Ct Partnership

Front 1

Aggregate Theory (UPA)

Back 1

• Partnership merely aggregate of individuals acting with common goal
o Partnership itself not legal entity
o Assets held in joint ownership
• If one partner leaves or dies, or a new partner admitted the original partnership is automatically dissolved
o Continuing in business means continuing in a new partnership (wholly distinct from prior)
• Partners functions as joint principals

Front 2

Entity Theory (RUPA)

Back 2

• Partnership is a legal entity separate and distinct from its members
• Partnership can hold title to partnership property
• Partnership capable of suing and being sued
• Partners function as agents of the partnership
o Not joint principals

Front 3

General Partnership

Back 3

1. The association
2. Of two or more persons
3. To carry on as co-owners
4. A business for profit

• “Association”
o A voluntary and consenting association of the people involved in the purported partnership
• Intent is the key factor
o Can be established from all the facts, circumstances, actions, and conduct of the parties
o Subjective intent to form a partnership not necessary (don’t need to understand that they are forming a partnership, per se)
 Only need intent to run business as co-owners

Front 4

Indicia of Partnership

Back 4

In determining whether a partnership is formed, courts may examine the following factors:
• Joint ownership
o Or if property held in the name of the partnership
• Sharing of Profits
o Most important factor
o “Prime facie evidence that person is a partner in the business”
o Presumption does not apply if partner receives profits in payment of a debt or payment for services rendered, or as wages, rent, retirement or health benefits, interest on loan, or sale of goodwill of a business
• Sharing of Control
o Sharing of control, capital investment, labor and losses
• Sharing of Gross Returns
• Miscellaneous
o Entity can be a partner in a general partnership
o Absent agreement to the contrary, no individual or entity can become a partner without the consent of all the other partners

Front 5

Limited Partnership

Back 5

• If they try to form a limited partnership but fail to file then it creates a general partnership
• General partners carry on day-to-day business
o Personal liability
• Limited partners only liable for the partnership debts to the extent of their investment
o But if they take on managing role, it may destroy limited partner status
• KEY: L.P. forms when a written certificate of limited partnership executed and filed with state
o Subjective belief of the parties that they had formed a limited partnership is irrelevant if they have not filed a certificate
Certificate must contain the following elements:
• Name of the limited partnership
o Must contain L.P. or “Limited Partnership”
 Puts people on notice of limited liability of investors
• Address for initial designated office and name and address of initial agent for service of process
• Name and address of each general partner
• Signature of all general partners
Certificate must “substantially comply” with these requi

Front 6

Limited Liability Partnership

Back 6

• Professional business entity (lawyers/doctors) that limits partner’s liability for professional malpractice not involving that particular partner
• Difference between an LLP and a regular LP is that there is no personal liability in an LLP
• Partners are jointly and severally liable for acts and obligations of the partnership but partner’s liability for professional malpractice limited to three circumstances:
o Liability arise from malpractice of the partner
o Partner supervised or directed the person who committed the malpractice; or
o Partner was directly involved in the specific activity which resulted in the malpractice
• Name end with “registered limited liability partnership,” “limited liability partnership,” “R.L.L.P.” or “L.L.P.”, etc.

Front 7

Tort Liability the Partnership

Back 7

• Remember that concepts of agency are applicable
o To act as agent, must have authority/apparent authority, etc.
• Partnership liable acts or omissions of any partner acting in the “ordinary course of the partnership’s business” or, (even if not in the ordinary course of business) if done with the authority of the other partners to the same extent as the partner so acting or omitting to act.

Front 8

Tort Liability of the Partners (General Partnership)

Back 8

• Individual partners are jointly and severally liable (sue all or sue just one for full burden of liability) for all obligations of the partnership arising from any wrongful act or omission of any partner acting “in the ordinary course of the business of the partnership” or “with the authority of the co-partners” to the same extent as the partner so acting or omitting to act

Front 9

Contract Liability (for debts and obligations of partnership) of the Partnership

Back 9

• First see if act is for carrying on in “usual way the business of the partnership is conducted”
• If it satisfies the first rule then it will bind the partnership unless he:
o Has in fact no authority to act for the partnership in the particular matter; and
o The person with whom he is dealing has:
 Knowledge that he has no authority (UPA)
 Knowledge or Notice that he has no authority (RUPA)
• “Notice” is effective on delivery whether or not it comes to the person’s attention

If the act is not carrying on in the usual way the business is being conducted then it must be unanimously approved by the partners

Front 10

Contract Liability of the Partners

Back 10

 UPA: partners are jointly liable (must sue all of the partners) for all debts and obligations of the partnership
 RUPA: all partners are jointly or severally liable for all the debts and obligations of the partnership

Front 11

Exhaustion of Partnership Assets under UPA

Back 11

 Arises when partnership subject to a civil judgment
 Bring up distinction between UPA and RUPA in an answer on this subject
UPA
 Aggregation of partners
 May not sue the partnership entity
 Must separately sue every partner
 Do not need to exhaust the partnership assets before making a claim against one or more partners individually

Front 12

Exhaustion of Assets under RUPA

Back 12

Arises when Partnership Subject to Civil Judgment
 Judgment against a partnership can be satisfied from the personal assets of a partner only if:
o Partnership has failed to satisfy the judgment
o Is in bankruptcy or
o If the liability would have been imposed on the partner regardless of the existence of the partnership

