Agency & Partnership

Front 1

AGENCY
(Capacity)

Back 1

1. Principal MUST have Contractual Capacity
2. Agents NEEDS Only MINIMAL Capacity
3. Disqualifications of Agents:
a. Representing Both Parties (unless fully advised of the facts and agree to the dual representation)
b. Not Licensed

Front 2

AGENCY
(Formalities)

Back 2

1 CONSENT of BOTH Principal& Agent
2 No Consideration Required
3. Writing Generally Not Required

Front 3

AGENCY
(Modes of Creating Agency Relationship)

Back 3

1. By Act of the Parties (3)
a. Actual Authority -- the agent and principal can agree that the agency shall exist
b. Apparent Authority -- the Principle may "hold another out" as his agent to a third party
c. Ratification -- The Principle may "agree to be bound by the previously unauthorized acts" of another.
2. By Operation of Law
a. Estoppel -- there is almost no difference between estoppel and Apparent Authority, they both depend on a third party reliance on a communication from the principal. Difference: Apparent Authority makes the principal a party to the contract --with contractual rights and liabilities -- whereas estoppel is merely a remedy to protect the innocent third party against loss.
b. Statute (i.e. Secretary of State while operating a motor vehicle on the highway)

Front 4

AGENCY
(Duties of Agent to Principal)

Back 4

1. Loyalty
2. Obedience
3. Care

Front 5

AGENCY
(Duty of Loyalty)

Back 5

1. A fiduciary duty with no interests to an adverse party of the principle (self-dealing or obtaining secret profits)

Front 6

AGENCY
(Duty of Obedience)

Back 6

1. Liability for ALL Reasonable Directions.
2. "Reasonable Directions" = Depends on the nature of the work, the contractual understanding, and custom.

Front 7

AGENCY
(Duty of Reasonable Care)

Back 7

1. Compensated Agent -- local community standards and taking into account any special skills of the agent.
2. Gratuitous Agent -- Results in no difference between standard for paid and unpaid agents.
3. Duty to Notify -- all matters that come to the agents knowledge of fact in the subject of the agency. The effect of this rule is that notice of all such matters coming to the attention of the agent is IMPUTED to the principal.

Front 8

AGENCY
(Remedies to Principle)

Back 8

1. Under either contract duties or tort law. Compensated agents for contracts only, uncompensated agents are not under contractual obligation.
2. Action for Secret Profits
3. Accounting
4. Withholding of Compensation

Front 9

AGENCY
(Duties of Subagent to Principle and Agent)

Back 9

When Authorized, same duties as agent.
1. Liability of agent for subagent breaches. even though the age of exercised diligence and "good faith" in appointing the subagent.
2. Liability of agent to Agent -- the subagent always be agent the same duties she owns the principal; thus she will be liable to be agent for her breaches.
3. Unauthorized Subagent -- were there has been no authority appointed, the subagent posed no duties to the principal. The agent alone will be responsible to the principal for performance of agency duties.

Front 10

AGENCY
(Duties of Principal To Agent)

Back 10

By Operation of Law
1. Compensation
2. Reimbursement
By Contract
Duty to Cooperate; Hypo: "if Paul hires Acme to sell his empty factory building on commission, Paul cannot then lease the building to a third party."

Front 11

AGENCY
(Remedies of Agent)

Back 11

1. Breach of Contract
2. Agent 's Lien
the most important thing to remember for a compensated agent is that the agent has a duty to mitigate damages.

Front 12

ACTUAL AUTHORITY
(Questions to ask Yourself)

Back 12

1. Whether the requisite formalities, if any, have been complied with;
2. What type of actual authority (express or implied) is present;
3. Whether the authority has been terminated.

