BLAW 321 Partnerships

termination of partnerships

dissolution disssociation winding up

UPA winding up situations

- where the partnership and all the partners are solvent - where the partnership is insolvent, but all the partners are personally solvent - where the partnership is insolvent and any one of the partners is insolvent

who can bring about dissolution?

- can be brought about partners themselves without violating their partnership agreement and without necessity of legal proceedings -ex. agreement provides by terms that partnership will expire after specified time; can be oral or written if not specified, partnership is considered to be "at will" and any partner can withdrawal at any time without incurring liability to other partners withdrawal of a partner used to dissolve the partnership and other partners would have to draw a new agreement... now, its dissociation of that partner; does not necessarily dissolve partnership

change from early common law regarding partnership law

- can sue partnership and collect from partnership; if not enough, if didn't name partners, can't go after them (why name everyone) - under UPA, partnership considered entity for procedural purposes (not absolute person under law) - can own property in partnership property

dissolution and the partnership is insolvent and one or more of the partners is insolvent

- everything changes - UPA adopts the marshalling of assets: (accounting term), means that the creditors of the partnership cannot go after individual partners assets until the individual partner's creditors get their money and partners creditors can't go after partnership assets until partnership creditors are paid (get in line and wait)

why want a (written) partnership agreement

- if have an agreement, can mostly handle any issues however you and partner agreed to; without one, law tells how to handle issue and you HAVE to handle it that way - warns of what can go wrong - advance agreement of handling an issue; no fighting - if oral agreement going to have to provide what was said and prove that it was actually what was said if something goes wrong

partnership name

- important; more important than in any other business organization - there is no necessity that a partnership do business in other than in the names of the partners - unless the name of every partner is in the partnership, you have to file a fictitious partnership name document in the state in which it is doing business (can also be a fictitious name, not including any name of a partner but must be filed) - public has to know how many and who are partners - can't use "and company" unless there is another person because it would make it appear that there is another person to sue

partners as agents of the partnership

- individual partners, acting reasonably in the ordinary and proper conduct of partnership business, who makes a payment or encouraged personal liability to a third party is entitled to be reimbursed for the expense and indemnified for the liability from the partners - PARTNERS ARE AGENTS OF THE PARTNERSHIP (not the partners/each other) - as agents, have fiduciary duties to partnership AND TO EACH OTHER

liability for torts and contracts of partnerships are joint and several

- injured/creditor plaintiff can sue and recover from any partner, all partners, any combination of partners, the partnership alone, and combination of the partners and the partnership,

in early common law...

- it cannot own property in the partnership name; had to own property in names of all the partners - legal action could not be brought against partnership in fictitious name; had to be brought against all partners to be considered properly filed - sue whoever you want and collect from who you can collect from

creation of partnerhsip

- no particular formality required for the formation of partnership - partnership agreement can be express or implied; written or oral (except where contract law states otherwise - don't worry about it) - the agreement makes a partner - need an agreement but can be implied by: actions or circumstances between people that imply a partnership even though the word "partnership" not explicitly stated

partners loaning money to partnership

- on loans, always entitled to interest on loan - if you simply put money into partnership without saying anything, going to be considered capital - if loaning money, ensure properly documented so everyone knows its a loan and you're entitled to interest and when going out of business, get paid off with partnership creditors (right after creditors)

order of pay when partnership going out of business

- outside creditors - partnership creditors - profits

co-partner committing tort on another person

- partner has to be, in essence, working in partnership - more than scope; whether partner committed tort in course of partnership business - more things would render partner/partnership liable

how do you tell what percentage of profits each partner is entitled to

- partnership agreement - whatever partners what with respect to the agreement - if partnership agreement doesn't say anything, look at UPA; profits divided equally regardless of capital investments; if agreement mentions profits but not divisions of losses, shared as profits are shared; if nothing is said about losses or profits, losses are shared equally because UPA says losses are shared as profits are shared which happens to be equally

salaries and other compensation

- partnership agreement provides for salaries and/or compensation for partners - if not included in agreement UPA says partners NOT entitled to compensation for services; percentage of profits are what you get for your work - exception: when partnership is winding up, partners are entitled to a reasonable amount of money for the efforts they spend in the winding up process (not spending much time on it)

what does one get when one becomes a partner?

