Partnerships - Third Party Liability

Front 1

What are the defining features of partner liability under partnership law?

Back 1

Partners have unlimited liability in relation to the obligations of the partnership (§323A.0306).

Partners are jointly and severally liable for the obligations of the partnership, unless an agreement between a claimant and the partnership stipulates otherwise (§323A.0305).

Front 2

Where a partner's act cause damage to a third party, is the partnership or the individual partner considered liable?

Back 2

If the act is within the ordinary course of business of the partnership, the partnership is liable under the doctrine of respondent superior (§323A.0305).

The partnership is not liable for an act performed within the ordinary course of business if the partner had no authority to undertake it (either as a result of partners' vote or the partnership agreement), and if the third party knew or ought to have known that no authority existed (§323A.0305).

Unless a partner is grossly negligent, he/she is not individually liable to the partnership for a loss caused by him/her. (§323A.0404(c)).

Front 3

What is the correct procedure for recovery from an individual partner? When can a third party recover directly from an individual partner's assets?

Back 3

The correct procedure is:
(i) sue all the partners;
(ii) collect from the partnerships' assets until all assets are exhausted;
(iii) collect from the partner at fault until all his/her assets exhausted; and
(iv) once all above assets exhausted, collect from other partners' assets.

(§323A.0307)

Front 4

What is a purported partner? When is a purported partner liable, and does liability extend to the partnership?

Back 4

A purported partner is a person who falsely holds himself out to be a partner.

If a third party enters into a transaction with an actual or purported partnership on the basis of the purported partner's representation, the purported partner is jointly and severally liable as if he were a partner. The partnership is bound to the third party under agency law, and liable for any losses incurred.

If the actual partners have not consented to the purported partner holding himself out to be a partner, the partnership will still be liable to the third party but will be entitled to indemnification from the purported partner.

(§323A.0308)