Front 13

TYPES of ACTUAL AUTHORITY

Back 13

Express or Implied
1. Express -- "four corners" test. Specific versus General Language, Reasonable Belief of Agent.
The fact that the agent induces the principal to grant authority by misrepresentation WILL NOT effect the extent of the authority actually granted.
2. Implied -- when the AGENT (not third-party) reasonably believes she has the permission of the actions of the principal.
a. Implied from Express Authority
b. Implied from Custom and Usage
c. Implied by Acquiescence
d. Implied because of Emergency or Necessity

Front 14

ACTUAL AUTHORITY
(Termination)

Back 14

1. By Lapse of Time
a. Specified Time
b. Time Not Specified -- "reasonable"
2. By Happening of an Event
3. By Change of Circumstances
4. By breach of agents fiduciary duty
5. By unilateral act of principal or agent
6. By operation of Law
EXCEPTION: Durable Powers of Attorney

Front 15

IRREVOCABLE AGENCIES

Back 15

Situations in which one party cannot unilaterally terminate:
1. The agent has an interest in the subject matter of the agency
2. A power is given for security.

Front 16

APPARENT AUTHORITY

Back 16

"Holding Out" by Principal. Not a mere assertion by the agent of her powers, but the principle must have done or failed to do something that caused the third parties belief.
1. Affirmative Action
2. Inaction

Front 17

APPARENT AUTHORITY

Back 17

"Reasonable Reliance by Third Party". In addition to the requirement that some "holding out" must be traceable to the principal, the third party must reasonably relied on the "holding out". Look for extraordinary transactions or unusual circumstances surrounding the agents actions.

Front 18

RATIFICATION

Back 18

situations where an individual (agent) will purport to act on behalf of another person (principal) without any type of authority. Principal may still be bound by the agents acts if subsequently she ratifies them.

Front 19

RATIFICATION
(Prerequisites)

Back 19

1. "Principal" Must Know ALL Material Facts
2. "Principal" Must Accept the Entire Transaction
3. "Principal" Must Have Capacity
4. No Consideration Needed

Front 20

RATIFICATION
(Methods of Ratifying)

Back 20

1. Express Affirmation
2. Implied Affirmance
a. Acceptance of Benefits
b. Silence
c. Lawsuit

Front 21

RATIFICATION
(Exceptions)

Back 21

1. Performance Illegal
2. Withdrawal by Third Party
3. Material Change of Circumstances

Front 22

RATIFICATION
(Undisclosed Principal)

Back 22

because an act must be entered into by the "agent" on behalf of her "principal" an "undisclosed principal" cannot ratify because the third-party never relied upon his existence. (Compare with ratification and tort situations, however. There it is not necessary that the third-party had knowledge of the "principal" as long as the "agent" INTENDED to act on his behalf.)

Front 23

LIABILITIES OF THE PARTIES
(Third Party versus Principal)

Back 23

P generally liable.

Front 24

LIABILITIES OF THE PARTIES
(Third Party versus Agent)

Back 24

It depends on whether the principal was disclosed, partially disclosed, or undisclosed.

Front 25

LIABILITIES
(Disclosed P.)

Back 25

a disclosed P is one whose existence and identity are known by the third party. Exceptions:
1. Intent of Parties "P by A" OR P,A" parol evidence would be admissible in the latter situation to prove the intent of the parties.
2. Agents Implied Warranty of Authority -- if she acted without authority "for breach of her implied warranty". Damages are limited to the actual damage caused, which may be different from what could be recovered using a contract damage measure.

Front 26

LIABILITIES
(Partially Undisclosed & Undisclosed)

Back 26

BOTH A & P are held liable. A partially undisclosed P is one in which the third-party knows of the P's existence but not IDENTITY.
Election to Bind P & A. -- the majority of courts permit the third party to file suit against both, but upon objection by either defendants, the third-party must elect "prior to judgment" which party he wishes to hold liable.
NOTE: if the third-party obtains a judgment against the agent without knowledge of the P's identity, he can later sue the principal when her identity is discovered if the judgment has not been satisfied.

Front 27

LIABILITIES
(Right to Hold Third Party Liable on Contract)

Back 27

if DISCLOSED, only the P not the agent may enforce the contract and hold the third party liable.
If UNDISCLOSED or PARTIALLY DISCLOSED, BOTH may enforce the contract.

