Partnerships

Under the Revised Uniform Partnership Act, which of the following provisions may be waived in a partnership agreement?

The equal sharing of profits and losses.

Decisions regarding matters within the ordinary course of partnership business may be controlled by

a majority vote of all the partners, but matters outside the ordinary course of partnership business require the consent of all partners.

An outgoing partner remains liable

on all obligations incurred by the partnership while a member of the partnership, unless there has been payment, release, or novation, or the creditor has agreed to a material alteration in the obligation without the partner's consent. Thus, it is not true that an outgoing partner's liability automatically ends 90 days after leaving the partnership. All partners are jointly and severally liable for all obligations of the partnership, whether they arise in contract or tort. As such, an action may be brought against any one or more of the partners or the partnership. Moreover, each partner is personally and individually liable for the entire amount of all partnership obligations. An incoming partner is not personally liable for any partnership obligation incurred before her admission to the partnership, although the incoming partner's contributions to the partnership may be used to satisfy existing partnership obligations.

Absent an agreement to the contrary, a partner is not entitled to

remuneration except for reasonable compensation for services rendered in winding up the partnership's business.

Actual authority is

the authority a partner reasonably believes he has based on the communications between the partnership and the partner.

A limited partnership name MAY contain

the name of any partner, whether general or limited, and must contain the words "limited partnership" or the abbreviation "L.P." unless the limited partnership is a limited liability limited partnership, in which case that must be reflected in the name (e.g., "L.L.L.P.").

Under RUPA, after an event of dissolution occurs, a partnership continues until

the winding up of business is completed, at which time the partnership is terminated. A statement of dissolution does not end a partnership. The partnership will be bound by a partner's post-dissolution acts where the party with whom the partner dealt did not have notice of the dissolution. If a partner files a statement of dissolution with the secretary of state, third parties will be deemed to have notice of the dissolution 90 days after it is filed.

As against the other partners, in the absence of an agreement, a transfer of a partner's transferable interest entitles the transferee to receive, in accordance with his contract,

distributions to which the transferring partner would otherwise be entitled. A transferee is not entitled to become involved in the management or administration of the partnership business or affairs, demand an accounting of partnership transactions, or to inspect the partnership books.

An LLC is formed by

filing a certificate of organization with the secretary of state. An LLC can be formed with one member. An LLC may, but need not, adopt an operating agreement to control most aspects of the LLC's business and management. Unless an LLC requests to be taxed as a corporation, it will receive partnership tax treatment. Thus, an LLC need not make a formal election to be taxed as a corporation or a partnership.

It is not enough for title to be in the name of one or more partners for the property to be deemed partnership property. Under the Revised Uniform Partnership Act, titled property is deemed to be partnership property if

it is titled in the partnership name, or it is titled in the name of one or more partners and the instrument transferring title notes the titleholder's capacity as a partner or the existence of a partnership. Property is rebuttably presumed to be partnership property if it was purchased with partnership funds (i.e., cash and credit), regardless of in whose name title is held.

The consent of all general partners and of the limited partners holding a majority of the right to receive distributions ("majority in interest") is

required to dissolve a limited partnership. A limited partnership may be judicially dissolved upon application of a partner if it is no longer reasonably practicable to carry on the limited partnership in conformity with the partnership agreement. Additionally, a limited partnership may be administratively dissolved by the secretary of state for failure to pay fees or file an annual report. (Note, however, that the partnership may apply for reinstatement by curing the defect within two years of the dissolution.) Upon the happening of an event specified in the partnership agreement, the limited partnership also will be dissolved.

Apparent authority is

the authority that a third person would reasonably believe a partner has based on his being held out by the partnership as a partner. Actual authority is the authority a partner reasonably believes he has based on the communications between the partnership and the partner.

Under the doctrine of partnership by estoppel, even though there is no partnership agreement and the parties as between themselves are not partners, they may be held liable to third parties as if they were partners. This issue is likely to arise when a person:

Holds another person out to be her partner. Partnership by estoppel arises when a person, by words or conduct: (i) represents herself as a partner or consents to being represented by another as a partner, and a third party extends credit to the actual or apparent partnership in reliance on the representation; or (ii) holds another person out to be her partner, making the alleged partner her agent with the power to bind her to third parties as if the other were, in fact, a partner.

Generally, a member of a limited liability company ("LLC") may bring a derivative action on behalf of the LLC if:

She has made an unsuccessful demand on the LLC's management to enforce the right at issue.

Dissociation is

a change in relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business. The dissociated partner generally remains liable for obligations incurred by the partnership before the partner's dissociation, and also after the dissociation if the other party to the transaction: (i) reasonably believed when entering the transaction that the dissociated partner was still a partner, and (ii) did not have notice of the partner's dissociation. When a partner dissociates, the partner's right to participate in management ceases. If the partnership business continues after a partner dissociates, the partnership must buy out the dissociated partner's interest.

Financial rights and obligations of partners in an LLP, including profit/loss sharing and indemnity, are identical to those of general partners. To become an LLP,

a partnership must file a statement of qualification with the secretary of state; general partnerships may, but need not, file a statement of partnership authority with the secretary of state. The major advantage of operating as an LLP is that the partners are not personally liable for the obligations of the partnership, whether arising in contract, tort, or otherwise; on the contrary, general partners are personally liable for such obligations. The LLP name must end with the words "Registered Limited Liability Partnership" or "Limited Liability Partnership," or the abbreviation "R.L.L.P," "L.L.P.," "RLLP," or "LLP"; a general partnership has no specific naming requirements.