- right to control partnership business (can give up in agreement if want; had it to give up) - right in dealing with partnership property (more significant; partner doesn't actually own partnership property; no ownership right but right to use; if nothing is said regarding the rights of the partners, the UPA says the partners have an equal right to control property for partnership business; can't use for anything outside of business without consent of all partners unanimously) - (the above cannot be transferred to another person) - interest in partnership (any partner's right to the profit; right to get money once all debts are paid off) - can make paper accounting of it even when partnership is not terminating to get a feel for what interest is - can be willed/transferred because its right to get money

how to know if a partnership is present (indicia of partnerships) note: indicia means "indication" in latin

- right to control the business - the sharing of profits and losses (most important; prima facie evidence (on it's face))

things that are NOT the sharing of profits and losses NOT indicia of partnerships because they are using profits to measure something else

- wages to an employee or rent to a landlord (ex. profit sharing plans, does not make partners; measuring of bonus using profits; lease might include a percentage of profit for rent; landlord not partner; measuring rent by profit) - debt and repayment of debt out of business profits (even business debt) (measuring repayment by profits) - an annuity to widow or widower as result of death - consideration for sale of business - sharing of gross profits, receipts, or returns (before expenses and losses; only sharing in profits NOT profits AND losses) - merely co-owning of property (not a business)

in the absence of a partnership agreement, the law (UPA/RUPA) provides for a number of rules concerning

-management -control -division of profits and losses -etc.

Partnership, ABC are partners A contributed 3,000 to capital of partnership B contributed 2,000 to capital of partnership C contributed nothing to capital of partnership Partnership dissolves Liabilities to outside creditors exceed their assets by 4,000 dollars What is the total loss to the partnership?

9,000 - lost what they put in AND still owe 3,000+2,000+4,000=9,000

dissolution and ability to bind

a normal partner's normal ability to bind the firm changes with dissolution the partner's authority is then only to make those contracts in the normal course of winding up the partnership business (not making new contracts except those that help wind-up)

partnership

a partnership is an association of two or more persons to carry on as co-owners of business for profit (UPA)

winding up

actual process of settling all partnership affairs after dissolution: paying off all debts, collecting everything owed, having a pile of money ready to give out to the partners (if there's anything left after dissolution and winding up) after winding up, partnership as an organization will have terminated

Revised Uniform Partnership Act (RUPA)

adopted by a lot of states (not including PA) PA did codify its business organization law and took on much of the RUPA but didn't officially adopt it

how often can a partnership change its agreement

any time, however many times they want all contractual must be unanimous!!!

contribution of capital

anything a partner puts into a partnership is considered to be that partners contribution capital unless noted as something else (a loan) a partner is not entitled to interest on his or her capital contribution to the partnership unless otherwise provided for in agreement

dissolution

designates the point when the object of the partners changes from that of continuing the partnership in its present form to discontinuing it the legal death of the partnership the partnership business not terminated at that time, but its object has become termination

dissolution

designates the point when the object of the partners changes from that of continuing the partnership in present form to discontinuing legal death of partnership object has become termination

dissolution by violating agreement

by withdrawing from a partnership, might just be considered disassociating - wrongful dissociation but doesn't terminate partnership like it used to problem will be what result will be

complete termination of partnerships

comprised of two elements: - dissolution - winding up (added intermediate step: dissociation)

termination by court decree

dissolution of partnership can be accomplished by seeking and obtaining formal court decree - if partner committed serious misconduct - if partner becomes disabled or insane - if partnership is not profitable and will likely never be profitable

Uniform Partnership Act (UPA)

drafted by people in partnership law to try to make it make more sense and try to make it more uniform from state to state adopted by most states (including PA)

dissolution and everything is paid off and there's still money left

here's what you do - collect all the money owed - pay off what you owe - there's a pile of money left UPA says - pay off outside creditors - pay partnership creditors (creditors that are partners) - unpaid back capital paid to partners - still pile of money left, distributed amongst partners because that is profit

dissolution and partnership is insolvent but partners are solvent

insolvent partnership: failed; can't pay debts as they are due UPA says - pay off creditors; partners have to come up with money and make good partnership's debts (if they do, they can go out of business; nothing left for anyone else) - unless agreement says otherwise, losses shared equally

