Rules Flashcards
(21 cards)
General partnership
A general partnership is an association of two or more persons to carry on as co-owners a business for profit. No formalities are needed and parties need not specifically intend to form a partnership, only to run a business as co-owners. An agreement to share profits raises a presumption of partnership.
LLP
A partnership becomes a limited liability partnership (LLP) by filing a registration with the secretary of state and the partnership becomes an LLP at the time of filing or on date specified in the registration.
To join a GP
To become a partner in general partnership, one must agree with at least one other person to become a co-owner in a business for profit. A person who receives a share of the profits of a business is presumed to be a partner, except when the profits are received in payment of rent or when it is gross returns and not profits being shared.
Vicarious liability of partners generally
Partnership is liable for breach of contract of agents (partners) acting in ORDINARY COURSE OF BUSINESS unless agent had no apparent or actual authority or other other side had knowledge agent lacked authority
Partners are also liable for torts committed by an employee of a partnership in the ordinary course of partnership business or with the authority of the partnership.
Vicarious liability of general partners
General partners are jointly and severally liable for all partnership obligations, arising in contract or tort.
When a partner is compelled to pay or satisfy the whole of a partnership obligation, he is entitled to indemnification. If partnership is unable to indemnify, he can seek contribution from other partners
Vicarious liability of limited partners
Limited partners are not personally liable beyond their liability to make agreed upon contributions. However, a partner remains liable for their own wrongful acts
Agency
Agency is a fiduciary relationship that arises when one person (principal) appoints another (agent) to act on the principal’s behalf. Requires:
- CONTROL by the principal and
- CONSENT of two parties
Liability of the principal
Principal IS LIABLE for breach of contract, if when agent entered into the agreement, he had actual or apparent authority or principal ratified agent’s behavior
Actual authority
Agent REASONABLY believed he was acting with EXPRESS authority (authority contained within agency agreement and expressly granted by the principal) or IMPLIED authority (implied from like prior behavior or facts and circumstances) from the principal.
Termination of actual authority
Termination occurs by either party’s unilateral determination
Apparent authority
Apparent authority arises when person dealing with agent does so with reasonable belief in agent’s authority, generated by some act or neglect on the part of the principal inducing reasonable reliance.
Ratification
A relationship is created by ratification when an agent purports to act on behalf of a principal without any authority but the principal subsequently validates the act and becomes bound.
For ratification to occur, the principal must know or have reason know all material facts, accept the transaction, and have capacity.
Formation of agency relationship requires
- principal must have contractual capacity
- agent only needs minimal capacity
- only requires writing if SOF governs
- no consideration necessary
Duties of agent
- Duty of care: to carry out agency with reasonable care, depending on special skills and compensation
- Duty of loyalty: highest duty law can impose, must treat principal fairly in all respects
- Duty of obedience: obey all reasonable directions
Duties of principal
- Duty to compensate or reimburse
- Duty to cooperate
- Duty under contract
Management
All partners have an equal right to participate in the management and control of the partnership unless there is a partnership agreement that provides otherwise.
General partners cannot unilaterally transfer management rights; new partners require unanimous vote
Duties of partners
- duty of loyalty (cannot be eliminated): act in good faith and fairly to other partners, account for profits, and refrain from competing with partnership
- duty of care: must refrain from engaging in negligent, reckless or unlawful conduct or intentional misconduct
- duty of obedience: must obey all reasonable directions of partnership; must refrain from acting outside scope of partner’s actual authority
- duty of disclosure (may be eliminated): to provide complete and accurate info without demand and on demand
Profits/losses
In general partnership, profits are generally shared equally among partners, while losses are shared in the same manner as profits. In LP, LLPs, or LLCs, distributions are typically made in proportion to the value of the partner’s contribution.
Partners’ actual authority
A partner has actual authority to bind the partnership if the decision is in the ordinary course of business and it’s approved by a majority of partners.
Even if they lack actual authority they may still have apparent authority
Partner’s apparent authority
A partner always has apparent authority to bind the partnership if a third party would reasonably believe that they have authority by virtue of their being held out as a partner by the partnership.
The act of a partner in the ordinary course of partnership business or business of the kind carried out by the partnership will bind the partnership unless they had no actual authority and the third party knew or received notice that the partner lacked authority.
Every partner is
an agent of the partnership and the acts of a partner will bind the partnership if the partner acted with actual or apparent authority.
