Partnerships Flashcards
(43 cards)
“General partnership”
“An association of 2 or more persons to carry on as co-owners of a business for profit”
GP’ship statute
IN Uniform Partnership Act (IUPA) - default rules if no agreement by the parties
Formalities for GP’ship
No filing or writing (partnership agreement) required to form a GP’ship
Becoming a partner in a GP’ship
Unless agreed otherwise, no one can become a GP without express or implied consent of all parties (unanimous consent)
Proof of GP’ship existence - test/what controls? 5 factors?
In determining the existence of a GP’ship, the express intent of the parties governs. If no express intent, look to:
- title to property (in partnership name or in individuals?)
- designation of the entities as a partnership by the parties
- amount of activity involved in the enterprise by the parties
- sharing of PROFITS (prima facie evidence of a GP’ship) (must be PROFITS, cannot be payment of wages, rent, repayment of debt, interest on a loan, payment of annuity to surviving spouse of deceased GP, or sale of goodwill of a biz);
- sharing of losses
Partnership by Estoppel
One who represents to 3rd parties that a GP’ship exists will be liable as if GP’ship exists
What is included in partnership property - controlling factor; 7 factors?
In determining what comprises partnership property, the controlling factor is the partners’ intent to devote the property to partnership purposes
Consider:
- the source of funds used for the acquisition (ship funds or personal funds?) (*** this factor is given significant weight under IN law)
- the use of the property
- improvement, if any, of the property by the partnership
- the relation of property to the biz
- title to the property
- treatment of the property in the partnership books;
- payment of maintenance costs and expenses by the partnership
GP’s rights in partnership assets?
(1) MAY NOT be transferred by individual P’s without partnership authority
(2) equal right to possession for partnership purposes
(3) right of ownership vests in surviving partners after death of partner
GP’s interests/rights in the partnership? (profits? control?)
P’s interest in partnership is assignable* (does NOT assign right to control/management/vote; merely assigns right to receive profits assignor would be entitled to)
(1) P’s share of profits of the partnership is treated as personal property & therefore MAY be transferred by individual partner
(2) P’s share in management (control/vote) is asset owned by the partnership & therefore MAY NOT be transferred by individual P’s
(Also, P’s interest in partnership is attachable (charging order/creditors))
Relations between GP’s: fiduciary duty
Each GP owes other GP’s and GP’ship a fiduciary duty - duty of the finest loyalty; includes:
(1) no self-dealing
(2) no usurping partnership opportunities
(3) no secret profits
Rights/Duties between GP’s (6)
(1) Fiduciary duty
(2) Management Participation
(3) Distributions (profits/losses)
(4) Remuneration (typically not, but for winding up)
(5) Indemnification & contribution
(6) Books and information
Relations between GP’s: Management Participation
All P’s have equal rights in management of partnership, absent agreement otherwise (1 P, 1 vote)
Any differences arising as to ordinary matters connected with the partnership –> absent agreement, by majority vote
Any act (1) in contravention of partnership agreement OR (2) fundamental partnership matters –> require unanimous consent
Relations between GP’s: Distributions (profits/losses)
Absent agreement, GP’s share profits equally
Absent agreement, GP’s share losses in same way they share profits/according to their share of profits
Relations between GP’s: Remuneration
Generally, no right to remuneration for services rendered to the partnership (no compensation for GP’s)
Exception: in winding up the partnership biz
Relations between GP’s: Legal actions between partners
Generally, GP’s cannot sue or be sued by partnership in action at law/nor may one GP sue another GP on matters related to the partnership biz
Action for accounting - an equitable proceeding whereby liabilities between each P and the partnership are converted to liabilities btwn partners individually (generally arise upon final settlement of partnership affairs, actions for wrongful exclusion or to recover secret profits)
Relations btwn GP’s and 3rd parties: agency? liability for torts/K?
Partners are agents of the partnership; the act of every partner “for apparently carrying on in the usual way of biz of the partnership” will bind the partnership and thereby bind the other GP’s
(Therefore, GP’ship is liable for each GP’s torts in the scope of GP’ship biz & for each GP’s authorized K’s/K’s within scope of GP’ship biz)
Relations btwn GP’s and 3rd parties: fraud
When one GP defrauds a third party - GP is liable for any act/ommission by a GP “acting within ordinary course of biz of the GP’ship OR with authority of his co-partners”
Relations btwn GP’s and 3rd parties: Types of liability
A GP’s liability includes:
(1) K liability, if K w/in scope of GPship biz or expressly authorized; and
(2) tort liability for GP’s and EE’s torts committed within ordinary course of biz (but if tort requires element of malice, each GP must have acted with such intent to be liable)
Relations btwn GP’s and 3rd parties: Nature of liability
Each GP is jointly & severally liable for torts and breaches of trust
Each GP is jointly liable for all other partnership obligations (K breaches)
Relations btwn GP’s and 3rd parties: Extent of liability
Each GP is personally and individually liable for the entire amount of partnership obligations (BUT creditor must first exhaust GP’ship assets before levying against GP’s individual assets)
Relations btwn GP’s and 3rd parties: Liability of Incoming GP
An incoming partner is liable for PRIOR partnership obligations only to the extent of her capital contribution
Relations btwn GP’s and 3rd parties: Liability of Retiring GP
A retiring/withdrawing GP:
(1) remains liable for obligations arising which he was a partner, unless there has been payment, release, or novation
&
(2) liable for subsequent obligations until he has given notice of withdrawal (actual notice to old creditors/current creditors of partnership & publication notice to potential creditors - 3rd parties dealing with the partnership/knew of the partnership)
“Dissolution”
a material change in the relationship of the GP’s caused by any partner ceasing to be associated in the carrying on of the biz
Process:
Dissolution –> winding up –> termination (end of GP’ship)
Methods of dissolution
- in IN, a GP’ship automatically dissolves upon any material change in the GP’ship caused by death OR withdrawal of GP
- act of the GP’s (partnership agreement, mutual assent of all partners, proper expulsion of a GP, or by express will of any one partner)
- operation of law (bankruptcy of partner or partnership, partnership becomes illegal, etc.)
- decree of equity court (on request of a GP in cases of: breach of partnership agreement so that it is not reasonably practicable to carry on biz with the breaching partner; unprofitability; misconduct of partner that prejudicially affects the carrying on of the biz; incompetence of partner; incapability of partner; other circs rendering dissolution equitable)
