Partnerships

General Partnership Dissolution

Beginning of a process; does not = termination, which is the actual end of partnership. Material change in the partners caused by any partner ceasing to be associated in the carrying on of the business (incl the death or withdrawal of any single partner) → automatic dissolution Methods of dissolution: (i) acts of partners; (ii) operation of law; (iii) decree of equity court Winding up: period b/t dissolution and termination in which the remaining partners liquidate the partnership's assets to satisfy the partnership's creditors. Partners CAN receive compensation for helping wind up the business. (Partners have no authority to act for partnership except to wind up affairs)

Property of a Partnership

Classifications of Property: (i) Partnership capital - property or money contributed by partners; (ii) Partnership property - everything partnership owns Partner's Rights in Partnership Property - Tenancy in Partnership: (i) Equal right to possession for partnership purposes; (ii) Not assignable; (iii) Ownership vests in surviving partners; (iv) Not subject to attachment or execution; (v) Compare - partner's interest in the partnership: Personal property interest, Assignable, Subject to attachment

Limited Liability Companies (LLC)

Control: Members control but may delegate to managers. Nature and Liability: May adopt operating agreements; LLC may hold property in its own name; members generally not personally liable; Management is presumed to be by all members; Profits and losses allocated on basis of contribution; Only interests in profits and losses assignable, not management rights absent consent of all members; Members can bring derivative suits on behalf of LLC Limited Liquidity: The right to receive profits and losses can be transferred. Management rights are not transferable. Limited Life: Disassociation (e.g., the death, resignation, or incompetence of a member) generally causes dissolution of the LLC

General Partnership Formation

Def of Partnership: An association of two or more competent persons to carry on as co-owners of a business for profit. Formalities: None. The partnership can be express or implied (i.e., established solely through the conduct of the parties). No written agreement necessary unless the partnership agreement cannot be performed w/in a year. Proof of Partnership Existence (consider): (i) Title to property; (ii) Designation of the entity by the parties; (iii) Amount of activity involved in the enterprise undertaken by parties; (iv) Sharing of gross returns, profits (see above), losses

Limited Partnerships (LPs)

Def: a partnership with at least one GP and at least one ltd partner Formation: Must file with the secretary of state an L.P. certificate that includes, among other things, the name of all GPs → failure to file knocks it back into general partnership territory, making all partners personally liable Addt'l Req for Formation o Must maintain an office where records are kept o Must maintain agent for service of process o The partnership name must contain the words "limited partnership" or the abbreviation "LP" and may not contain the name of a ltd partner unless it is also the name of a general partner, or the partnership had been carried on under that name before the admission of that ltd partner.

Limited Partnerships (LPs)

Dissolution. 1) Dissolution occurs: (i) at time in certificate; (ii) at time or event in partnership agreement; (iii) upon written consent of partners; (iv) when general partner withdraws; (v) upon entry of judicial decree 2) Distribution of assets upon winding up

Limited Liability Companies (LLC)

Formation. LLC's articles of organization must be filed with the department of state and a summary of the articles must be published once a week for 6 weeks in a row, in at least 2 newspapers one of which is published at the LLC's principal place of business. Name of LLC must contain "Limited Liability Company" or the abbreviation; there must be designation of secretary of state as agent for service of process.

Registered Limited Liability Partnerships (RLLPs)

Formation. Must register with the state as an RLLP by filing a certificate of registration indicating which profession the RLLP will be practicing. Liabilities. Limited liability. No partner is personally liable for the RLLP's debts and obligations. Partners can always be liable for their own wrongdoing. In an RLLP, partners are not personally liable for the torts of their co-partners.

Liabilities of General Partners to Third Parties

Fraud: (i) on third party → partnership liable if partner acts within the scope of partnership business (but not liable if acting outside scope); (ii) partnership not liable for fraud on partnership Breach of Trust Liability of Partners: Civil liability in contract and tort o Liability is joint and several for torts and breaches of trust o Joint contract liability

Liabilities of General Partners to Third Parties

Incoming partners are liable for prior obligation of the partnership, but that liability is limited to only money and other property contributed to the partnership. Limited liability. A withdrawing partner remains liable on all obligations incurred while she was a partner. She retains liability on future debt (1) until he dies, or (2) unless notice of the withdrawal is given to all known and potential creditors.

General Partnership Dissolution

Liability for old and new business: Old business. Liability retained by partnership on all transactions with existing creditors. New business. Retain liability on brand new business transactions until notice of dissolution is given to all existing and potential creditors and third parties who dealt with partnership.

Rights and Liabilities Between General Partners

Management. Absent an agreement, each partner entitled to EQUAL control-one partner, one vote. Salary. Absent an agreement, partners get NO SALARY. Partners' Share in Profits and Losses. Absent an agreement, profits shared equally. Absent an agreement, losses shared like profits. Indemnification for expenses incurred in ordinary of course business Partners Have Right to Inspect and Copy Books

Rights and Liabilities Between General Partners

Partnership Property & Liquidity Specific Partnership Assets: These are assets (e.g., land, leases, equipment) directly owned by the partnership. Because they are owned by the partnership, they cannot be transferred without partnership authority. These assets are relatively illiquid. Share of Profits and Surplus: This is personal property owned by the individual partners. Personal property may be transferred by individual partners to third parties. Profits and surplus are liquid. Pro rata contribution to losses Share in Management: This refers to the partners' share in managing the partnership. As a general rule, it is property of the partnership itself. No individual partner may transfer its share in management to a third party. Relatively illiquid.

