Partnerships

Front 1

Partnership

Back 1

An association of two or more persons to carry on as co-owners a business for profit.

Front 2

Provisions of RUPA that Cannot Be Waived in the Partnership Agreement

Back 2

(1) Partner's right of access to books and records;
(2) A partner's duties of loyalty and care;
(3) The power to dissociate a partner;
(4) The power of a court to expel a partner;
(5) The requirement that the partnership business be wound up in the event of either the illegality of the business or certain judicial determinations that continuing the business is not practicable or equitable;
(6) The rights of third parties under the RUPA; and
(7) A partner's duty of good faith and fair dealing.

Front 3

How a Partnership is Formed

Back 3

Formed as soon as two or more people associate to carry on as co-owners a business for profit. No requirement that they intend to for the partnership - only that they intend to run a business as co-owners.

No writing generally required, and a partnership may be formed only to achieve a legal purpose - one formed for an illegal purpose is void.

Front 4

Evidence of Partnership Existence

Back 4

(1) Sharing of profits raises a presumption unless received in payment for a debt, services/wages, rent, annuity, interest, or sale of goodwill of the business.
(2) Title to property
(3) Designation of entity by parties
(4) Extensive activity involved
(5) Sharing of gross returns (as opposed to profits)

Front 5

Evidence of Intent Not to Form a Partnership

Back 5

Failure to share losses

Front 6

Classifications of Partnership Property

Back 6

(1) Partnership Capital: property or money contributed by each of the partners for the purpose of carrying on the partnership's business.
(2) Partnership property: everything the partnership owns (includes capital).

Included in partnership property: titled property (if in partnership's name), some untitled property (subject to factors).

Front 7

Can a partner's creditors reach partnership property to satisfy the personal obligations of a partner?

Back 7

No, because he has no interest in it.

Front 8

Partner's Interest in the Partnership

Back 8

(1) Management and other rights, and
(2) Right to share in the partnership profits and losses and receive distributions.

May not transfer management and rights, but may transfer income interests, and such a conveyance wouldn't dissolve the partnership.

Front 9

Right to Participate in Management

Back 9

Decisions regarding matters within the ordinary course of business of the partnership may be controlled by a majority vote of the partners, but matters outside the ordinary course of business require the consent of all partners.

Front 10

Fiduciary Duties

Back 10

(1) Duty of Loyalty
(2) Duty of Care

Front 11

Duty of Loyalty

Back 11

(1) To account for profits, property, opportunities, or other benefits derived by the partner in conjunction with the partnership business;
(2) To refrain from dealing with the partnership as or on behalf of a party having an interest adverse to the partnership; and
(3) To refrain from competing with the partnership.

Front 12

Duty of Care

Back 12

Refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law.

Front 13

Partners' Accounts

Back 13

Each partner is deemed to have an account that is credited or charged, as the case may be, with a net amount equal to the partner's contribution, plus or minus the partner's share of any profits or losses, less any partnership liabilities.

Upon dissolution, a partner is entitled to settlement of her account.

Front 14

If the partnership is sued, can a partner's personal assets be reached?

Back 14

Not unless there is also a judgment against the partner (can sue a partnership and its partners in the same action).

Front 15

Apparent Authority

Back 15

RUPA provides that:
(1) The act of any partner;
(2) For apparently carrying on in the ordinary course the partnership business or business of the kind carried out by the partnership;
(3) Binds the partnership unless:
(a) The partner had no authority to act for the partnership in the particular matter; and
(b) The person with whom the partner was dealing knew or had received notification that the partner lacked authority.

Front 16

Actual Authority

Back 16

Actual authority is the authority a partner reasonably believes he has based on the communications between the partnership and the partner. Can be granted either in the partnership agreement or by the consent of the partners.

Front 17

When does a partner have notice of a fact?

Back 17

When the partner:
(1) Has actual knowledge of the fact;
(2) Is notified of the fact; or
(3) Has reason to know of the fact based on the surrounding circumstances.

A partner's notice of a fact relating to the partnership is imputed to the partnership immediately unless the partner having notice is participating in fraud against the partnership.

Front 18

Civil Liability

Back 18

Partners are liable on contracts made by a partner in the scope of the partnership business (or any other contracts expressly authorized by the partners).