Front 13

Duty of Care

Back 13

 Each partner is agent of the partnership
 Must refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law
 General partner has fiduciary duty to limited partner similar to that which partner of general partnership has to other general partners

Front 14

Duty of Loyalty

Back 14

 Duty to each partner and to partnership as a whole
 Demanding: When in doubt, resolve in favor of partnership
 Requires partner to act in good faith and to act fairly toward the other partners
 When partner has conflict of interest, obligated to resolve it in favor of partnership or to fully disclose the conflict and get the consent of other partners
 2 main activities violate duty of loyalty:
o Competing with partnership within the scope of business and even during dissolution (during wind-up, cannot deal with partnership on behalf of party with interest adverse to partnership)
o Usurping a business opportunity that properly belongs to partnership
Damages
 “Disgorging” of the profits
Burden on the Partner
 Partner accused of violating duty of loyalty bears burden of proving that terms of the transaction are fair (as would be negotiated between parties at arms-length)
Limited Partnership
 Duty to limited partnership similar to duty of partner in GP to other Gp’s

Front 15

Dissolution under UPA

Back 15

 Change in relation of the partners caused by any partner ceasing to be associated in the carrying on of the business of the partnership
o Distinguished from winding-up of the business
 Every partner possesses power to dissolve partnership at any time
o But if wrongful, liable for damages
 Aggregate theory: any change in membership results in automatic dissolution unless contrary agreement reached
o Dissolution sets stage for termination
o Still a statutory right for remaining partners to continue the business when partner wrongfully dissolves

Front 16

Dissolution under RUPA

Back 16

 Dissociation replaces Dissolution (has different meaning under RUPA)
 Entity theory means partnership continues despite partner’s withdrawal
o This triggers dissociation but not dissolution
There are situations in which dissociation of a partner would cause the winding-up of the business:
o Partner forces liquidation
 By withdrawing if it’s “partnership at will” (not definite term or specified objective)
o Termination by Will or Upon Expiration of Term

Front 17

Dissociation under RUPA

Back 17

 Remaining partners can buy out dissociated partner’s interest in the partnership in lieu of wind-up
 RUPA sets forth events that may trigger dissociation of a partner and classifies them as “wrongful” or “not wrongful”
Wrongful Dissociation
 Breach of Partnership Agreement
 Partnership for a Term or Particular Undertaking
o Then partner’s dissociation is wrongful if:
 Partner withdraws before the expiration of the term or the completion of the undertaking
 Liability for Damages
o Liable to partnership and to other partners for damages caused by the dissociation
 In addition to any other obligation of the partner to the partnership or other partners
Dissociation Not Wrongful
 Under all other circumstances, dissociation not wrongful

Front 18

Distinguishing Dissolution from Winding-Up and Termination

Back 18

 Dissolution does not immediately terminate partnership
o Leads to winding-up phase
 Authority of partner to act for partnership terminates when partner has knowledge of the dissolution of the partnership by another partner except for actions necessary to wind up partnership or to complete transactions begun but not yet completed
o Partners are liable for any acts, omissions, or obligations created in furtherance of the winding up
o Person winding up business may continue its business to enhance its liquidation value as a going concern

Front 19

Power Distinguished from Right

Back 19

 Partner always has power to dissolve partnership
 Partner’s act of dissolution is either wrongful (without right) or permitted (with right)
 If partnership agreement does not specify definite term or specified objective then it is “at-will” and dissolution will not violate partnership agreement

Front 20

Rightful (Partner has power and right) vs. Wrongful (Partner has power but not right)

Back 20

Rightful
 Upon expiration of definite term or particular undertaking specified in partnership agreement; or
 By express will of any partner when no definite term or particular undertaking is specified, because, absent agreement to contrary, partnership is at-will
 By unanimous agreement of the partners either before or after termination of specified term/undertaking
 By expulsion of any partner from the business in accordance with such power as conferred by the agreement between partners
Wrongful
 Wrongful is circumstances do not permit rightful dissolution
o Partner who caused liable to remaining partners for damages

Front 21

Dissolution by Operation of Law

Back 21

Partnership dissolved by operation of law:
 If any event occurs which makes it unlawful for the carrying on of business
 By death of any partner
 By bankruptcy of any partner
 By decree of court

Front 22

Liability in Limited Partnership

Back 22

General Partner

---Unlimited personal liability

Limited Partner not personally liable UNLESS 1 of the following exceptions applies:

1. Limited Partner’s Name used in LP name

2. Limited Partner really a general partner

---Actions measured against the duties and responsibilities of a general partner


3. Limited Partner Participation

Can be held liable if there is "Control" and "Reliance"

--Limited partner can be held liable for the obligations of the limited partnership if he "participates in the control of the business"

Safe Harbor Provision

--Certain types of activities that are deemed not to constitute participation in the control of the business

1. Dissolving the limited partnership

2. Selling all or substantially all or substantially all of the limited partnership's assets

3. Removing a general partner

Reliance

Persons who do business with partnership reasonably believing, based upon limited partner’s conduct, that limited partner is general partner

Front 23

Partner's Right to Compensation for Services

Back 23

General Rule: not entitled to separate compensation for services

2 Exceptions:

1. In case of winding up, surviving partner entitled to reasonable compensation for services rendered in connection with winding up

2. Partner entitled to compensation if partners agree to such an arrangement (salary)