Front 28

LIABILITIES
(Limitations Where P May NOT Enforce Contract)

Back 28

1. Fraudulent concealment of P's IDENTITY. The majority of courts hold that the agent must have "affirmatively misrepresented" for this exception to operate.
2. Increase of Burden to Third Party-- where performance by the P would impose an undue burden on the third party (by virtue of the fact that it is the P and not the agent if performance must be made) the contract may not be specifically enforced in the third party will have a right to rescission.

Front 29

TORT LIABILITY -- Respondeat Superior

Back 29

Elements Necessary to Establish Liability
1. Employer/ Employee Relationship.
2. Conduct Within Scope of Employment

Front 30

NATURE of EMPLOYERS LIABILITY

Back 30

1. Liability Is Derivative (release from liability by the employee precludes recovery from the employer)
2. Liability is Joint and Several -- victim may recover in full from EITHER employer or the employee.
3. Direct Liability, P may be held directly liable for her "own negligence" in hiring, retaining, or supervising an employee if the employer knew or should have known of the employees dangerous or careless proclivities.

Front 31

INTENTIONAL TORTS

Back 31

the employer is usually not liable for the intentional torts of her employee on the simple grounds that the intentional tort is clearly outside the scope of employment. However there are certain rules where the employer may be liable:
1. Force Is Authorized "Bouncer"
2. Promotion of the Employer's Business (employees on strike)
3. Friction Generated by Employment (bill collection)

Front 32

INDEPENDENT CONTRACTOR versus EMPLOYEE?

Back 32

Important Distinction!!
The single overriding factor in determining whether a person is an employee is whether the employer has the "right to control" the manner and method by which the person performs his tasks.
Other Considerations:
Supervision
Compensated on a Time Basis
Characterization by Parties
Distinct Business
Skill Required
Tools and Facilities

Front 33

LIABILITIES
(Acts of Subservants)

Back 33

A Bar Exam Question Analysis should revolt around existence of or nonexistence of such authority.
1. Express Authority to Higher Subservants
2. Implied Authority to Hired Subservants (past practices by the employee)
3. Employer -- Employee By Estoppel (requires a third party)
4. Liability for Acts of Borrowed Employees.
5. Liability for Acts of Independent Contractors

Front 34

LIABILITIES
(Independent Contractors)

Back 34

Situations where the P without regard to the existence of an employer/employee relationship is still held liable for the negligence or wrongdoing of the independent contractor.
1. Inherently Dangerous Activities
2. Selection of an Incompetent Independent Contractor
a. Knowing Selection
b. Negligent Selection
3. Nondelegable Duties

Front 35

SCOPE OF EMPLOYMENT
(3 Factors)

Back 35

1. Was the conduct the same general nature as, or incident to, that which the employee was employed to perform.
2. Was the conduct substantially removed from the authorized time and space limits of the employment; and
3. Was the conduct actuated at least in part by a purpose to serve the employer.

Front 36

FROLIC & DETOUR

Back 36

Small or minor deviations = "detour"
Major Deviations = "frolic"

Front 37

PARTNERSHIP
(Definition)

Back 37

the UPA (Uniform Partnership Act) defines a partnership as an Association of 2 or more competent persons to carry on as co-owners of a business for profit. The law of partnership is based on the law of contracts and agency.

Front 38

PARTNERSHIP
(Formation)

Back 38

1. Capacity (if they would be partner lacks capacity, she is not personally liable for the obligations of the partnership or for breaches of the partnership agreement.)
2. Formalities
a. The intent may be either express or implied
b. Writing generally not required -- SoF applies to a perpetual or a contract for more than one year.
3. Legality of Purpose. The partnership is VOID if for any illegal purpose, the courts will not compel and accounting or a settlement of the partnership affairs.
4. Consent -- Express or Implied consent of ALL PARTNERS.

