partnership part 3

Question 1

Suits under UPA 1914

Partnership can’t sue or be sued in

Answer 1

partnership’s name

Question 2

Suits under RUPA 1997

Answer 2

• partnerships can be sued
• partnerships as first resort (exceptions)

Question 3

disclosing information

some courts say if a partnership couldnt afford to do oppertunity, may not need to

Answer 3

disclose the oppertunity

Question 4

Who are the fiduciary duties owed to?

Answer 4

• partnership
• other partners

Question 5

Who owes the fiduciary duties?

Answer 5

partners

Question 6

Law of fiduciary obligations developed before and after UPA 1914 through case law

Answer 6

• Can’t use partnership assets for own benefit or private
  advantage
• No competition or rivalry with the partnership
• Can’t use knowledge or information which belongs to the firm

Question 7

Every partner must account to the partnership for any benefit,
and hold as trustee for it any profits derived by him without the
consent of the other partners from any transaction connected with

Answer 7

the formation, conduct, or liquidation of the partnership or from any use by him of its property

-This section applies also to the representatives of a deceased partner engaged in the liquidation of the affairs of the partnership as the personal representatives of the last surviving partner

Question 8

Records and Disclosure Duties

Answer 8

• Every partner shall at all time have access to and may inspect the books
• Partners shall render on demand true and full information affecting the partnership

Question 9

Duty of Loyalty

Answer 9

• Account to partnership and hold as trustee any property, profit or benefit in the conduct or winding up of the partnership business or derived from partnership property, including appropriation of partnership opportunity (RUPA 1997 §404(b)(1))
• No adverse interests in the conduct or winding up of the partnership (RUPA 1997 §404(b)(2))
• However, Partners can enter into loans and other transaction at arms’ length terms.
• Fair is fine
• No competing with the partnership before the dissolution

Question 10

RUPA 1997

The only fiduciary duties are the duty of

Answer 10

loyalty and care

Question 11

Duty of Care

Answer 11

No grossly negligent, reckless conduct, intentionally misconduct or knowing violations of
law in the conduct and winding up of the partnership

Question 12

RUPA 1997 also lists these duties but doesn’t call them fiduciary duties

Answer 12

1. good faith and fair dealings
2. record keeping/information/disclosure
3. dont be selfish, dont have to be selfless

Question 13

Record keeping/information/disclosure

Answer 13

Not only provide information when asked but without demand provide, any information concerning the partnership’s business and affairs reasonable required for the proper exercise of the partner’s
rights and duties

Question 14

RUPA duty

Don’t be selfish, don’t have to be selfless

Answer 14

Don’t violate duties/obligations merely because the conduct furthers the partner’s own interest

Question 15

Partnerships

Bottom line, comply withthese 4 duties

Answer 15

• Loyalty
• Care
• Good faith and fair dealing
• Record keeping/information rights/ disclosure

Question 16

Watering down the duty of loyalty

Answer 16

• Can’t eliminate the duty of loyalty in the partnership agreement under the uniform act
• You can specify what activities do not violate the duty of loyalty if not manifestly unreasonable
• Authorization or ratification after full disclosure of material facts
• Elimination is fine with Delaware

Question 17

Reducing the Duty of Care

Answer 17

• Partners may not unreasonably reduce the duty of care (RUPA 1997 §103(b)(4))
• Cannot authorize conduct involving bad faith, willful or intentional misconduct, or knowing violation of law. (RUPA)
• Elimination is fine with Delaware

Question 18

Good Faith and Fair Dealing Standards

Answer 18

• Can’t eliminate the good faith and fair dealing obligation in the partnership agreement (RUPA 1997 §103(b)(5))
• You can prescribe standards by which to measure the obligation of good faith
  and fair dealing if the standards are not manifestly unreasonable (RUPA 1997 §103(b)(5))
• Can’t eliminate even in Delaware (Del. Code tit. 6, § 15-103(f))

Question 19

Restrictions on Access to Books and Records

Answer 19

• Can’t unreasonably restrict access to books and records (RUPA (1997) §
  103(b)(2))
• Under RUPA 1997 the affirmative duty to provide information without being asked can be waived
• Elimination, on its face, is fine with
  Delaware (Del. Code tit. 6, § 15-103(f)) ( but would refusing access to books be good faith and fair dealing?)

Question 20

May partners compete with one another, and with the partnership, if the partnership agreement permits such competition?

Answer 20

Yes. In general, partners have a fiduciary duty not to compete with one another, unless the partnership agreement permits it.

Question 21

Can you rent out to a partner below market value?

Answer 21

No, would be a violation of duty of loyalty bc taking money away from the partnership

Question 22

negligence needed for a current partner to be liable

Answer 22

not normal negligence, need gross negligence

Question 23

Do you have fiduciary duties to former partners?

