, interest charges, rent, wages or compensation, goodwill payments from business sales, annuities and other retirement benefits paid. f. *Oral or written or implied*, but Statute of frauds if to last longer than one year by its terms *REMEMBER NB: Parntership agreement and all its terms can all be oral, as long as SoF doesn't apply*

I. What governs partnerships in most states

a. RUPA