Agency and Partnership Flashcards
(34 cards)
Surviving spouse’s interest in the partnership after the death of a partner
On the death of a partner, if the partnership interest of the deceased partner is subject to redemption, the partner’s surviving spouse is a creditor of the partnership until the redemption price is paid. If the partnership interest of the deceased partner is not subject to redemption, the partner’s surviving spouse is a transferee of the partnership interest. A transfer of a partnership interest does not, in the absence of an agreement, entitle the transferee to anything more than the right to receive distributions of partnership profits to which the transferor would have been entitled.
Transferee of a partnership interest
A transferee is entitled to reasonable information or an accounting of partnership transactions and inspection of the partnership books for proper purposes. A transferee is not entitled to interfere in the management or administration of the partnership in the absence of an agreement that states otherwise.
Partner’s Duties
A partner owes the duties of loyalty and care to the partnership. A partner must discharge the partner’s duties to the partnership in good faith and in a manner the partner reasonably believes to be in the best interest of the partnership. A partner is presumed to have met the standard of care if he acted on an informed basis, in good faith, and in a manner reasonably believed to be in the best interests of the partnership.
Partner’s duty of loyalty
A partner’s duty of loyalty includes (1) accounting to and holding for the partnership any property, profit, or benefit received by the partner in conjunction with the conduct or winding up of the partnership business or from the use of partnership property; (2) refraining from dealing with the partnership on behalf of a third party whose interests are adverse to the partnership; and (3) refraining from competing or dealing with the partnership in any manner that is adverse to the partnership.
Liability of individual partners
A partner is an agent of the partnership for the purpose of its business, and the partnership itself is the principal. A partnership is bound on a contract entered into by a partner on the partnership’s behalf if the partner has actual authority to enter into the contract. Actual authority can be either express or implied. The key question is whether the partner reasonably believes that he has authority based on manifestations from the partnership. If the partner has such a belief, then that partner has actual authority. Additionally, partners are subject to personal liability for partnership obligations, including contracts that the partnership enters into in the course of partnership business. They are vicariously liable on such contracts by virtue of their status as partners. All partners are liable jointly and severally for all obligations of the partnership, regardless of whether the obligation arises in contract or in tort. This means that a partnership creditor may bring an action against any one or more partners, or against the partnership, in the same or in separate actions.
By virtue of being a partner, a partner has…
implied actual authority to do things in the ordinary course of the partnership’s business, including creating partnership obligations for which the partnership is liable.
Respondeat superior
Under the doctrine of respondeat superior, an employer is subject to vicarious liability for a tort committed by an employee acting within the scope of his employment. The employer is liable despite the absence of tortious conduct by the employer.
A partner’s act that is not authorized by the partnership may nevertheless bind the partnership under the principles of…
apparent authority. An agent has apparent authority when a manifestation of the partnership causes a third party reasonably to believe that the partner has authority. The Texas Business Organizations Code (“TBOC”) recognizes apparent authority in the partnership context by stating that the act of any partner that appears to be for the purpose of carrying on, in the ordinary course, the partnership business or business of the kind carried on by the partnership binds the partnership, unless: (1) no authority existed for the partner to act for the partnership in the particular matter; and (2) the third party with whom the partner was dealing knew that the partner had no authority.
Compensation for services rendered to the partnership by the partners
The general rule is that partners are not entitled to any compensation for services rendered to the partnership, unless the partnership agreement states otherwise. It is irrelevant that one partner may be forced to assume more work than anticipated, while other partners do nothing to further the business of the partnership. It is possible to imply an agreement to compensate a partner for extraordinary services when all partners do not have equal interests, are not equally liable, and are not equally responsible for the conduct of the partnership business.
Partners’ shares of profit and loss
In the absence of an agreement to the contrary, partners share profits and losses equally.
When partnership agreement sets definite time for termination of partnership.
Normally, a partnership is required to wind up its affairs when the partnership agreement provides for a period of duration. However, the partners may avoid winding up and dissolving the partnership if all partners agree to continue the partnership. In the alternative, if the partnership business is continued for 90 days following the date provided for dissolution and no settlement or liquidation is made, this is prima facie evidence of an agreement to continue the partnership.
Steps to winding up a partnership
The first step in the process of winding up is to cease to carry on business of any kind except any business that is required for the process of winding up. Then, the partners must collect and sell the property of the partnership. Next, the partners must use the proceeds and any remaining funds of the partnership to discharge obligations to creditors, including partners who are creditors. Finally, any remaining funds are distributed to the partners after all creditors have been paid. Any partner who has not withdrawn may wind up the partnership.
Distribution of partnership assets upon winding up.
