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31 Cards in this Set

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  • Back
Assignment of Partner’s interest
A conveyance by a partner of his interest in the partnership does not of itself dissolve the partnership, nor, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of the partnership transactions, or to inspect the partnership books, but it merely entitles the assignee to receive in accordance w/ his k, the profit to which the assigning partner would otherwise be entitled
Dissolution defined
the dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business
Causes of Dissolution - w/out violation of the agreement b/t the partners
1. by termination of the definite term or particular undertaking specified in the agreement
2. by the express will of any partner when no definite term or particular undertaking is specified
a.willfull dissolution- always have the right to deconsent
3. by express will of all partners who have not assigned their interests or suffered them to be charged for their separtate debts, either b/f or after the termination of any specified term or particular undertaking
4. by the expulsion of any partner form the business bona fide in accordance w/such power conferred by the agreement b/t the partners
a. No default rule to permit a partner to be expelled automatically„_can contract around default rule, but involuntary expulsion must be made in good faith!!
b. Expulsion cannot be for predatory purpose„_not for self gain See Lawlis
i. if the power to expel partners granted by a partnership agreement is exercised in bad faith, the partnership agreement is violated, giving rise to action for damages as a result of his expulsion
Dissolution - other ways
1. in contravention of the agreement b/t the partners, where the circumstances do not permit a dissolution under any other provision of this section, by the express will of any partner at any time

2. By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in the partnership

3. By the death of any partner

4. By the bankruptcy of any partner or the partnership

5. by the decree of the court
Book value
An amount on the books of the firm, reflecting the original cost of assets, less depreciation (an allowance for decline in value of an asset by virtue of the passage of time and wear and tear), plus profits that have not been distributed to the partners
1. Cost after depreciation or inflation
2. Book value does not equal fair market value
Judicial Dissolution - On application by or for a partner the court shall decree a dissolution whenever:
1. A partner has been declared a lunatic in any judicial proceeding or is shown to be of unsound mine,
2. A partner becomes in any other way incapable of performing his part of the partnership contract,
3. A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business,
4. A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership w/ him,
5. The business of the partnership can only be carried on at a loss,
6. Other circumstances render a dissolution equitable
Rightful dissolution (correct way)
When dissolution is caused in any way, except in contravention of the partnership agreement, each partner, as against his co-partners and all persons claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners.
Fiduciary Duty for Dissolution
i. Duty to exercise dissolution in good faith
1. Adverse partner cant’ freeze out another partner by the use of pressure then take over the business on his own
2. Partner can’t dissolve the partnership to gain benefits of the business himself unless he fully compensates his co partner for his share in the business
a. Have to pay fair share if you dissolve- both future income streams as well as past and present
Partner’s authority after dissolution
After dissolution a partner cannot bind the partnership except as provided in Paragraph 3
i. a) by any act appropriate for winding up the partnership affairs or completing transactions unfinished at dissolution
ii. (b) by any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the transaction
1. (I)Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution
2. (II)though he had not extended credit, had nevertheless known of the partnership prior to the dissolution, and having no knowledge of the dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place at which the partnership business was regularly carried on
Consequences of Dissolution - sharing losses
ii. Sharing of losses„_¡±18(a)
1. Each partner shall be repaid his contributions, whether by way of capital or advances to the partnership property and share equally in the profits and surplus remaining after all liabilities, including those to partners, are satisfied, and must contribute towards the losses, whether of capital or otherwise, sustained by the partnership according to his share of the profits
a. Minority rule„_Where one partner contributes only money and capital and one party contributes skill and labor, neither is liable to the other for losses sustained„_See Kovocik
i. partner who puts in money loses money, partner who puts in services loses the value of his services
ii. problem b/c one who doesn¡¦t put in the $ is more likely to take risks w/ another¡¦s $$
Rules for distribution - The liabilities of the partnership shall rank in order of payment, as follows:
o Those owing to creditors other than partners
o Those owing to partners other than for capital and profits
o Those owing to partners in respect of capital
o Those owing to partners in respect of profits
The partners shall contribute, as provided by 18(a) the amount necessary to satisfy all liabilities, but if any, but not all of the partners are insolvent, or, not being subject to process, refuse to contribute, the other partners shall contribute their share of the liabilities, and in the relative proportions in which they share the profits, the additional amount necessary to pay the liabilities
Buyout agreements
i. function to sell the other partners your interest„_agreement that allows a partner to end his relationship w/ the other partners, and receive a cash payment, of services of payment, or some assets of the firm, in return for his own interest in the firm

Price = Book value, Appraisal, Formula eg five times earnings, Set amount, Relation to duration
Law Partnership Dissolutions: fee sharing
No partner is entitled to remuneration for acting in the partnership business, except that a surviving partner is entitled to reasonable compensation for his services in winding up the partnership affairs

Absent a contrary agreement, any income generated through the winding up of unfinished business is allocated to the former partners according to their respective interests in the partnership.
Fiduciary duties of partners - wind up law firm
1. Each former partner has a duty to wind up and complete the unfinished business of the dissolved partnership

