Partnership Law Flashcards
(43 cards)
What are the five issue areas in partnership law?
- General partnership formation
- Liabilities of general partners to third parties
- Rights and liabilities between general partners
- General partnership dissolution
- Alternative unincorporated business organizations
What is the definition of a general partnership?
Association of two or more persons carrying on as co-owners of a business for profit
What formalities are required to establish a GP?
NONE!
What is prima facie evidence that a GP exists?
The contribution of money or services by two or more persons in return for a share of profits from a business endeavor
(Must be for share of PROFITS, not for compensation, shares, etc.)
What principles apply w/r/t the liability of general partners to third parties?
Agency principles apply:
Partners are agents of the partnership, so General Partners are liable:
1. for the torts committed by other partners in the scope of partnership business, AND
2. for each partner’s authorized contracts
What is the general rule for personal liability of partners?
Each General Partner is personally liable for all debts of the partnership and for the torts of the other partners committed in the scope of partnership business
Are incoming partners liable for pre-existing partnership debts?
No. But any money contributed by new partner to the partnership can be used to pay off existing debts.
What is the extent of liability retention for withdrawing partners?
A withdrawing partner remains liable for future partnership debts until (1) actual notice is given to all known creditors and (2) publication is given to all potential creditors that the partner is dissociating from the partnership.
What is general partnership liability by estoppel?
Anyone who represents to a third party that a general partnership exists will be liable to that party as if the GP actually existed
What is the relationship between general partners and their partnership?
GPs are fiduciaries of each other AND the partnership
As fiduciaries, what duty do general partners owe to each other and the partnership?
GPs owe to each other and the partnership a duty of loyalty:
GPs can’t engage in self-dealing;
GPs can’t usurp partnership opportunities; AND
GPs can’t make secret profits at the partnership’s expense
What happens if a general partner breaches his fiduciary duty?
The partnership can recover losses caused by the breach and disgorge profits made by the breaching partner due to his breach
What are the three kinds of partnership property that may give rise to issues among partners?
- Specific partnership assets
- Share of partnership profits
- Share in partnership mgmt
What are partners’ rights in specific partnership assets?
Specific partnership assets are those assets owned by the partnership itself, e.g. land, leases, equipment.
Individual partners may not transfer them to third parties without full authorization of the partnership.
What are partners’ rights in shares of partnership profits?
Profits are personal property owned by the individual partners and they may transfer their profit shares to third parties at-will
What are partners’ rights in shares of partnership mgmt?
Share in management is an illiquid asset owned only by the partnership itself. Individual partners may not transfer their mgmt rights to third parties without the authorization of the partnership.
What is the test to determine whether the property in the fact pattern is owned by the partnership or by a partner?
Determine whose money was used to buy the property
What is the general rule regarding shares of management in a partnership?
Absent an agreement to the contrary, each partner is entitled to an EQUAL share of control (vote) in partnership business
i.e., One partner, one vote
What is the general rule on salary for partners in a partnership?
Absent an agreement, partners get NO SALARY
What is the exception to the general rule that partners get no salary?
If a partner helps to wind up the partnership business
What is the default rule for voting requirements for partnership business?
(Ordinary affairs vs. Fundamental matters)
Majority vote governs ordinary affairs
Unanimous consent is required for fundamental partnership matters (e.g., winding-up)
What are the default rules on profit and loss sharing?
Absent an agreement, profits are shared equally
Absent an agreement, losses are shared like profits
e.g., silent on both - profits and losses shared equally;
agreement says profits shared 60/40 but silent on losses - losses shared 60/40;
agreement says losses shared 60/40 but silent on profits - profits shared 50/50.
When is there dissolution of a partnership?
The GP dissolves upon any material change in the partnership caused by the death or withdrawal of any general partner
What is the real end of the partnership?
It won’t be back…
Termination
