Partnership

Limited Partnerships (LPs)

- At least one general and one limited partner - General partnership rules apply

Determining Partnership Property

1. Acquired in the partnership's name or in the partner's name but where apparent from the document she is acting for the partnership 2. Partnership funds are used

Dissolution

Can occur either: 1. In the event of wrongful dissociation of a term partnership 2. When compelled by a dissociating partner of an at-will partnership

Financial Rights in an LP

Distributions are made on the basis of each partner's contributions

Partnership by Estoppel

When a person by words or conduct represents himself as a partner or consents to being represented by another as a partner, he will be liable to third parties who extend credit to the actual or apparent partnership in reliance on the representation

Limited Liability Companies

- A hybrid between a corporation and a partnership in which the owners (called "members") have limited liability as well as the benefits of partnership tax treatment. - Details regarding operations and management are in the operating agreement

Partnership

- A partnership is formed as soon as two or more persons associate to carry on as co-owners of a business for profit, regardless of whether the parties subjectively intend to form a partnership. - No state filing or other formalities are required.

Limited Liability Partnerships (LLP)

- An LLP is typically a general partnership where all of the partners have limited liability. - Variation - Limited Liability Limited Partnership: all general and limited partners have limited liability - In general, you apply general partnership rules to LLPs and LLLPs

Liabilities and Apparent Authority After Dissociation

- Can continue up to two years after dissolution - Can end immediately by notifying creditors - Can file a statement of dissolution, which is effective 90 days after filing

Fiduciary Duties of the Partners

- Duty of care: Refrain from engaging in negligent, reckless or unlawful conduct or intentional misconduct - Duty of loyalty: Each partner must- 1. Account for all profits or benefits derived from partnership business; 2. Not deal with the partnership as an adverse party; and 3. Not compete with the partnership

Liability of the Partners

- Each partner is jointly and severally liable for all obligations arising from the partnership - π must exhaust all partnership resources before seeking to collect from an individual partner's assets - If one partner pays, can seek indemnification from the partnership and/or pro rata contributions from the other partners

Liability in an LP

- General partners are liable as if in a general partnership - Limited partners are only liable up to their contribution

Fiduciary Duties in an LP

- General partners have same duties of care and loyalty as if in a general partnership - Limited partners have no fiduciary duties

Formation of an LLC

- Must file "articles of organization" with the secretary of state - Must include: 1. Name of the LLC 2. Address of the LLC's registered office 3. Name of the LLC's registered agent

Formation of an LP

- Must file a certificate with the secretary of state - Information to include: 1. Name of the LP 2. Name and address of an agent for service of process 3. Name and address of each general partner

Formation of an LLP

- Must file a statement of qualification with the secretary of state - Must include: 1. Name and address of the partnership; 2. Statement that the partnership elects to be an LLP; 3. Deferred effective date (if any)

Sharing Profits and Losses

- No right to salary or other compensation - Unless otherwise agreed, share profits equally - Unless otherwise agreed, losses follow profits

Wrongful Dissociation

- Partner dissociates in violation of an express term of the partnership agreement - Partner withdraws, is expelled, or goes bankrupt before the expiration of a term partnership - Liable to partnership for damages caused by wrongful dissociation

Term Partnership

- Partners have explicitly or implicitly agreed to maintain the partnership for a definite term or the completion of a particular undertaking - Converse: At-will partnership

Consequences of Dissociation

- Partnership is dissolved and business is wound up (liquidated) - Partnership continues and withdrawing partner is bought out

Taxation of Partnerships and LLC's

- Pass through taxation - No entity level tax

Proof of Partnership

- Sharing of profits & right to participate in the control of the business - Presumed to be a partner unless profits were received as payment for: 1. Debt 2. Wages or compensation 3. Rent 4. Interest on a loan

Management and Operation of an LP

- The LP is managed by the general partner(s). Each general partner has equal rights in the management and conduct of the LP's activities. - The vote of a majority of the general partners is necessary for ordinary business activities. - Limited partners usually have no management rights unless the partnership agreement grants them rights.

Voting in a General Partnership

- Unless otherwise agreed, all partners have equal rights and equal votes - Matters within the ordinary course of business: majority vote by number of partners - Matters outside the ordinary course of business: unanimity

Rights in Partnership Property

- Unrestricted as to the partnership - Partner has no property rights in partnership property - can only use for partnership purposes

Events of Dissociation

1. Partner gives notice to the partnership of his desire to withdraw; 2. Expulsion, death, or incapacity; 3. Occurrence of an agreed-upon event; 4. Appointment of a receiver for partner

Partner's Interest in the Partnership

1. Treated as personal property; 2. Transferable without dissolving the partnership (Financial rights are freely transferable, management rights are subject to unanimous vote); 3. Attachable

Actual Authority in Partnerships

Created by: 1. Partnership agreement 2. Requisite vote of the partners 3. Statement of partnership authority filed with the secretary of state (Can be grants or restrictions; third parties considered to have notice on restrictions re: transfer of real estate)

Statutory Duty of Disclosure

Each partner and the partnership shall furnish to a partner: 1. Without demand, any info concerning the partnership's business and affairs reasonably required for the exercise of the partner's rights and duties; 2. On demand, any other info concerning the partnership's business and affairs (unless unreasonable or improper under the circumstances)

Partnership Liability in Tort

Partnership is liable for a loss or injury caused to a person as a result of the tortious conduct of a partner or employee acting in the ordinary course of business or with the authorization of the partnership

Partnership Liability in Contract

Partnership is liable for contracts entered into by partners with actual or apparent authority