Partnerships Flashcards
(29 cards)
To impose liability as a purported partner, what 4 elements must be established?
Purported Partner (Partnership by Estoppel) Requirements:
1️⃣ Representation (oral, written, or implied) that a person is a partner.
2️⃣ Made by the person or with their consent.
3️⃣ Third party reasonably relies on the representation.
4️⃣ Third party suffers damages due to that reliance.
What are the six statutorily enumerated circumstances in which the sharing of profits from a business does not create a rebuttable presumption that the arrangement is a partnership and the recipients are partners?
Payments That Do NOT Indicate a Partnership:
1️⃣ Debt payments (including installments).
2️⃣ Loan interest or charges, even if profit-based.
3️⃣ Rent payments.
4️⃣ Wages or compensation to employees/contractors.
5️⃣ Goodwill payments from a business sale.
6️⃣ Annuities or retirement/health benefits for retired or deceased partners.
Transferee of Interest in Partnership
The transferee is not entitled to participate in the management or conduct of the partnership business, to access partnership records, or to demand other information from the partnership.
Partnership Agreement vs. FRUPA
Partnership Agreement vs. FRUPA:
✅ Partnership agreement governs unless FRUPA provides a non-waivable rule.
✅ FRUPA controls if it protects third parties or imposes mandatory provisions.
Florida Revised Uniform Partnerships Act (FRUPA)
FRUPA stands for the Florida Revised Uniform Partnership Act. It is the law that governs general partnerships in Florida, including their formation, management, liability, and dissolution.
Key Points About FRUPA:
✅ Default Rules – If a partnership agreement is silent on an issue, FRUPA’s default rules apply.
✅ Flexibility – Partners can modify most rules except mandatory provisions (e.g., duty of loyalty, right to access books).
✅ Liability Rules – Partners in a general partnership are personally liable for partnership debts unless they form an LLP (Limited Liability Partnership).
When can a partnership pursue legal action against a partner?
A partnership may pursue a legal action against a partner for breach of the partnership agreement or for violating a duty owed to the partnership that caused the partnership harm.
Limited Liability Limited Partnership (LLLP)
LLLP (Limited Liability Limited Partnership) Key Points:
✅ Only the partnership is liable for its debts—even general partners have no personal liability.
✅ Protects all partners from personal liability.
✅ Common in real estate businesses.
Partner’s Rights to Profits & Distributions
Partner’s Rights to Profits & Distributions:
✅ No right to demand profit distribution—profits are only credited to a partner’s account.
✅ No right to specific partnership property—distributions (if made) are in cash or assets, but not specific items.
Under the duty of loyalty, a partner is required to refrain from what three things?
Partner’s Duty of Loyalty – Prohibited Actions:
❌ Competing with the partnership.
❌ Advancing adverse interests against the partnership.
❌ Usurping partnership opportunities or using partnership assets for personal gain without accounting for the benefit.
Profits and Losses
Default Rule for Profits & Losses (When No PA Exists):
✅ Profits are split equally among partners, regardless of capital contributions.
✅ If PA specifies only for Profits, then Losses are shared in the same proportion as profits (i.e., if profits are split equally, losses are too).
Partnership Liability
Partnership Liability:
✅ Contracts – Partnership is liable for contracts made by partners with actual or apparent authority.
✅ Torts – Partnership is liable for partner’s wrongful acts committed in the ordinary course of business.
✅ Debts & Obligations – General partners are personally liable for partnership debts unless in an LLP.
✅ New Partners – Not personally liable for pre-existing debts, but their capital contribution may be used to satisfy obligations.
✅ Dissociated Partners – Still liable for obligations incurred before dissociation, unless properly released.
Wrongful Dissociation Rule
Wrongful Dissociation & Goodwill (Florida Rule):
✅ Under FRUPA, a wrongfully dissociating partner can receive value for the goodwill of the business.
- This differs from the UPA, which denied goodwill value to wrongfully dissociating partners.
Fiduciary Duties of Limited Partner
Fiduciary Duties of a Limited Partner:
✅ Limited partners have NO fiduciary duties to the partnership or other partners solely by being a limited partner.
✅ However, they must act in good faith and comply with the partnership agreement.
Partnership Management
In a partnership, each partner has equal management rights over the partnership, regardless of each partner’s capital contributions or the agreed upon allocation of profits
Post-Dissociation
Partners may agree to continue the business of a partnership before the winding up process is complete. To do so, each partner who has not wrongfully dissociated from the partnership must waive their right to terminate the partnership.
Limited Partner Derivative Suit
A limited partnership includes two classes of partners—general partners and limited partners. A limited partner, unlike a general partner, does not have the power to act for or bind the partnership on his own. However, a limited partner may bring a derivative action on behalf of the partnership if:
- the limited partner tries to get a general partner to bring the suit first or
- the limited partner can show that he believes asking a general partner would be futile.
Limited Liability Partnership Liability
Limited Liability Partnership (LLP) – Partner Liability
✅ Partners in an LLP are NOT personally liable for the partnership’s debts and obligations.
✅ Partners ARE liable for their own wrongful acts (e.g., negligence, fraud).
✅ Partnership itself remains liable for obligations incurred in the ordinary course of business.
✅ No liability for acts of other partners solely because of LLP status.
Partner Authority
A partner can act with two types of authority on behalf of the partnership:
- actual authority – authorized by the partnership and
- apparent authority – not authorized by the partnership but performed in the ordinary course of apparently carrying out the partnership’s business.
A partner who acts with actual authority binds the partnership with his acts. A partner who acts with apparent authority binds the partnership with his acts if the third party does not have knowledge or notification that the partner lacks actual authority.
Partnership Property
All property acquired by a partnership is partnership property and belongs to the partnership. Property is presumed to be partnership property if it is acquired with partnership assets (e.g, capital contributions).
LLP Conversion
A limited partnership can be converted into any other type of entity, including a partnership. To convert the limited partnership, a written plan for conversion must be executed and contain the name and form of the organization before and after the conversion. The conversion becomes effective upon the cancellation of the certificate of limited partnership
Dissolution of Partnership
Upon dissolution of the partnership, partnership assets are first used to discharge obligations to creditors, including partners who are creditors. After that, partners are entitled to recover their capital contributions. Anything that is left over is split equally between the partners.
Dissolving LLP
A limited liability partnership must be registered with the state, and is formed by filing a statement of qualification with the state. The state may revoke the statement of qualification for failure to file required annual reports. The revocation of the statement of qualification does not trigger dissolution of the limited liability partnership. Instead, it allows the state to transform the limited liability partnership into a simple partnership.
Suing Partnerships
A partnership is generally formed to protect the individuals partners from the liabilities of doing business as a partnership. A judgment against a partnership is not a judgment against a partner, and unless a partner is named in a suit, only partnership assets can be used to satisfy the judgment
Partner Lending Property to P
Partners owe fiduciary duties to the partnership and cannot generally take up business positions that are adverse to the partnership. However, partners are permitted to contribute to the partnership, either through capital contributions or by use of property.