The TBOC requires that the partnership’s assets first be applied to discharge obligations to creditors, including partners who are creditors. Any surplus remaining after creditors have been paid is distributed to the partners. To determine the rights and obligations of the partners toward creditors and each other in the disposition of assets and satisfaction of partnership liabilities, it first must be determined what each partner’s capital account is. Then, the amount of assets available for distribution should be taken into consideration. From the assets available for distribution, creditors are paid first. After the amount owed to creditors is deducted, any remaining amount should be distributed to partners. The balance of the partner’s capital account determines the amount each partner receives. If all of the obligations of the partnership cannot be satisfied from the sale of the assets and there is a negative balance, then each partner must contribute to pay off the partnership debt.
Creation of a partnership
A partnership is created by the association of two or more persons to carry on as co-owners of a business for profit, regardless of whether: (i) the persons intend to create a partnership, or (ii) the association is called a “partnership,” “joint venture,” or other name. No formalities are required in order to form a partnership. As soon as two or more people associate to carry on, as co-owners, a business for profit, a partnership comes into existence.
Limited Partnership
A limited partnership is a partnership that has one or more general partners and one or more limited partners. A limited partnership is distinguished from a general partnership in that it is created under specific statutory authority. In order to form a limited partnership, a certificate of formation must be filed with the Secretary of State.
Limited Liability Partnership
A limited liability partnership (LLP) is a partnership in which a partner’s personal liability for obligations of the partnership is limited or eliminated. In order to enjoy LLP status, a statement must be filed with the state and include the name of the LLP, address of its principal office, federal tax ID number, number of partners, and brief statement of the business of the LLP. In other respects, an LLP is governed by the same rules as a partnership. However, individual partners are not liable for the negligent acts of other partners or partnership employees or contractual obligations of the LLP.
Partnership Agreement; Limitations
Although not required, partners may agree to rules for the governance of their partnership through a partnership agreement. Generally, the partnership agreement can modify or waive the default rules provided by the TBOC. However, the TBOC does place limitations on the partners’ ability to override the statute in certain matters.
May not: limit access to records and books, limit liability to creditors, eliminate fiduciary duties, choose law of jurisdiction with no connection to partnership.
Partnership agreement; access to records and books
A partnership agreement may not unreasonably restrict any partner’s access to the partnership’s books, records, and other partnership information. Unless there is an agreement to the contrary, all partnership books must be kept at the partnership’s chief executive office. Every partner has the right to inspect and copy those books. Given these broad inspection rights that cannot be waived by a partnership agreement, if the courts find that conditions for inspection are too restrictive or burdensome, this provision may be unenforceable.
Partner Liability
The personal liability of partners for partnership obligations is the most negative consequence of the choice of a partnership as a business entity form. All partners are jointly and severally liable for all obligations of the partnership, whether in contract or tort. This means that a partnership creditor may bring an action against any one or more partners, or against the partnership, in the same or in separate actions. Because partners are severally, as well as jointly, liable for partnership obligations, every partner is personally and individually liable for the entire amount of all partnership obligations. However, a partner who is compelled to pay the entire partnership obligation is entitled to indemnification from the partnership. She may also require that the other partners contribute their pro rata shares of the payment in the event the partnership is unable to completely indemnify her. However, these remedies do not permit her to limit her liability to partnership creditors to her own contributions, and this liability cannot be lifted by the partnership agreement.
Partnership agreement; fiduciary duties
A partnership agreement can never eliminate the partners’ duties of loyalty, care, or good faith. The partnership agreement may identify specific types or categories of activities that do not violate the duty of loyalty if they are not manifestly unreasonable, and the partnership agreement may determine the standards by which the performance of these obligations is to be measured, provided that the standards are not manifestly unreasonable. However, a broad statement that only willful or intentional misconduct will violate these duties would likely be unenforceable.
Transfer of Interest
If the partnership agreement does not restrict the partner’s right to do so, a partner may voluntarily transfer all or part of his partnership interest to a third party at any time. However, a partnership may restrict this right.
Choice of Law
The formation and internal affairs of a partnership are governed by the law of its jurisdiction of formation. A partnership’s jurisdiction of formation is the jurisdiction chosen in the partnership agreement, provided that the jurisdiction bears a reasonable relation to the partners or to the partnership’s business. However, they may not choose a governing law from a state that bears no reasonable relationship to the partners or the partnership’s business.
Partnership property
Property is deemed to be partnership property if it is acquired in the partnership’s name or the name one or more of the partners with an indication that the partner is acting in his capacity as a partner or that a partnership exists.
Property is presumed Pship property if it is acquired with cash, credit, or other property of the Pship.
Partner’s separate property
If a partner acquired property and (i) the transferring instrument does not indicate the person’s capacity as a partner or the existence of the partnership, and (ii) partnership property is not used to purchase the property, then the acquired property is presumed to be the partner’s separate property even if it is used in the partnership.
