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GEN: Association of 2 or more ppl to carry on as co-owners of a business for profit.
GEN: PA is a contract that can be express or implied (need not have a writing).
- IMPLIED: Existence determined by evidence including --
- (1) Intent to enter into a business as co-owners for profit;
- (2) Agreement to share in the profits/losses; AND
- (3) Mutual right of control of the business.
- GEN: Receipt by a person of a share of business profits is prima facie evidence that the person is a partner.
- EXCEPTION: Payments of profit received in payment of wages, rent, consideration from sale of an aset, repayment of principal, ect.
NOTE: Individual brought in to manage the day-to-day business operations of a business = more like an employment relationship
- GEN: Property held in the partnership name.
- NOTE: Property not titled in the partnership name may still be partnership property.
- >> KEY: Intent of the parties that the property in question be partnership property.
- (1) Prop bought in or acquired by the partners for the partnership biz.
- (2)Property acquired by the partnership w partnership funds (unless contrary intention)
- (3) Property acquired in name of one or more individual partners -- if carried on partnership books.
- (4) Property improved by the partnership or property on which the partnership covers expenses (taxes, repairs, insurance premiums, ect.)
Partnership Property: Interest
- GEN: Tenant in partnership.
- (1) Possession: no posession for personal use w/o consent of other partners.
- (2) Attachment: partner's interest cannot be attached except on a claim against the partnership.
- (3) Assignment: no assignment of interests except in connection with an assignment of rights of all the property.
- (4) Dower: no dower, curtsey, ect.
- (5) Death: rights to prop vests in surviving partners.
Partner's Partnership Interest
- GEN: Share in the P profits/surplus. Considered personal property.
- RULE: P interst MAY be transferred, sold or otherwise assigned.
- >> BUT: Assignment entitles the assignee only to receive the rights to the profits the assinging partnerwould be entitled under the P agreement.
- >> CANNOT: Interfere w/ the control or management of the P business, or require any info, or accout, or inspect the P books.
- NOTE: Assignment ≠ dissolve P.
- KEY: The partner who transferred his interest still remains a partner.
CREDITORS: May obtain a charging order from a court, where a receiver collects the partner's share of profits for satisfying the debt.
Partner Rights & Obligations
- (1) Fiduciary duties, including the duties of loyalty and care.
- (2) Liabilities to 3d parties for Pship obligations
- (3) Right to an accounting, and to inspect the books.
- Fiduciary Duties: (1) to the P and (2) to the other partners -- in cxn with P business.
- >> Good faith, loyalty, fair dealing.
- >> Trust and confidence.
- >> Duty to indemnify for losses incurred as a result of misconduct.
- GEN RULE: Partner presumed to shall equally in the promits/losses from the partnership.
- EXCEPTION: Parties can contract otherwise.
- GEN RULE: Every partner has an equal right in the management and control of the P business.
- Day-today: Matters in cxn with an operation of a P business generally decided by majority vote.
- Unordinary: Acts outside scope of ordinary business must be decided by unanimous consent.
Right to an Accounting
- GEN: Accounting is a judicial proceedings to determine all transactions and financial matters in csn with a P.
- >> May give rise to a legal claim against another.
- (1) Upon dissolution and winding up of partnership affairs.
- (2) When partner wrongfully excluded from partnership business or possession of property.
- (3) If the agreement provides for an accounting (written terms)
- (4) Court Catch-All: Whenever other reasonable circumstances make it just and reasonable.
- NOTE: May also be used in resoling disputes over violations of a fiduciary duty.
Indemnity / Contribution
- Indemnity: P must indemnify every partner for payments made AND personal liabilities reasonably incurred in connection with the business.
- Contribution: Partners must contribute amounts necessary to meet partnership obligations and liabilities -- unless otherwise agreed.
Distribution of Profits
- Partners not automatically entitled to a distribution of partnership profits.
- >> DRAW: Amount of any cash distribution to a partner. Determined by a majority partner vote, unless otherwise provided.
- GEN: Partners generally not entitled to compensation for services.
- >> Don't get salary unless partnership agmt states otherwise.
Third Parties and Agency (Authority)
- Express Actual Authority: (1) express or (2) implied consent of the other partners.
- >> Unanimous consent required for --
- >>>> Assignment of partnership property for the benefit of creditors
- >>>> Disposing of good will of biz.
- >>>> Confessing of a judgment.
- >>>> Submitting claims to arbitration.
- >>>> Doing any other act that would make it impossible to carry on the ordinary biz relationship.
- Implied Actual Authority: Partners have implied authority for all things necessary, usual AND proper to accomplish express responsibilities or reasonably incident to express authority.
- Apparent Authority: third party with whom the purported partner is dealing reasonably believes that the actor is authorized, and if this belief is traceable to a manifestation of the principle.
- Ratification: Co-partners subsequently ratify an unauthorized action of a partner.
- >> Can be express or implied, by conduct that would only make sense if partners had ratified.
- Partnership by Estoppel: Person not a partner who represents himself as such or consents to another making such a representation may be liable to any person who has in good faith extended credit to the partnership based on such representations.