Front 39

PARTNERSHIP
(NOT a LEGAL ENTITY)

Back 39

Unlike the Corporation, the debts of a partnership, are the debts of the individual partners, and any one partner may be held liable for the partnerships entire indebtedness. However, in some cases, a partnership, at least in form, is treated as an entity.
1. Title to Land (may be taken in the partnerships name)
2. Lawsuits:
a. Entity Theory States(view the partnership as an entity, a partnership may sue or be sued in the partnership's name or in the names of the individual partners, or both.)
b. Aggregate Theory States (suits by and against the partnership must name the individual partners.)

Front 40

PARTNERSHIP
(Proof of Existence)

Back 40

Generally, courts look at the intent of the parties.
the UPA has provided certain tests to be applied to the acts of the parties:
1. Title to Property -- joint or common tenancies of any type do NOT established by themselves the existence of a partnership even if the co-owners share profits from the use of the property.
2. Designation of Entity by Parties -- use of the word "partnership" is important as indication of motive or intent, but it is not conclusive.
3. Amount of Activities Involved
4. Sharing of Gross Returns -- does NOT by itself establish a partnership, is one of whether the persons sharing them have a joint or common interest in any property from which the returns are derived.
5. Sharing of Profits -- Prima Facia evidence of partnership.
6. Sharing of Losses -- while it is not conclusive to prove a partnership, the absence of an agreement to share losses is evidence that the parties DO NOT intent to form a partnership.

Front 41

PARTNERSHIP
(Sharing of Profits)

Back 41

EXCEPTIONS to Inference of Partnership:
1.A DEBT, by installment or otherwise
2. WAGES of an employee
3. RENT to a landlord
4. ANNUITIES to a SURVIVING SPOUSE

Front 42

PARTNERSHIP BY ESTOPPEL

Back 42

Liability as it applies to third parties. Most likely to arise in one of the following situations:
1. Liability of Person Who Is Held Out as Partner
2. Liability of Person Who Holds Another Out As Partner "power to bind"

Front 43

PARTNERSHIP
(Property of a Partnership)

Back 43

CLASSIFICATIONS OF PROPERTY
1.Partnership Capital, "property or money contributed by each of the partners for the purpose of caring on the partnerships business"
2. Partnership Property, "embraces every thing that the partnership owns, consisting both of the capital contributed by its members AND the property subsequently acquired in partnership transactions."

Front 44

PARTNERSHIP
(What Is Included in Partnership Property?)

Back 44

Absent an agreement, there are no restrictions as to what may be included in partnership property. The key factor is "partners intent to devote the property to partnership purposes." Determinations:
1. Acquisition with Partnership Funds
2. Use of Property
3. Improvement of Property by Partnership
4. Relation of Property to Business
5. Title to Property
6. Entry in Partnership Books
7. Maintenance and Expenses

Front 45

PARTNERSHIP
(Partners Rights in Partnership Property -- Tenancy in Partnership)

Back 45

The incidents of this tenancy are:
1. Possession, each partner as an EQUAL RIGHT to possess partnership property for partnership purposes, but has no right to possess it for any other purpose without the consent of the co-partners.
2. Signability, a partners right in specific partnership property is NOT ASSIGNABLE to non-partners except in connection with the assignment of the rights of all of the partners in the property. COMPARE: an assignment or sale of the partners interest in specific partnership property to one or more of his copartners passes title to the property.
3. Mortgage the mortgagee will have no rights against the property.
4. Death, upon the death of a partner, his right in specific partnership property vests in the surviving partners.
5. Dower, a partner is right and specific partnership property is not subject to Dower, Curtesy, or Allowances to a surviving spouse, heir, or next of kin.
6. Attachment of Specific Property -- not subject to creditors.
7. Homestead

Front 46

PARTNERSHIP
(COMPARE -- Partners Interest in the Partnership)

Back 46

1. Interest Is Personal Property, which consists of a share of the profits and surplus.
2. Assignment of Interest, a share of the profits and surplus may be assigned -- do not confuse with the limitation upon the right to assign an interest in SPECIFIC PARTNERSHIP PROPERTY!

