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General Partnership

A general partnership ("GP") is defined as an association of two or more persons to carry on as co-owners a business for profit. There is no requirement that the parties subjectively intend to form a partnership, only that they intend to run a business as co-owners. Moreover, there are no formalities required to form a GP. Courts generally look to the intent of parties to determine whether a GP exists.

Sharing of Profits is the Key Factor: The contribution of money (i.e., capital or service) in return for a share of the profits creates a presumption that a GP exists.

Liabilities of General Partners to 3rd Parties

In a GP, all partners are jointly and severally liable for all obligations of the partnership, whether the obligations arise in contract or tort. Partners are also liable for any torts committed by a partner or by an employee of the partnership in the ordinary course of the partnership business or with authority of the partnership.

Partners are agents of the partnership for apparently carrying on usual partnership business. Therefore, the general partnership is liable for each partner's torts in the scope of partnership business and for each partner's authorized contracts.

Debts

An incoming partner is generally not liable for prior debts. But, any money paid in by an incoming partner can be used by the partnership to satisfy those prior debts.

A dissociating partner retains liability on future debts until actual notice or dissociation is given to creditors OR until 90 days after filing notice of dissociation with the state.

General Partnership Liability by Estoppel

One who represents to a third party that a general partnership exists will be liable as if a general partnership exists.

Rights and Liabilities Between General Partners

General Partners are fiduciaries of each other and the partnership. Therefore, general partners owe to each other and the partnership the duty of loyalty, which means that general partners may never engage in self dealing; may never usurp partnership opportunities; and may never make a secret profit at the partnerships' expense.

The Partnership may recover losses caused by the breach and may disgorge profits made by the breaching party.

Partners' Rights in Partnership Property and Liquidity

Specific Partnership assets: Lands, leases, or equipment which are owned by the partnership itself as specific partnership assets may not be transferred by an individual partner without partnership authority.

Share of Profits and Surplus: Share of profits of personal property owned by individual general partners and, thus individual partners may transfer their share of profits to 3rd party (sell or give it to anyone, can will it away, or transfer it freely).

Share in Management: An asset owned only by the partnership itself and therefore may not be transferred by an individual partner.

Specific partnership asset or personal property?

In order to determine whether the fact patten involves specific partnership assets or personal property, the test is: who's money was used to buy the property? If partnership $ was used to buy property, it's partnership property. If personal money used, it is personal property.

Management

Absent an agreement, each partner is entitled to EQUAL control and vote.

Salary

Absent an agreement, partners get NO SALARY. However, partners may receive compensation for winding up the partnership business.

Partner's Share of Profits and Losses

Absent an agreement, PROFITS SHARED EQUALLY. Absent an agreement, LOSSES SHARED LIKE PROFITS.

Dissolution

In an absence of an agreement that sets forth events of dissolution, a general partnership dissolves upon notice, of the express will of any one general partner to dissociate.

Termination

The real end of the partnership is called termination

Winding Up

Winding up is the period between the dissolution and termination in which the remaining partners liquidate the partnerships' assets to satisfy the partnership's creditors.

Partnership's Liability

1. Old business. The partnership and therefore its individual general partners retain liability on all transactions entered into to windup all business w/ existing creditors.

2. New business. The partnership and there its individual general partners retain liability on brand new business transactions during winding up until notice of dissolution is given to creditors or until 90 days after filing of statement of dissolution with state.

Dissolution - Order of Payment

First, all creditors must be paid. That is, all outside non partners trader creditors and also all partners who have loaned money to the partnership and become creditors thereby. Second, all capital contributions by partners must be paid. Partnership is liable to its partners for their capital contributions. Finally, if there are any profits and surplus it will be shared equally, absent an agreement to the contrary.

Priority of Distribution Rule

Each partner must be repaid his or her loans and capital contributions, plus that partner's share of the profits or minus that partner's share of the losses.

