Agency & Partnership

Question 1

What is a partnership?

Answer 1

A partnership is an association of two or more people who associate to carry on as co-owners of a business for profit.

Question 2

When is an agency relationship created?

Answer 2

Generally, an agency relationship is created when one person (the principal) manifests an intent that another person (the agent) acts on his behalf, and both parties consent to the agreement.

Question 3

When is a principal bound by the acts of the agent?

Answer 3

A principal is contractually bound to the acts of the agent if the agent acted with actual or apparent authority.

Question 4

What is actual authority?

Answer 4

Actual authority is authority that the agent reasonably thinks he possesses based on the principal’s dealings with him.

Actual authority can be express (i.e. contained within the agreement between the parties) or implied from the actions of the principal.

Question 5

What is apparent authority?

Answer 5

Apparent authority arises when the principal “holds out” the agent as having certain authority, causing third parties to reasonably believe the agent has such authority.

Question 6

What does the sharing of profits raise?

Answer 6

The sharing of profits raises the presumption of a partnership, unless the share was received as payment of debt, as wages, or as compensation for services rendered.

Question 7

What are partners?

Answer 7

Each partner is an agent of the partnership for the purpose of its business.

Question 8

How is a partnership bound?

Answer 8

A partnership can be bound on a contract entered into by a partner with actual or apparent authority.

Question 9

What is actual authority (partnership)?

Answer 9

Actual authority is authority the partner reasonably believes he has based on his communications with the partnership.

Question 10

Actual authority (partnership)

Answer 10

Actual authority can take the form of express authority or implied authority through custom, necessity, or prior acquiescence.

Question 11

How does a partner bind the partnership?

Answer 11

The act of any partner apparently carrying on in the ordinary course of the partnership business or business of any kind carried out by the partnership will bind the partnership unless the partner had no authority to act for the partnership and the third party with whom the partner dealt knew that the partner lacked authority.

Question 12

When is the partnership liable for contracts?

Answer 12

A partnership is liable for all contracts entered into by a partner in the scope of the partnership business or with actual or apparent authority of the partnership.

If the contract is outside of the scope of the partnership business the partnership will generally not be bound.

Question 13

What type of liability does a partnership have?

Answer 13

A partnership is jointly and severally liable for all obligations of the partnership.

Question 14

What is disassociation?

Answer 14

Disassociation is a change in the relationship of the partners caused by any partner ceasing to be associated with the carrying on of business.

Question 15

When does a partner disassociate?

Answer 15

A partner is disassociated from the partnership upon notice of his express will to withdraw as a partner.

Question 16

When is a partnership dissolved?

Answer 16

A partnership is dissolved and its business must be wound up when a partner in a partnership at will notifies the partnership of his intent to withdraw.

Question 17

When is a partnership bound by a partner’s post-dissolution act?

Answer 17

A partnership will be bound by a partner’s post-dissolution act - even an act that is not appropriate for winding up the partnership, where the party with whom the partner dealt did not have notice of the dissolution and the act would have bound the partnership before dissolution (ie that the partner had actual or apparent authority to act).

Question 18

When does a partner have apparent authority?

Answer 18

A partner has apparent authority to carry on in the ordinary course of the partnership’s business unless the other party in the transaction knows that there is no authority.

Question 19

What is the liability of the partners?

Answer 19

Each partner is jointly and severally liable for obligations of the partnership.

Question 20

How are profits (and losses) shared in a partnership?

Answer 20

In absence of an agreement otherwise, partners share profits equally, and losses are split in the same ratio as profits.

Question 21

When is property deemed to be partnership property?

Answer 21

Property is deemed to be partnership property if it is titled in the partnership name.

Question 22

Does a partner own partnership property?

Answer 22

A partner is not a co-owner in the partnership property.

Question 23

What rights does a partner have to use partnership property?

Answer 23

A partner has a right to use partnership property only for partnership purposes.

Question 24

Does a transfer of partnership interest entitle a transferee to inspect partnership books or records?

Answer 24

No, absent an agreement, the transfer of a partnership interest does not entitle the transferee to inspect partnership books or records.

Question 25

What other factors may be considered when determining whether or not a partnership exists?

Answer 25

Other factors may be considered when determining if a partnership exists, such as the extent of the parties’ activity in the enterprise and whether the parties agree to share losses.

Question 26

Does a partner have a transferable interest in the partnership?

Answer 26

• A partner has a transferable interest in the profits and losses of the partnership and the right to receive distributions.
• Because a partner’s transferable interest is considered personalty, it may be transferred by her voluntarily or involuntarily at any time.
• The transfer gives the transferee a right to receive distributions to which the transferor would otherwise be entitled.

Question 27

In determining whether an individual is an employee or a contractor, the primary issue is whether ?

Answer 27

In determining whether an individual is an employee or a contractor, the primary issue is whether the principal has the right to control the individual’s method and manner of work.

Question 28

For a principal to be liable in contract to a third party, the agent

Answer 28

For a principal to be liable in contract to a third party, the agent must have had the authority to enter into the disputed contract OR the principal must ratify the agent’s act.

Question 29

Is a principal liable for the torts of an independent contractor?

Answer 29

Ordinarily a principal is not liable for the torts of an independent contractor.

Question 30

When can the principal be liable for the torts of an independent contractor?

Answer 30

They can be liable under estoppel though.

Estoppel can be raised when the principal creates the appearance that an employer-employee relationship exists, and a third party relies on that relationship.

Question 31

When is a partnership bound by the acts of a partner?

Answer 31

Every partner is an agent of the partnership and the act of a partner for apparently carrying on in the usual way of business of the partnership will bind the partnership

Question 32

What is the nature and extent of a partners liability for partnership obligations?

Answer 32

Each partner is personally and individually liable for contracts made by a partner in the scope of partnership business. RUPA: Partners are jointly and severally liable for all obligations of the partnership. UPA: Partners are jointly liable for contract obligations only.

Question 33

It’s a partner entitled to reimbursement by the partnership or other partners when they make a payment on behalf of the partnership?

Answer 33

A partnership must indemnify a partner with respect to payments made by the partner in the ordinary and proper conduct of the partnership’s business. (Even if the partner acted without authority)

Question 34

Is a partner entitled payment for the value up their services to the partnership?

Answer 34

Absent an agreement to the contrary, a partner is not entitled to the renumeration‘s for services rendered to the partnership except for reasonable compensation for services rendered and winding up the business.

Question 35

When may a partnership be bound by a partners act unrelated to the partnership business?

Answer 35

Generally a partner’s act will bind the partnership if it was apparently within the scope of the partnership business.  If the act is outside the scope of ordinary/partnership business, unanimous consent of the partners is needed to engage in the act. Unanimous consent of all partners is needed to engage in business outside the ordinary course of the partnership.