Front 47

PARTNERSHIP
(Assignees Rights)

Back 47

1. In Partnership, no interference in the partnership management or administration of the partnership business or affairs. Nor to require any information or account of the partnership transactions, or to inspect the partnership books. It only gives PROFITS.
2. At Dissolution, may require an accounting only from the date of the last accounting agreed to by all the partners.

Front 48

CHARGE of INTEREST
(ATTACHMENT)

Back 48

a judgment creditor of a partner on application to the court that entered the judgment or other component court, may charge the interest of the debtor partner with payment of the unsatisfied amount of the judgment that with interest thereon. The court may then or later appoint a receiver of the debtor's partners share of the profits, and of any other money do or to become due to him in respect of the partnership.

Front 49

PARTNERSHIP
(Relations between Partners)

Back 49

1. Fiduciary Duty
2. Right to Participate in Management
3. Right to Distributions
4. Remuneration -- See Card
5. Indemnification
6. Contribution
7. Books and Information
8. Legal Actions between Partners -- See Card

Front 50

PARTNERSHIP
(Remuneration)

Back 50

number one. General Rule -- no remuneration except for extraordinary services
2. Exception -- "Winding Up" by Surviving Partner
3. Breach of Agreement to Work for Partnership, remedy = damages to the partnership.

Front 51

PARTNERSHIP
(Legal Actions between Partners)

Back 51

General Rule -- No Action at Law. As a general rule, a partner cannot sue or be sued by the partnership (in an action at law) gourmet one partner sue another partner on matters related to the partnership business.
RATIONALE:
1. Plaintiffs on both sides of the suit
2. Accounting is necessary, it would require a piecemeal litigation, and settlement of a partner's claim without a complete accounting and settlement of all the partnership affairs could lead to a violation of this policy. Accounting is necessary because:
a. Partnership Assets Applied
b. Creditors Priority
EXCEPTION:
one partner may sue the other at law when "no complex accounting" is required or when the subject matter of the suit is "independent" of the partnership.

Front 52

PARTNERSHIP
(Actions for an Accounting)

Back 52

and accounting is an equitable proceeding that considers all transactions between partners in connection with the partnership. It is usually held in connection with a FINAL SETTLEMENT of the partnership affairs. The liabilities between each partner in the partnership are thereby converted into liabilities between the partners individually, and action lies to recover the balance due any partner.
"A and B were partners. A final accounting was held upon dissolution of the partnership in which it was found that A owed B the sum of $500. A is liable to B for this sum."

Front 53

PARTNERSHIP
(Accounting Exceptions OTHER men in connection with a final settlement and dissolution.)

Back 53

1. wrongful exclusion
2. Agreement
3. Secret profits
4. Other circumstances -- "just and reasonable"

Front 54

PARTNERSHIP
(Separate Actions at Law)

Back 54

1. Segregated Transactions
2. Tort Claims
a. Negligent Partner
b. Negligent Employee -- whether or not the partner can sue? Modern trend is to permit the partner to sue whereas at common law it was imputed to the partnership and partners, thus barring suit..

Front 55

PARTNERSHIP
(Relations of Partners to Third Parties)

Back 55

Every partner is an agent of the partnership for the purpose of its business. Be active every partner, "for apparently carrying on in the usual way the business of the partnership" the partnership liability for the act of a partner may be in contract, in tort, or for breach of trust.

Front 56

PARTNERSHIP
(Actual Authority)

Back 56

An acting partner is not specifically authorized by the partnership agreement to do a particular act, that a majority vote of the partners is required. The majority about can, of course, authorized partner to act in certain classes of transactions without further consultation with the other partners.
BUT A UNANIMOUS VOTE may sometimes be required.