Limited Partnership

A limited partnership ("LP") is composed of one or more general partners and one or more limited partners. The general partners are personally liable for partnership obligations, while the limited partners generally do not have any liability beyond the liability to make agreed upon contributions. In order to validly form a LP a certificate of limited partnership must be filed with the Secretary of State.

Limited Liability Partnership

To become a limited liability partnership ("LLP"), a partnership must file a statement of qualification with the Secretary of State. A partnership becomes a LLP at the time of filing of the statement or on the date specified in the statement. The advantage of operating as an LLP is that the partners are not personally liable for the LLP's obligations.

Extent of Liability of Partners in GP

In a GP, all partners are jointly and severally liable for all obligations of the partnership, whether the obligations arise in contract or tort. Partners are also liable for any torts committed by a partner or by an employee of the partnership in the ordinary course of the partnership business or with authority of the partnership.

Extent of Liability of Partners in a LP

The general partner(s) are jointly and severally liable for all partnership obligations while the limited partner(s) have no personal liability. The limited partner(s) are only liable for their agreed upon contributions.

Control: LP is most states, including CA, may not manage the business without forfeiting their limited liability status. But, under the newly revised Uniformed Limited Partnership Act, Limited Partners may not manage without forfeiting their limited liability.

Extent of Liability of Partners in a LLP

In a limited liability partnership the partners are not personal liability for the partnership's obligations. However, a partner remains personally liable for her own wrongful acts.

Scope of Liability in a GP

Where one partner is thus compelled to pay or satisfy the whole of a partnership obligation, he is entitled to indemnification from the partnership. If the partnership is unable to indemnify, then he can seek contribution from the other partners.

Registered Limited Liability Partnerships (RLLP)

A RLLP is formed by filing a statement of qualification plus annual reports. In terms of liability, no partner is liable for the debts of partnership itself.

Limited Liability Companies (LLC)

An LLC is a hybrid between a corporation and a partnership in which the owners, called members, have the same limited liability of shareholders in a corp and also the benefits of partnership of tax benefits. To be formed, the members need to filing an articles of organization and may adapt an operating agreement.

Owners and members may control but also may delegate control to a team of managers. A full membership interest may not be transferred without unanimous consent of all members.

The articles of organization of the operating agreement must indicate some even that will dissolve the LLC. Thus, LLCs are companies of limited liability, limited liquidity, limited life, and limited tax.

Partner Defined

In order to be a partner in a GP, one must agree with at least another to carry on as co-owners a business for profit. A person who receives a share of the profits of a business is presumed to be a partner unless the profits were received in payment of rent.

Vicarious Liability

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

Actual Express Authority

Express Authority is that authority contained within the four corners of the partnership agreement and those expressly granted by the partnership.

Actual Implied Authority

Implied authority is authority that the partner reasonably believes she has as a result of the actions of the partnership. Absent an agreement to the contrary, all partners have equal rights in the management of the partnership business.

Did the partnership object or acquiesce in the past? Nevertheless, all partners have equal rights in the management of the partnership business.

Apparent Authority

Apparent authority exists if the partnership holds a partner out as possessing certain authority, thereby inducing others reasonably to believe that authority exists. The third party must reasonably rely on the holding out.

Is there a reasonable belief? Is the person acting within the scope of the partnership?

Duty of Loyalty

Partners owe the partnership and other partners the fiduciary duty of loyalty. Partners must discharge these duties in good faith and fair dealing. The duty of loyalty requires the partner to (i) account for profits, property, opportunities, or other benefits derived by the partner in conjunction with the partnership business; (ii) refrain from dealing with the partnership as or on behalf of a party having an interest adverse to the partnership; and (iii) refrain from competing with the partnership. A partnership may bring an action against a partner fro breach of the duty of loyalty.

Management and Control

Absent an agreement to the contrary, all partners have equal rights in the management of the partnership business. This in effect means that one partner cannot unilaterally terminate another partner's authority to enter into contracts within the scope of the partnership.

However, a partnership may expand or curtail a partner's authority to enter into transactions on behalf of the partnership by filing a statement of authority with the secretary of state.

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