PA: Partnership

  1. Partnership
    GEN: Association of 2 or more ppl to carry on as co-owners of a business for profit.
  2. Formation
    Partnership AgreementGEN: PA is a contract that can be express or implied (need not have a writing).

    • IMPLIED: Existence determined by evidence including --
    • (1) Intent to enter into a business as co-owners for profit;
    • (2) Agreement to share in the profits/losses; AND
    • (3) Mutual right of control of the business.
  3. Partners
    • GEN: Receipt by a person of a share of business profits is prima facie evidence that the person is a partner.
    • EXCEPTION: Payments of profit received in payment of wages, rent, consideration from sale of an aset, repayment of principal, ect.

    NOTE: Individual brought in to manage the day-to-day business operations of a business = more like an employment relationship.
  4. Partnership Property
    • GEN: Property held in the partnership name.
    • NOTE: Property not titled in the partnership name may still be partnership property.
    • >> KEY: Intent of the parties that the property in question be partnership property.
    • (1) Prop bought in or acquired by the partners for the partnership biz.
    • (2)Property acquired by the partnership w partnership funds (unless contrary intention)
    • (3) Property acquired in name of one or more individual partners -- if carried on partnership books.
    • (4) Property improved by the partnership or property on which the partnership covers expenses (taxes, repairs, insurance premiums, ect.)
  5. Partnership Property: Interest
    • GEN: Tenant in partnership.
    • (1) Possession: no posession for personal use w/o consent of other partners.
    • (2) Attachment: partner's interest cannot be attached except on a claim against the partnership.
    • (3) Assignment: no assignment of interests except in connection with an assignment of rights of all the property.
    • (4) Dower: no dower, curtsey, ect.
    • (5) Death: rights to prop vests in surviving partners.
  6. Partner's Partnership Interest
    • GEN: Share in the P profits/surplus. Considered personal property.
    • RULE: P interst MAY be transferred, sold or otherwise assigned.
    • >> BUT: Assignment entitles the assignee only to receive the rights to the profits the assinging partnerwould be entitled under the P agreement.
    • >> CANNOT: Interfere w/ the control or management of the P business, or require any info, or accout, or inspect the P books.

    • NOTE: Assignment ≠ dissolve P.
    • KEY: The partner who transferred his interest still remains a partner.

    CREDITORS: May obtain a charging order from a court, where a receiver collects the partner's share of profits for satisfying the debt.
  7. Partner Rights & Obligations
    • (1) Fiduciary duties, including the duties of loyalty and care.
    • (2) Liabilities to 3d parties for Pship obligations
    • (3) Right to an accounting, and to inspect the books.

    • Fiduciary Duties: (1) to the P and (2) to the other partners -- in cxn with P business.
    • >> Good faith, loyalty, fair dealing.
    • >> Trust and confidence.
    • >> Duty to indemnify for losses incurred as a result of misconduct.
  8. Profits/Losses: Distribution
    • GEN RULE: Partner presumed to shall equally in the promits/losses from the partnership.
    • EXCEPTION: Parties can contract otherwise.
  9. Management Rights
    • GEN RULE: Every partner has an equal right in the management and control of the P business.
    • Day-today: Matters in cxn with an operation of a P business generally decided by majority vote.
    • Unordinary: Acts outside scope of ordinary business must be decided by unanimous consent.
  10. Right to an Accounting
    • GEN: Accounting is a judicial proceedings to determine all transactions and financial matters in csn with a P.
    • >> May give rise to a legal claim against another.

    • OCCURS:
    • (1) Upon dissolution and winding up of partnership affairs.
    • (2) When partner wrongfully excluded from partnership business or possession of property.
    • (3) If the agreement provides for an accounting (written terms)
    • (4) Court Catch-All: Whenever other reasonable circumstances make it just and reasonable.
    • NOTE: May also be used in resoling disputes over violations of a fiduciary duty.
  11. Indemnity / Contribution
    • Indemnity: P must indemnify every partner for payments made AND personal liabilities reasonably incurred in connection with the business.
    • Contribution: Partners must contribute amounts necessary to meet partnership obligations and liabilities -- unless otherwise agreed.
  12. Distribution of Profits
    • Partners not automatically entitled to a distribution of partnership profits.
    • >> DRAW: Amount of any cash distribution to a partner. Determined by a majority partner vote, unless otherwise provided.
  13. Renumeration
    • GEN: Partners generally not entitled to compensation for services.
    • >> Don't get salary unless partnership agmt states otherwise.
  14. Third Parties and Agency (Authority)
    • Express Actual Authority: (1) express or (2) implied consent of the other partners.
    • >> Unanimous consent required for --
    • >>>> Assignment of partnership property for the benefit of creditors
    • >>>> Disposing of good will of biz.
    • >>>> Confessing of a judgment.
    • >>>> Submitting claims to arbitration.
    • >>>> Doing any other act that would make it impossible to carry on the ordinary biz relationship.
    • Implied Actual Authority: Partners have implied authority for all things necessary, usual AND proper to accomplish express responsibilities or reasonably incident to express authority.
    • Apparent Authority: third party with whom the purported partner is dealing reasonably believes that the actor is authorized, and if this belief is traceable to a manifestation of the principle.
    • Ratification: Co-partners subsequently ratify an unauthorized action of a partner.
    • >> Can be express or implied, by conduct that would only make sense if partners had ratified.
    • Partnership by Estoppel: Person not a partner who represents himself as such or consents to another making such a representation may be liable to any person who has in good faith extended credit to the partnership based on such representations.
    • >> Other partners may be liable for a non-partner's conduct if
    • >>>> (1) they carelessly or intentionally cause the third party to believe that he's a partner; OR
    • >>>> (2) Knowing of such belief did not take reasonable action to notify the third party.
  15. Liability: Tort and Wrongful Act
    • GEN: Partners J+S liable to 3d parties for any loss/injury from wrongful acts/omissions of any partner (1) acting in the ordinary court of business OR (2) w/ authority of his co-partners.
    • >> Patners will be liable even if they are innocent and have no knowledge of the wrong.
  16. Liability: Breach of Trust
    • RULE: Partners J+S liable for any one partner's improper receipt AND misapplication of any money/property IF
    • (1) Partner is acting w/in scope of arrarent authority; OR
    • (2) Misappropriation of money/property in custody of a P that was received in the course of business from a 3d party.
  17. Liability: Contract Liability
    • RULE: Partners jointly liable for other debts and obligations of the partnership.
    • >> NOT J+S, meaning can't bring suit against any individual partner. Rather, you have to bring all of them into the suit.
  18. Liability: Withdrawing Parties
    GEN: Remain laible to 3d parties who extended credit while the partner was a member of the partnership.
  19. Real Property Convetance
    GEN: Real property owned in P name must also be conveyed in the P name.
  20. Dissolution
    • GEN: Change in relation of partners caused by any partner ceasing to be associated with the partnership. Examples of events (of a partner) that will cause dissolution:
    • (1) Withdrawal;
    • (2) Death; OR
    • (3) Bankruptcy.