Front 57

PARTNERSHIP
(Unanimous Vote Required)

Back 57

1. Statutory Provisions
Arbitration
Assignment for Benefit of Creditors
Confession of Judgment
Goodwill
Interference with Ordinary Partnership Business
2. By Agreement

Front 58

PARTNERSHIP
(Apparent Authority)

Back 58

1. Real Property
a. Title in Partnership Name, conveyance in partnership name, conveyance and individual partners name.
b. Title in Name of Fewer Than All Parties -- convince the name of titleholders, convince the name of partnership were fewer than all titleholders.
3. Title and name of all partners -- if is in the name of all of the partners, we are convinced by all of the partners passes the equitable interest in the property as well as legal title.

Front 59

PARTNERSHIP
(Other Transfers of Interest in Real Property)

Back 59

1. Mortgages
2. Leases
3. Personal Property -- ordinary contract rules govern both the sale and pledge of personal property.

Front 60

AGENCY
what are the three BIG testing areas for the bar exam?

Back 60

1. The Agency Relationship:how is the relationship created? What duties arise between the parties, especially what are the FIDUCIARY DUTIES owed by the agent to the principal?
2. Contract Issues: when an agent makes the contract on behalf of a P , what are the rights and duties between the three parties involved? APPARENT AUTHORITY IMPORTANT!!
3. Tort Issues: when a service employee (servant) commits a tort upon a third party when working for the employer (Master), who is liable to the injured third party?

Front 61

Two aspects to the agency relationship: The agency relationship is...?

Back 61

Consensual & Contractual

Front 62

Equal Dignities Rule
(Exception to the formalities)

Back 62

Landowner (principal) contracts with a real estate broker (agent) to sell land, and grants the broker authority to actually convey title to the purchaser. Since the land sale agreement between the broker and purchaser would need to be in writing under the SoF, then equal dignity must be given the brokerage (agency) agreement as well, and it too must be in writing.

Front 63

Contractual duties of principal agent

Back 63

1. Duty to Reimburse -- "reasonably incurred expenses"
2. Duty to Indemnify -- "reasonably incurred legal liabilities"
3. Duty to Compensate --"if the agency contract expressly provides for compensation, or if the agency agreement is silent on this point. Otherwise a gratuitous agency"
4. Duty to Cooperate -- "NO INTERFERENCE with performance, and must AFFIRMATIVELY A where reasonably required to do so."

Front 64

FIDUCIARY DUTIES of AGENT to P

Back 64

1. Duty of Loyalty**-- S. agent made a full disclosure of the material facts and offered the chance to buy the item or a reasonable time.
2. Duty of Obedience --
3. Duty of Care
4. Duty to Account -- "for money and property received by the agent in the course of that agency functioning."
5. Duty NOT TO COMPETE & NOT TO BE DUAL AGENT -- "the agent cannot serve as a dual agent for two principals (unless the agent has disclosed the proposed dual representation to both principals and has obtained their consent to such dual representation)"

Front 65

Agency Bar Exam Tip:

Back 65

is an exam question present a close call on the facts about whether there has been a breach of one or more of the contractual or fiduciary duties described, you should find a breach. Why? So that you can then address the remedies issue.

Front 66

BASIC REMEDY

Back 66

DAMAGES awarded in the form of MONEY.

Front 67

SPECIAL REMEDIES for BREACH of FIDUCIARY DUTIES

Back 67

Forfeiture of SALARY or COMPENSATION for the time period during which the fiduciary breach was occurring in the breach was intentional.
CONSTRUCTIVE TRUST imposed upon any money or property in the possession of the agent which should have been accounted for, and paid over to.

Front 68

AGENCY POWER COUPLED WITH AN INTEREST

Back 68

REVIEW the OUTLINE for remedies.

Front 69

PROPER NOTICE RULE

Back 69

to avoid liability for "lingering apparent authority" the P must give both 1) timely and 2) personal notice to third parties (dealings with the agent, and must give 3) notice by publication for the rest of the universe of possible third parties.

Front 70

KEY TESTING AREAS -- PARTNERSHIP

Back 70

1. Formation
2. Property
3. Management
4. Third parties
5. Dissolution, Liquidation & Termination

Front 71

PARTNERSHIP
"Of Two or More Persons"

Back 71

"Persons" Broadly Defined to Include Individuals and Business Entities, Such As Corporations, LLC, Partnerships, Limited Partnerships, Etc.