Under RULLCA, management of an LLC is presumed to be by

all members. Other management arrangements can be made (e.g., management by only some of the members or by outside managers), but they must be specified in an operating agreement. Each member (or manager, if the LLC is manager-managed) has equal rights in the management and conduct of the LLC unless otherwise agreed.

Under the Revised Uniform Partnership Act ("RUPA"), a partnership is

an association of two or more persons to carry on as co-owners a business for profit. Although the partners need not intend to form a partnership, they must intend to carry on as co-owners of a business for profit. A writing is not required; a partnership can be formed by conduct (i.e., associating to form a business for profit). Partner contributions to partnership capital are not required to form a partnership.

The decision of a court that the partner is incapable of performing a partner's duties is

an event of dissociation, but it is not necessarily a wrongful dissociation. A partner will be deemed to have wrongfully dissociated if the dissociation is in breach of an express term of the partnership agreement; or the partnership is for a definite term or a particular undertaking and the partner withdraws, is expelled, or becomes bankrupt before the end of the term of completion of the undertaking.

A limited partnership is composed of

at least one general partner and one limited partner. The general partners (including limited partners who also are general partners) are personally liable for partnership obligations, while the limited partners are not personally liable for partnership obligations solely by reason of being limited partners. This means that limited partners are not personally liable even if they participate in the management or control of the partnership

A partner is not criminally responsible for

crimes committed by a co-partner unless the partner participated in the commission of the crime as a principal or accessory. A partner is liable for any torts committed by a copartner or by an employee of the partnership within the ordinary scope of partnership business or with authority of the partnership, including any fraud—even if the partner has no connection with, knowledge of, or participation in the fraud. Additionally, a partner is liable on contracts made by a co-partner within the scope of partnership business, as well as any other contracts expressly authorized by the partners.

The ULPA's grant of management rights is

exclusive to general partners. However, as a matter of contract, the partnership agreement may allocate the right to manage or control the partnership to limited partners. Both general and limited partners are granted the right to information, although the right is not identical. Furthermore, both general and limited partners are granted the right to distributions and to assign the partner's interest in the partnership.

A partnership will be bound by an act of a partner if t

he partner has actual authority. One way that actual authority can be granted is in the partnership agreement. If the agreement authorizes a partner to act, no further action is required for a partner to act. Actual authority also can be granted by the consent of the partners. Generally, a majority vote of the partners is all that is needed to grant a partner actual authority. However, for acts outside the ordinary course of business, the unanimous vote of the partners is required. A partner does not have actual authority to act on behalf of the partnership simply by virtue of being a partner (although a partner may have apparent authority to carry on business apparently within the scope of partnership business by virtue of being a partner).

A partnership may sue or be sued in the partnership name or

in the names of the individual partners, or both.

While there is no requirement under RUPA that sharing losses is necessary to create a partnership, the absence of an agreement to share losses

is evidence that the parties did not intend to form a partnership.

Under RULLCA, a member of an LLC may apply for judicial dissolution of the LLC if:

(i) the conduct of all or substantially all of the LLC's activities is unlawful; (ii) it is not reasonably practicable to carry on the LLC's activities in conformity with the certificate of organization and the operating agreement; or (iii) the managers or controlling members have acted or are acting in a manner that is illegal, fraudulent, or oppressive. The secretary of state may administratively dissolve an LLC when it fails to submit a required fee or annual report.

A court may piece an LLC's veil of limited liability under circumstances similar to those under which courts pierce the veil of a corporation:

(i) where the LLC is the alter ego of the member(s) or manager(s); (ii) for inadequate capitalization at the inception of the LLC; or (iii) if the LLC was formed to perpetrate a fraud. Because LLCs can be run with fewer formalities than a corporation, the failure to observe formalities is not a ground for piercing an LLC.

Each partner has a transferable interest in the partnership, which consists of

a right to receive his share of the profits and losses and the right to receive distributions. A partner is not a co-owner of partnership property and has no interest in partnership property. As such, a partner cannot transfer his interest in individual items of partnership property or use partnership property for personal purposes. Furthermore, a partner may not transfer his interest in management.

General partners may/may not be personally liable for obligations of the partnership beyond their agreed-upon contributions.

MAY General partners are jointly and severally liable for all obligations of the limited partnership, unless the limited partnership is also a limited liability partnership. In that case, any liability incurred belongs to the partnership alone, and the general partners are not personally liable on the obligation. Incoming general partners are not personally liable for any partnership obligations incurred before they became general partners. General partners may be personally liable for obligations of the partnership beyond their agreed-upon contributions.

After a partnership is dissolved and its assets are reduced to cash, the cash must be used to

pay its liabilities in the following order under RUPA: first to creditors (including partners who are creditors), then to partners in settlement of their accounts. A partnership will be bound by a partner's act after dissolution if the act is appropriate for winding up the partnership (e.g., settling claims, selling partnership assets, collecting debts, paying creditors), A partner who wrongfully dissolves a partnership is not entitled to wind up the affairs of the partnership. Any time after dissolution and before winding up is completed, the partners may decide to continue the partnership business, but they must do so by unanimous vote.

Under the Revised Uniform Partnership Act ("RUPA"), a person who receives a share of the profits of a business is

presumed to be a partner. Designation by the parties of the entity as a partnership, the sharing of gross returns, and joint or common tenancies of property are indicative of the intent to form a partnership, but they are not conclusive.

Partners have a duty to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law, but

this duty is part of the duty of care rather than the duty of loyalty. Partners owe the partnership and other partners the duty of loyalty. This duty is threefold: (i) to account for profits, property, opportunities, or other benefits derived by the partner in conjunction with the partnership business; (ii) to refrain from dealing with the partnership as, or on behalf of, a party having an interest adverse to the partnership; and (iii) to refrain from competing with the partnership.