- >> Other partners may be liable for a non-partner's conduct if
- >>>> (1) they carelessly or intentionally cause the third party to believe that he's a partner; OR
- >>>> (2) Knowing of such belief did not take reasonable action to notify the third party.
Liability: Tort and Wrongful Act
- GEN: Partners J+S liable to 3d parties for any loss/injury from wrongful acts/omissions of any partner (1) acting in the ordinary court of business OR (2) w/ authority of his co-partners.
- >> Patners will be liable even if they are innocent and have no knowledge of the wrong.
Liability: Breach of Trust
- RULE: Partners J+S liable for any one partner's improper receipt AND misapplication of any money/property IF
- (1) Partner is acting w/in scope of arrarent authority; OR
- (2) Misappropriation of money/property in custody of a P that was received in the course of business from a 3d party.
Liability: Contract Liability
- RULE: Partners jointly liable for other debts and obligations of the partnership.
- >> NOT J+S, meaning can't bring suit against any individual partner. Rather, you have to bring all of them into the suit.
Liability: Withdrawing Parties
GEN: Remain laible to 3d parties who extended credit while the partner was a member of the partnership.
Real Property Convetance
GEN: Real property owned in P name must also be conveyed in the P name.
- GEN: Change in relation of partners caused by any partner ceasing to be associated with the partnership. Examples of events (of a partner) that will cause dissolution:
- (1) Withdrawal;
- (2) Death; OR
- (3) Bankruptcy.
- RIGHTFUL DISSOLUTIONS:
- >> End of a definite term.
- >> At will if there is no definite term.
- >> Bona fide expulsion of a partner.
- >> Death of any partner.
- >> Bankruptcy of any partner or the partnership.
- WRONGFUL DISSOLUTIONS:
- >> Violation of partnership agmt
- >> Willful or persistent breach of P agmt
- >> Wrongful expulsion of a member
- COURT DECREE DISSOLUTIONS:
- >> P may be dissoved by court devree upon application of a partner upon a finding (1) of incapacity or misconduct of another partner; OR (2) that is no reasonably practicable to carry on P biz.
- NOTE: Any partner who has wrongfully dissolved a partnership is LIABLE to the other partners for breach of contract damages.
- >> Therefore, a dissolution may be okay in terms of fiduciary duties, but may give rise to CONTRACT CLAIMS!>> The wrongful parnter may also be subject to a cash buy out with damages subtracted from the payment due to the departing partner.
LIMITED AUTHORITY: Dissolution terminates the authority of any partner to act as agent for the P except for the purposes of winging up affairs.
CREDITORS: Creditors of dissolved P remain creditors of the new P when P business continues after dissolution
- RIGHTFUL DISSOLUTION -- LIQUIDATION: Any partner can demand a liquidation of the P. Gives partners the right to a forced sale of P assets.
- >> Proceeds first used to satisfy P liabilities.
- >> Surplus distributed to partners.
Winding Up and Termination
- Termination: when all partnership affairs have been would up.WInding Up: Process of winding up partnership affairs -- after dissolution, before termination.
- >> Not required if agmt provides for a continuation of biz.
GEN: Interest vests in the partnership, BUT executor has the right to demand a cash payment of value of decedent's P interest.
Payment of Creditors
- GEN RULE: If partnership has insuff assets to pay off creditors each partner must contribute equally the amount necessary to satisfy partnership obligations.
- >> Contract can provide otherwise.
Distributions -- Priority
- (1) Payment to creditors other than partners
- (2) Debts owed to partners
- (3) amounts owed to partners based on capital contributions
- (4) amounts owed to partners based on profit shares (surplus).
KEY: Limited Partnership required to file a Certificate of Limited Partnership w/ PA Dpt State.
- GEN: One or more general partners AND one or more limited partners.
- NAME: LP name must include the magic words -- LIMITED PARTNERSHIP.
- >> A general partner can be a corporation, trust, entity or person.
- >> Writing Req: none.
- BENEFIT: Limited partner NOT liable for the LP's debts and obligations.
- EXCEPTION: Limited parnter participates in the control of the business.
- >> Loses right to limited liability.
- >> BUT: Limited partner who paricipates -- only liable to person who transact biz with the partnership reasonably believing the limited partner is a general partner.
PROFITS/LOSSES/DISTRIBS: Partner's share based on the proportion of the partner's contribution
as stated in the LP records.
- ASSIGNMENT: Limited partner may assign his P interst; does not dissolve LP.
- >> Assignee does not become a limited partner and is only entitled to distributions UNLESS assignor gives assignee additional rights in accordance with the LP agmt.
- Same as GP, but also when a GP withdraws -- unless:
- (1) at least one GP remains and the LP agmt permits continuation; OR
- (2) all partners agree in wiriting w/in 90 days to continue the P biz and to appoint one or more GPs.
- GEN: P not a taxable entity. Never a tax on the partnership, only tax on partners.
- >> Pass-through entity.
- Distributive Share of Loss/Profit
- GEN: Pay taxes on share regardless of whether distribution actually made.
- RULE: Each partner is responsible for paying tax on his share of P profits whether or not they actually receive it (ie. regardless of whether a distribution is made).
- >> Subject to certain limitations, partners may take their share of P losses into account on their individual tax returns.