Front 72

PARTNERSHIP
"To Carry on As Co-Owners"

Back 72

MOST IMPORTANT ELEMENT
co-ownership of a business is the key indicator of the existence of a partnership.in order to have co-ownership, there must be a sharing between the partners of both 1) PROFITS and 2) MANAGEMENT CONTROL. The sharing does not have to be EQUAL among the partners.

Front 73

PARTNERSHIP
some factors to consider when determining whether or not a piece of property belongs to a partner or a partnership.

Back 73

1. In whose name is the title?
2. Who possesses it?
3. Who insures it?
4. Where partnership funds used to acquire it?*MOST IMPORTANT

Front 74

what happens if a partner sells his or her interest to a third party?

Back 74

the purchaser has property rights of the selling partner, but the buyer does not become a substitute partner. The buyer could not attend meetings, vote, etc.
Best-selling partner is still a partner and is personally liable for partnership obligations; a third-party purchaser is NOT.

Front 75

VOTING & CONTROL

Back 75

absent an agreement to the contrary, each of the partners has an equal voice in the management and conduct of the business. In other words "one partner, one vote".

Front 76

Rules on Sharing profits and Losses

Back 76

absent an agreement to the contrary,partners share profits EQUALLY; partners share losses "the same way they share profits".

Front 77

PARTNERSHIP
(Wages & Salary)

Back 77

unless partners agree to paying one or more of them a salary or wage, partners may NOT take a wage or salary. Partners are in a partnership to share in profits, not wages or salaries. The only EXCEPTION is that upon dissolution of the business the partners during the winding up may take reasonable compensation for their efforts.

Front 78

INCOMING PARTNERS

Back 78

New or Incoming Partners would join a firm or NOT personally liable For Pre-Existing debts (that existed before the time of the partners admission to the firm). However, any money or capital paid to the firm immediately converts to partnership property and can be used to pay pre-existing obligations.

Front 79

DISSOLUTION, LIQUIDATION, & TERMINATION

Back 79

when a partner ceases to be associated with a partnership (such as by the partner's death, withdrawal, bankruptcy or expulsion) that event causes the DISSOLUTION of the partnership. A firm is still alive after such an event. But the partnerships are skeletal and not well planned. Thus the dissolution will result in 1) LIQUIDATION or 2) WINDING UP, after which it then and only then 3) TERMINATES.

Front 80

LIQUIDATION (Winding up)

Back 80

LIQUIDATION is the process by reducing the business to CASH and then distributing those funds to the parties entitled to them.

Front 81

PRIORITY CHECKLIST FOR PAYMENTS UPON LIQUIDATION

Back 81

1. Outside (non-partner) creditors of the business.
2. Inside (partner) creditors of the business.
3. Partners for the return of capital contributions.
4. Partners for further profits (more money remains)

Front 82

LTD. PARTNERSHIPS

Back 82

a limited partnership is a partnership that has at least one general partner and at least one limited partner. A person can be both a general partner and a limited partner in the same firm, but it still takes at least two persons to form a limited partnership.

Front 83

LTD. PARTNERSHIP
(Firm Name)

Back 83

the name of the limited partnership should NOT include the name of a limited partner, because that would mislead third parties to believe such a partner is a general partner. Use of a limited partner's name in the firm's name will cause that partner to have general liability.

Front 84

LTD. PARTNERSHIPS
(Formation)

Back 84

one formality is requiring form the limited partnership itself, namely the filing of a "certificate of limited partnership" with the Secretary of State. If no certificate is filed, then no limited partnership is created or formed.

Front 85

LTD. PARTNERSHIP
(Liability Rules)

Back 85

Gen. partners are personally liable for the debts of the partnership. Limited partners are not personally liable for the debts of the partnership. Their liability is Limited to the amount of their capital contribution or promised contributions. Their limited liability does not change even if they actively participate in the limited partnerships OPERATION & MANAGEMENT