agency law and partnerships

much of what governs partnerships is agency law

partnership decsions

normal partnership decisions in course of business - majority vote decisions that will change the agreement or nature of the business or something important or major - unanimous vote ANY ONE PARTNER CAN BIND THE PARTNERSHIP IN A CONTRACT

effective dissolution on existing liabilities

nothing liabilities stay you don't launder your liabilities by dissolving your creditors are still owed the new company will have to pay them

serious misconduct

other partners can terminate partnership if a partner has done serious misconduct (ex. defrauding customers; breaching fiduciary duties) note: the partner who committed misconduct cannot dissolve the partnership, only the other partners

liability of partners and partnership

partnership AND partners are liable, the partnership is liable for torts of partnership employees within the scope of employment scope also includes willful torts, just like agency

second mantra

partnership money, partnership property

complete termination of a partnership as a business is comprised of two elements:

previously: dissolution and winding up (still exist but added intermediate step = some things now cause dis dissociation rather than dissolution)

wrongfully dissolving partner (wrongfully leaving)

remaining partners can keep the money UPA says nothing about interest or percentage of profits partnership keeps for free but must take out indemnity bond so that if partnership goes under, bond will pay person back

joint venture

resembles partnership members associate together as co-owners of a business/enterprise, agreeing to share profits and losses but a partnership is usually continuing business for indefinite or fixed period jv formed for single or limited transactions (limited in scope and duration) rights and liabilities are basically the same as partnership's - DON'T WORRY ABOUT IT IF THINK JV, CALL IT PARTNERSHIP

winding up

second step in termination of partnership last step - the question of which partners have the right to wind up the partnership is determined by the partnership agreement - if nothing included in partnership agreement all partners have equal right to wind up partnership with three exceptions: dissociating partner can't take part, if dissolution is due to a partner's wrongful act he can't take part in winding up, if a partner is personally bankrupt can't partake (too tempting, not allowed to deal with funds) note: UPA dictates, not "in the absence of agreement...," UPA tells how to wind up

partnership criminal liability

sometimes partnership is liable for crimes of partner(s) even though co-partners are not vicariously liable prosecuting agencies don't waste their time where if win, guilty party can't be punished, so if penalty for crime is imprisonment and/or fine - can't put a partnership in jail (not a person) so if penalty where jail is mandatory, won't prosecute partnership - will only be prosecuted if punishment includes fine

dissociation

sorta (dis-association); disassociation: taking self out of something pretty much same meaning (don't know why not called disassociation)

third parties: dissolution

the principal has a duty to inform third parties that the partnership has been terminated so the third party knows that the partner coming to it only has limited winding-up contract authority under old rule when withdrawal = dissolution, for parties to continue to make contracts in interim (while drafting new agreement) partners could unanimously agree on decsions

third parties: if a partner is terminated

the principal has a duty to inform third parties who had then or recently been doing business with the terminated agent, otherwise the agent could still bind by apparent authority

criminal liability in partnerships

there's no vicarious liability for crimes (partner or agent) principal/partners are not liable for agent's/partner's crimes unless other partners took part in it, authorized it, or in some other way went along with crime

what is a partner's authority

to make contracts in ordinary course of partnership business (equal authority) only express authority a partner has is that which is put in the agreement or unanimously agreed to by partners in a way separate from the normal partnership rules - there is not express authority otherwise apparent authority: first element is not so crucial, status of partner as partner covers first element; has to be reasonable for third party to think partner could make contract secret limitation: if partner is not allowed by other partners to do certain contracts whether in agreement or not (unless third party is aware of limiation)

a partnership is not treated as a separate entity, in and of itself

treated as an aggregate of the individual partners aggregate: collection or combination of collection or combination of partners, not a thing by itself

much of partnership law is ____________ from state to state, but not all of it.

uniform

causes of dissolution

used to be divided into 4 categories (still is but not the same categories) 1. an act of party that doesn't violate the agreement 2. an act of party that does violate the agreement 3. by operation of law 4. through court decree

termination by operation of law

used to be: death of partner dissolved partnership (like withdrawal), even if agreement said otherwise; now: death of partner dissociates partner and partner's estate bankruptcy of partnership dissolves (don't know about bankruptcy of partner) dissolved if event occurs that makes it illegal to carry on business