Answer 23

no only current partners

Question 24

At-will Partnerships vs. Partnerships for a
Definitive Term

Answer 24

• At-will partnerships – no discussion of end point
• Partnerships for a definitive term – ending at a
  particular time or when a certain task has been
  accomplished

Question 25

Dissociation Circumstances

Answer 25

* At will – notice to the partnership of a partner’s express will to withdraw * Previously agreed upon event set forth in the partnership agreement occurs * Expulsion pursuant to the partnership agreement * Expulsion via court order due to misconduct * Partner files for bankruptcy * Partner dies or become incapacitated (natural and business versions)

Question 26

A partner who wrongfully dissociates is liable to the

Answer 26

partnership and the other partners for damages.

Question 27

Wrongful dissociation

Answer 27

* Breaches an express provision of the partnership agreement * If the partnership is for a definite term or a particular undertaking and before that term or undertaking is complete

Question 28

Power vs. Right to Dissociate

Answer 28

You have the power to dissociate, you might not have the right.

Question 29

What to ask if it is a at-will partnership dissociation

Answer 29

Did it breach an express provisions in the partnership agreement?

Question 30

5 questions to ask if it is a definitive term dissociation

Answer 30

1. Did it breach an express provisions in the partnership agreement? 2. Did the partner get expelled via court order? 3. Did Partner withdraw by choice (except if dissociating because another partner died or wrongfully dissociated)? 4. Did the partner file for bankrupcy? 5. If the Partner is an entity, did it willfully dissolve or terminate?

Question 31

# Liability for Obligations Incurred Prior to Dissociation Dissociation alone does not discharge a partner’s liability for partnership obligations incurred prior to the dissociation.

Answer 31

* Can work with creditors and partners to get a release (RUPA 1997 §703(c)) * If a creditor has notice of the dissociation and agrees to material alterations without the dissociating partner’s consent the dissociating partner is not liable. (RUPA 1997 §703(d))

Question 32

General Rule: Partners are not personally liable for obligations incurred prior to their admission as a partner. Exceptiom

Answer 32

Can always agree to be bound in exchange for purchasing someone’s partnership interest

Question 33

Generally, a partner who dissociates is not liable for partnership obligations incurred after the dissociation. Exception?

Answer 33

Still liable for up to 2 years if a 3rd party does business with the partnership and reasonably believes the dissociated partner is still a partner. | Can file a statement of dissociation ## Footnote Same rules for authority of a dissociating partner.

Question 34

# Buyout of Dissociated Partner’s Interest Partnership has to “cause” the buyout the dissociated partner.

Answer 34

* Partnership can buy * Other partners can buy * 3rd party can bu

Question 35

# Buyout of Dissociated Partner’s Interest Buyout price is greater of

Answer 35

* their fictional share of the sale of the assets * their fictional share of the sale of the business

Question 36

# Buyout of Dissociated Partner’s Interest Wrongful Dissociation and the Buyout

Answer 36

* Damages for wrongful dissociation (if applicable) are deducted from the buyout price (RUPA 1997 §701(c)) * If the partnership was for a definite term or a particular undertaking, the buyout is held and accrues interest until the term or undertaking is complete unless a court finds paying the buyout ahead of time would not cause undue hardship. (RUPA 1997 §701(h))

Question 37

To have a wrongful dissociation for an at-will partnership, you only need to

Answer 37

break an express provision of the partnership agreement

Question 38

Default rule is any Partner may dissolve an at-will partnership at

Answer 38

any time by choosing to dissociate * This is the rule in Delaware * Some states have modified this to let a majority buy out the partner and continue the partnership * Can modify automatic dissolution in partnership agreement

Question 39

A partnership is dissolved (regardless of at-will status) if:

Answer 39

* Any event agreed to in the partnership agreement occurs (RUPA 1997 §801(3)) * The business of the partnership becomes unlawful (90 day waiting period) (RUPA 1997 §801(4)) * Judicial determination (RUPA 1997 §801(4))

Question 40

A partnership for a definite term or particular undertaking is dissolved by

Answer 40

* The expiration of the term or the undertaking * Unanimous agreement * If half of the remaining partners agree within 90 days of wrongful dissociation or dissociation due to death

Question 41

Dissolved partnership don’t automatically stop. They have to

Answer 41

wind-up the business.

Question 42

Partners (minus one who wrongfully dissociates) can waive their right to have the partnership’s business

Answer 42

wound up, and continue operating.

Question 43

Steps in Winding-Up

Answer 43

1. Decision to Dissolve 2. Assets are sold 3. Creditors are paid (inside and outside) 4. Capital accounts are settled up 5. Rest is split