Partners are liable for any torts committed by a partner or by an employee of the partnership in the ordinary course of partnership business or with authority of the partnership.

Partners are jointly and severally liable for all obligations of the partnership.

Front 19

Liability of Incoming Partner

Back 19

Not personally liable for any obligation incurred before their admission as a partner - however, the contributed capital is risked to satisfy existing partnership obligations.

Front 20

Liability of Outgoing Partner

Back 20

Remains liable on all obligations incurred by the partnership while he was a member, unless there has been payment, release, novation, or the creditor has agreed to a material alteration without the partner's consent.

Liable for acts done not only until he has dissociated from the partnership, but also until 90 days after he files notice of dissociation with the secretary of state.

Front 21

Criminal Liability

Back 21

Other partners not criminally responsible for the crime of another partner committed within the scope of the partnership business, unless the other partners participated as principals or accessories.

Front 22

Dissociation

Back 22

A partner is dissociated upon:
(1) Notice (not required to be in writing) of express will to withdraw;
(2) Happening of an event agreed to in the partnership agreement;
(3) Expulsion of the partner pursuant to the terms of the partnership agreement;
(4) Expulsion of the partner by unanimous vote of the remaining partners if it is unlawful to carry on business with that partner;
(5) Expulsion of a partner by judicial decree because he has engaged in wrongful conduct;
(6) Partner's becoming bankrupt;
(7) Death of the partner;
(8) Decision of a court that the partner is incapable of performing a partner's duties;
(9) Appointment of a receiver for or distribution of substantially all of the partner's transferable interest in the partnership; or
(10) Termination of a partner that is a business entity.

Front 23

Wrongful Dissociation

Back 23

Dissociation is in breach of an express term in the partnership agreement - or if the partnership is for a definite term or particular undertaking and partner withdraws, is expelled, or becomes bankrupt before then. A partner who wrongfully dissociates is liable to the partnership for any damages caused by the dissociation.

Front 24

Consequences of Dissociation

Back 24

(1) Right to participate in management ceases and duties are terminated.
(2) Partnership must purchase dissociated partner's interest based on greater of partnership's liquidated value or the value of the partnership business as a going concern without the partner.
(3) When the partnership purchases the interest, must indemnify the partner against all known liabilities incurred before dissociation.
(4) If partner wrongfully dissociates before expiration of term or completion of undertaking, not entitled to payment of the buyout until expiration of term or completion of undertaking unless it will not (as determined by a court) impose an undue hardship on the partnership business. If payment deferred, must be adequately secured and bear interest.
(5) If dissociation without a dissolution of the partnership, partnership will be found for 2 years after the dissociation by acts of the partner.

Front 25

Events Causing Dissolution

Back 25

(1) Notification by a partner in a partnership at will of an intent to withdraw;
(2) Expiration of term or completion of undertaking;
(3) Express will of at least half of the remaining partners to wind up the business within 90 days of a partner's death, bankruptcy, or wrongful dissociation;
(4) Express consent of all partners to wind up the business;
(5) Happening of an event agreed to in the partnership agreement or that makes it unlawful for it to continue;
(6) Issuance of a judicial decree.

Front 26

Who May Wind Up

Back 26

(1) All Partners
(2) Remaining Partners if one partner dissolves by bankruptcy
(3) Surviving Partners
(4) Executor of last surviving partner

Partner wrongfully dissolving partnership cannot wind up.

Front 27

Waiving Dissolution

Back 27

Any time after the dissolution, but before winding up, the partners may decide by unanimous vote to continue the partnership business, which will retroactively nullify the dissolution.

Front 28

Distribution of Assets

Back 28

Cash must be used to pay the partnership's liabilities in the following order (according to RUPA):
(1) Creditors (even creditors who are partners also);
(2) Partners.

To figure amounts owing to the partners: deduct from the assets the amounts still owing to creditors, then deduct partners' contributions (if not already repaid). If money still remains, it is a profit that must be divided among the partners.

If assets at dissolution worth less than money owed to creditors and the capital contributions haven't been repaid, the shortfall is a loss that must be divided among the partners.

Front 29

Limited Liability Partnership Filing

Back 29

Must file a statement of qualification with the secretary of state, executed by at least two partners and contain such information as:
(1) Name and address of partnership;
(2) Statement that the partnership elects to be an LLP; and
(3) Deferred effective date, if any.