2. No former partner may take any action w/ respect to unfinished business which leads to purely personal gain.

3. Duty to distribute the cases equitably, but keep in mind that clients have the right to choose who will represent them
Circumstantial evidence as to whether a client freely exercised their right to choose an atty
i. who was responsible for initially attracting the client to the firm
ii. who managed the case at the firm
iii. how sophisticated the client was and whether the client made the decision w/ full knowledge
iv. what was the reputation and skill of the removing attorney
Right to an account
1. Any partner shall have the right to a formal account as to partnership affairs:
a. If he is wrongfully excluded from the partnership business or possession of its property by his co-partners
b. If the right exists under the terms of any agreement
c. As provided by §21
d. Whenever other circumstances render it just and reasonable
Limited Liability Companies
1. This is a something that is part corp, part limited.
~LLC is an unincorporated business organization that combines certain features of the corp form and general pships
~offers ltd liability of corp , single-tax tier treatment, along with flexible management and financing
~call them members
Effect of Operating Agreement; Nonwaivable Provisions
i. (b) – the operating agreement may not:
1. (1) unreasonably restrict right to information
2. (3) unreasonably reduce the duty of care under 409(c) of 603(b)(3)
3. (4) eliminate good faith or fail dealing
Limited Partnership Facts
- must file cert with sec of state
Hypo for Exam: Kovacik and Reed each put in:
i) Kovacik – services +$10k
ii) Reed – services + $1k
b) Agreement: Shared profits 50/50 (nothing else agreed)
c) This is outside the rule of the case.
d) Capital Accounts are constant to dissolution. (means capital account of K is $10k and R is $1k)
e) The business fails and we dissolve “wind-up” - liquidated
f) Fiduciary does the winding up here -----
i) 40(b)(1) - Pay the outside creditors, say we have $2k left after this.
ii) 40(b)(2) - No loans from partners.
iii) 40(b)(3) - $11,000 owed to the partners – what do we do, we only have $2000 left???
(1) Declare a $9k loss
(2) So here 50% is owed by each. $45000
(3) K - Offset the $4500 against the $10,000 = means K is owed $5500
(4) R – Offset the $4500 against the $1000 = means R owes $3500
(5) The fiduciary would get the $3500 check from R and he already has $2000 left from paying the outside creditors….this totals the $5500 owed to K.
Limited Partnership Set-Up
Must have at least 2 people -

1. GP - partnership unlimited liablity

2. LP - limited liability only to amount they invested

GP - controls management...LP does not
LLC - liability set-up
liability lies solely in comp and manager aren’t solely liable, corp lang

* 1. except when

- manager is direct tortfeasor,
- LLC veil is pierced,
- personally guarantees a loan,
- apparent agency,
- liable for partially disclosed/undisclosed,
- commit malprac w/ LLC not protected by ltd liability
- other member not in trouble unless look at indep theory neg (neg hiring) usually LLC pnr not liable for other malprac unless attny go on vacation and covers case- opens self up to neg claim
LLC - members rights in management conduct
parallels UPA - look like corp, (members in LLC, not partners)
* each member has equal rights
LLC - transfer interest
no transferable interest, like UPA 24 & 25, not co-owner

* if transfer rights not allow transferee management power, = pship hard personal creditor access assets
LLC - creditor’s rights
1. these are directly from partnership law
2. creditors can get your income stream, but not become members with management powers
Damages for wrongful dissolution
same as UPA 38 - but no goodwill
Derivative lawsuit
If you don’t like what management is doing. They are harming the entity.

1. Derivative suit is devised to permit shareholders to seek relief on behalf of firm in cases where corp management no elected to pursue claim
Securities Regulations
1. Do we have securities?

2. If yes, need examption
Do we have securities? Each type of entity:
Corp - yes

GP - no

LP - yes

-manager-managed = yes
- member-managed = no
Wrongful dissolution of partnership
When dissolution is caused in contravention of the partnership agreement the rights of the partners shall be as follows:
a. Each partner who has not caused dissolution wrongfully shall have,
i. I. All the rights specified in paragraph (1) of this section, and
ii. II. The right, as against each partner who has caused the dissolution wrongfully, to damages for breach of the agreement
b. The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name, either by themselves or jointly w/ others, may do so, during the agreed term for the partnership and for that purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay to any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable under clause (2)(a)(II) of this section, and in like manner indemnify him against all present or future partnership liabilities.
c. A partner who has caused the dissolution wrongfully shall have:
i. I. If the business is not continued under the provisions of paragraph (2)(b) all the rights of a partner under paragraph (1), subject to clause (2)(a)(II), of this section
ii. II. If the business is continued under paragraph (2)(b) of this section the right as against his co-partners and all claiming through them in respect of his interest in the partnership, less any damages caused to his co-partners by the dissolution, ascertained and paid to him in cash, or the payment secured by bond approved by the court, and to be released from all existing liabilities of the partnership; but in ascertaining the value of the partner’s interest the value of the GOOD-WILL of the business shall be considered.
5. Partner always comes out better in rightful dissolution compared to a wrongful. (DEFAULT of UPA)
6. If you go for judicial resolution the judge bears the risk and the party is not w/drawing wrongfully then
7. If judicial resolution §38 would NEVER apply