General Partnership Dissolution

Priority of Distribution Rule: Each partner must be repaid his or her loans and capital contributions, plus that partner's share of the profits or minus that partner's share of the losses. Order: (1) Outside 3d party creditors must be paid; (2) Inside partner creditors must be paid; (3) Capital contributions by partners must be paid → this is required even if the partnership suffers losses; (4) Profits and surplus, if any → absent an agreement, distributed equally among partners. Where a partner is forced to pay more than his share of the partnership's debts, he is entitled to contribution from the other partners to equalize the shares.

NY DISTINCTION: General Partnership Formation

Proof of Partnership Formation: intent of parties governs, but MS factors should be considered Re sharing of returns, profits and losses: absence of agreement to share losses is evidence that partnership was not intended.

General Partnership Formation

Profit-Sharing: In general, a contribution of money or services in return for a share of the profits, if any, is prima facie evidence of general partnership. Illegality. Generally, a partnership will be void if the purpose of its existence is illegal. Capacity. Anyone who is capable of entering into a binding contract may be a partner. A would-be partner who lacks capacity is liable only to the extent of her capital contribution.

Continuance of Business After Dissolution

Remaining Partners Have Right to Continue Partnership Business When: (i) Partnership dissolved in contravention of agreement; (ii) Partner is expelled; (iii) Partners agree

Rights and Liabilities Between General Partners

Remuneration: None except for extraordinary services and for winding up partnership; Liable for damages for breach of agreement to work for partnership Legal Actions Between GPs: (i) Partners generally cannot sue partnership or each other (remedy: actions for an accounting); (ii) Separate actions are permissible for segregated transactions and tort claims

Rights and Liabilities Between General Partners

GPs are fiduciaries of each other and the partnership, therefore they owe each other and the partnership a DOL, which means that GPs may never engage in self-dealing, usurp partnership opportunities, or make a secret profit at the partnership's expense. Equitable remedy - Action for Accounting: (1) recover losses caused by the breach and (2) force the breaching partner to disgorge profits arising from the breach

Limited Liability Companies (LLC)

Intended to provide its owners (members) (1) the same ltd liability as shareholders in a corporation (not personally liable for obligations of LLC), and (2) the tax benefits of a partnership. Being taxed as a partnership generally is less costly than being taxed as a corporation (no taxation at partnership level)

Liabilities of General Partners to Third Parties

Notice and Knowledge: notice may be oral or written; knowledge imputed to partnership if: (i) acquired by participating partner while member of partnership; (ii) acquired by participating partner when not member of partnership if info is "present to his mind" when acting for partnership; acquired by nonparticipating partner if he could and should have communicated it to a participating partner

Limited Partnerships (LPs)

Partner's Contribution can be Cash, Property or Services Liability and Control: GPs personally liable for all the LP's obligations; as GPs, they have the right to manage the business and operations. Ltd Partners not personally liable for the LP's obligations; only liable to the extent of their contributions to the partnership; as ltd partners, they cannot manage the business and operations without forfeiting their ltd liability status; forfeit status if also a general partner and/or name is in the name of partnership

Liabilities of General Partners to Third Parties

Partners are Agents of Partnership: the general partnership is liable for each partner's torts in the scope of partnership business and for each partner's authorized contracts and torts. The general partner's liability is the sum of his individual partners' liabilities! Actual Authority: (i) Granted in partnership agreement or by consent of partners; (ii) Unanimous vote required in instances of: • Arbitration • Assignment to creditors • Confession of judgment • Disposition of goodwill • Interference with business Apparent Authority to Transfer Partnership Property: (i) Real Property [Title in partnership name, Title in name of fewer than all partners, title in name of all partners, Mortgages, Leases]; (ii) Personal property - contract rules govern

Liabilities of General Partners to Third Parties

Partnership Liability by Estoppel Rule: If one represents to a 3d party that a general partnership exists, he will liable as if a general partnership exists. Scenarios • Person held out as partner is liable to third parties • Person who holds another out as partner may be liable to third parties Consider: formation, liability, estoppel.

Limited Partnerships (LPs)

Rights of Partners 1) General and limited partners' rights: (i) Share in the profits and losses; (ii) Can assign their interest; (iii) Can transact business with the partnership; (iv) Can withdraw from the partnership; Can apply for dissolution 2) Rights specific to limited partners: (i) Vote on specific matters; (ii) Right to information 3) Rights of one who erroneously believes himself to be a limited partner: (i) Typically not liable as a GP; (ii) Person who makes a contribution may be liable as a general partner to third party if third party transacts business with limited partnership before a correction is filed, if third party actually believed in good faith that person was a general partner at time of transaction