Must also file an annual report.

Front 30

Limited Liability Partnership Name

Back 30

MUST end with the words "Registered Limited Liability Partnership" or "Limited Liability Partnership" or the abbreviation "RLLP," "LLP," "R.L.L.P.," or "L.L.P."

Front 31

Personal Liability of Partners in an LLP

Back 31

Not personally liable (directly, indirectly, or by way of contribution) for the obligations of a partnership, whether arising in contract, tort, or otherwise (though still personally liable for her own wrongful acts).

Front 32

Limited Partnership

Back 32

Composed of one or more general partners and one or more limited partners. Differs from a general partnership in two ways:
(1) a limited partnership is unknown at common law and is created under specific statutory authority; and
(2) the liability of a limited partner for partnership debts is general limited to the capital that she contributes to the partnership.

Front 33

Limited Partnership Formation

Back 33

Certificate of limited partnership must be filed with the secretary of state, and must set forth, among other things:
(1) partnership name;
(2) name and address of the agent for service of process;
(3) name and business address of each general partner (limited partners' names need not be included); and
(4) the latest date upon which the limited partnership is to dissolve. Must be signed by all general partners.

Must also maintain in its state of organization an office with such records as the certificate of limited partnership, any partnership agreements, tax returns for the past three years, and names and addresses of ALL partners.

Front 34

Limited Partnership Name

Back 34

Name may not contain the name of a limited partner, unless it is also the name of a general partner (or the business had been carried on under that name before the admission of that limited partner). Name must contain the words "limited partnership." May not be the same as, or deceptively similar to, the name of another limited partnership/corporation organized in the same state.

Front 35

Liability of General Partner

Back 35

Subject to all the liabilities of a partner in a regular partnership.

Front 36

Liability of Limited Partner

Back 36

Not liable for partnership obligations beyond contribution.

Exceptions:
(1) If he is also a general partner.
(2) If he participates in the control of the business and the person dealing with the limited partnership reasonably believes (based on limited partner's conduct) that the limited partner is a general partner.
(3) If he permits his name to be used in the name of the partnership (if the creditors are without actual knowledge that he is not a general partner).

Front 37

Rights of Both General and Limited Partners

Back 37

(1) Right to share of profits and losses, as in the partnership agreement.
(2) Right to assign partnership interest.
(3) Right to transact business with the partnership.
(4) Right to withdraw (at any time for a general partner, but only in accordance with the partnership agreement, or with 6 months notice, for the limited partner).
(5) Right to dissolve.

Front 38

Rights Specific to General Partners

Back 38

All rights of a partner in a regular partnership.

Front 39

Rights Specific to Limited Partners

Back 39

(1) Right to Vote on specific matters, but no right to participate in control of business
(2) Right to inspect and copy partnership records and obtain from general partners full information regarding the state of the business and financial condition, etc.
(3) Right to bring derivative action

Front 40

What if someone erroneously believes himself to be a limited partner?

Back 40

A person who makes a contribution to a business enterprise and erroneously, but in good faith, believes that she has thereby become a limited partner rather than a general partner can avoid being liable as a general partner if, on ascertaining the mistake, she:
(1) files the appropriate certificate of limited partnership or certificate of amendment with the secretary of state; or
(2) Withdraws from future equity participation in the enterprise by filing with the secretary of state a certificate declaring withdrawal.

Exception: Bound as a general partner in the "in-between" time.

Front 41

Dissolution of Limited Partnership

Back 41

Dissolved by any of the following:
(1) Occurrence of time stated in the certificate of limited partnership;
(2) Occurrence of the time or event specified in the partnership agreement;
(3) Written consent of all partners;
(4) Withdrawal of a general partner, unless there is at least one more general partner at the time and the partnership agreement allows the partnership to be carried on, or within 90 days of the withdrawal, all partners agree in writing to continue and to appoint any necessary or desired general partners; or
(5) Entry of a decree of judicial dissolution.

Front 42

Distribution of Assets (Ltd. Partnership)

Back 42

Upon winding up of a limited partnership, the assets are distributed as follows:
(1) To creditors (including partners);
(2) To general and limited partners and former partners in satisfaction of liabilities for interim distributions or to former partners for the same; and
(3) to general and limited partners first for the return of their contributions, then second for partnership profits and property in the proportions in which they share.