    • >> End of a definite term.
    • >> At will if there is no definite term.
    • >> Bona fide expulsion of a partner.
    • >> Death of any partner.
    • >> Bankruptcy of any partner or the partnership.

    • >> Violation of partnership agmt
    • >> Willful or persistent breach of P agmt
    • >> Wrongful expulsion of a member

    • >> P may be dissoved by court devree upon application of a partner upon a finding (1) of incapacity or misconduct of another partner; OR (2) that is no reasonably practicable to carry on P biz.

    • NOTE: Any partner who has wrongfully dissolved a partnership is LIABLE to the other partners for breach of contract damages.
    • >> Therefore, a dissolution may be okay in terms of fiduciary duties, but may give rise to CONTRACT CLAIMS!
    • >> The wrongful parnter may also be subject to a cash buy out with damages subtracted from the payment due to the departing partner.
  21. Dissolution (Effect)
    LIMITED AUTHORITY: Dissolution terminates the authority of any partner to act as agent for the P except for the purposes of winging up affairs.

    CREDITORS: Creditors of dissolved P remain creditors of the new P when P business continues after dissolution.

    • RIGHTFUL DISSOLUTION -- LIQUIDATION: Any partner can demand a liquidation of the P. Gives partners the right to a forced sale of P assets.
    • >> Proceeds first used to satisfy P liabilities.
    • >> Surplus distributed to partners.
  22. Winding Up and Termination
    • Termination: when all partnership affairs have been would up.WInding Up: Process of winding up partnership affairs -- after dissolution, before termination.
    • >> Not required if agmt provides for a continuation of biz.
  23. Deceased Partner
    GEN: Interest vests in the partnership, BUT executor has the right to demand a cash payment of value of decedent's P interest.
  24. Payment of Creditors
    • GEN RULE: If partnership has insuff assets to pay off creditors each partner must contribute equally the amount necessary to satisfy partnership obligations.
    • >> Contract can provide otherwise.
  25. Distributions -- Priority
    • (1) Payment to creditors other than partners
    • (2) Debts owed to partners
    • (3) amounts owed to partners based on capital contributions
    • (4) amounts owed to partners based on profit shares (surplus).
  26. Limited Partnerships
    KEY: Limited Partnership required to file a Certificate of Limited Partnership w/ PA Dpt State.

    • GEN: One or more general partners AND one or more limited partners.
    • NAME: LP name must include the magic words -- LIMITED PARTNERSHIP.
    • >> A general partner can be a corporation, trust, entity or person.
    • >> Writing Req: none.

    • BENEFIT: Limited partner NOT liable for the LP's debts and obligations.
    • EXCEPTION: Limited parnter participates in the control of the business.
    • >> Loses right to limited liability.
    • >> BUT: Limited partner who paricipates -- only liable to person who transact biz with the partnership reasonably believing the limited partner is a general partner.

    PROFITS/LOSSES/DISTRIBS: Partner's share based on the proportion of the partner's contribution as stated in the LP records.

    • ASSIGNMENT: Limited partner may assign his P interst; does not dissolve LP.
    • >> Assignee does not become a limited partner and is only entitled to distributions UNLESS assignor gives assignee additional rights in accordance with the LP agmt.

    • Same as GP, but also when a GP withdraws -- unless:
    • (1) at least one GP remains and the LP agmt permits continuation; OR
    • (2) all partners agree in wiriting w/in 90 days to continue the P biz and to appoint one or more GPs.
  27. Tax Issues
    • GEN: P not a taxable entity. Never a tax on the partnership, only tax on partners.
    • >> Pass-through entity.

    • Distributive Share of Loss/Profit
    • GEN: Pay taxes on share regardless of whether distribution actually made.
    • RULE: Each partner is responsible for paying tax on his share of P profits whether or not they actually receive it (ie. regardless of whether a distribution is made).
    • >> Subject to certain limitations, partners may take their share of P losses into account on their individual tax returns.
Card Set
PA: Partnership