| Term | Definition |
|---|
| Partnership | Voluntary legal relationship created by two or more persons to carry on as co-owners of a business for profit. (No profit = unincorporated association) A partnership is not a legal entity. |
| Partnerships are governed by | UPA – Uniform Partnership Act or the RUPA Revised "". |
| Trading | Buying and selling or leasing property – great deal of implied authority to act in the partnership. |
| Non-trading | Rendering services, less implied authority |
| Creation of a partnership | no formalities are required, voluntary contractual relationship. Express or implied agreement, either oral or writing. Intent governs. |
| Tests of Existence | Sharing of profits and losses, co-ownership of property, joint control and management |
| Partnership by Estoppel | Holds a person liable as a partner to a third party when they either hold themselves out as a partner or consent to partnership. Legal effect (no rights of a true partner) |
| General | – Right to manage the partnership business, has unlimited personal liability to the creditors of the partnership. |
| Limited | Merely an investor in a partnership whose liability is limited to the possible loss of their capital. (must not participate in management) |
| Nominal (ostensible/estoppel) | A person who is not in fact a partner but holds himself out as a partner, may be liable as a partner. |
| Partnership Agreement | Articles of partnership, formal written agreement is not required, but is a good idea for legal purposes. Written is needed for agreements that falls under the statute of frauds. |
| Minors | May become a partner, but can disaffirm the partnership contract. Creditors have preference over minors recovering capital, may not go after minor assets if they disaffirm. |
| Insane persons – | Judicially declared insane persons cannot make a contract, if after agreement, other partners can get dissolution. |
| Corporation | UPA allows a corp. to become a partner, but some states disallow it |
| Partnership capital | Money and property contributed by partners for permanent use by the partnership. |
| Tenancy in partnership | Term given to the ownership by partners of the partnership's property. All partners have equal rights to use. |
| Partnership property | Partnership capital plus retained profits constitute PP |
| Real property | May acquire real property in the name of the partnership, in this case it is a LEGAL ENTITY. |
| Authority of Partner | – Merely an extension of agency law. Each partner is an agent and the partnership is the principal. |
| Partnership is liable for | actions of partners if they have actual authority and within the apparent scope of partnership activity and third party has no knowledge of actual authority. If partnership is not liable then the partner is liable |
| -Partner is personally liable for | torts they commit, unless within the scope of the partnership, then the partnership is liable. crimes committed. Other partners are not liable, - Partnership can recover damages for wrongdoing of a partner, if they act outside their scope. |
| Actual Authority | Real authority can be expressed or implied |
| Apparent Authority | (Ostensible or customary) When partnership restricts actual authority, partner may still have apparent authority. Third party must not know of the restriction and the partner must be acting in a necessary capacity of the part |
| Trading partnership | Much customary authority |
| Nontrading partnership | little customary authority |
| Types of customary authority | entering into usual contracts, sales, purchasing goods, loans, insuring property, employing persons. |
| Unauthorized acts (never binding) | Decision to go out of business, suretyship, decision to arbitrate a dispute, confess judgment (guilty in advance), assignments, personal obligations. |
| Tort | Within the actions of the business – partnership joint and severally liable. (Severally means individually |
| Contracts | Jointly liable, if in one partners name then the other partners are undisclosed principals. |
| Withdrawal of partner | Existing creditors are entitled to actual notice of partner withdrawal, if no notice then the could be personally liable. |
| New Partner | liable for all obligations entered into after they are admitted. Liable for previous obligations, but only to the extent of assets within the partnership, no personal assets. |
| Ordinary matters | majority vote, if tie then deadlock |
| Extraord. Matters | – unanimous agreement of all partners is necessary to make change. |
| RIGHTS OF PARTNERS | Share in profits, return of capital, participate in management, right to information and inspection of books, right to an accounting, specific partnership property, compensation, reimbursement. |
| Duties of partners | – fiduciary – this means trust and confidence, loyalty and good faith to the firm, duty to share in losses |
| Assignment | May assign or transfer all or part of their interest, does not dissolve partnership, the assignor is still a partner, consent of other partners is not required, but they must for the assignee to actually become a partner, rights at first are only to profits. |
| ENDING A PARTNERSHIP | – Dissolution – the point in time when the object of all or any of the partners changes from continuing the org, in its current form to discontinuing it. |
| Winding up | Settling partnership affairs after dissolution. No new business can be carried on during this period, span between dissolution to termination. |
| Termination | End of winding period |
| Causes of dissolution | without violation of partnership agreement – agreed time limit ends, partnership purpose has been completed, partner quits (partnership at will), mutual agreement of the partners to terminate. |
| In violation | Partner has right to dissolve partnership but may be liable for damages. |
| By operation of law | – Business becomes illegal, bankruptcy of the partnership or a partner, death of partners, court decree – incapacity of partner, impractical business, serious misconduct, etc. |
| Priority of payment on dissolution | 1) Creditors of partnership 2) Loans made to partnership by partners are next repaid to the extent capital remains.3) Return of capital contributions 4) Profits and losses are then divided per agreement |
| Marshaling of assets | Partnership creditors get first rights to partnership assets, individual creditors get first rights to individual partners assets. |
| Limited partnerships | One of more general partners and one or more limited partners, must file a certificate with the state listing names, locations of business, limited and general partners, contributions of each limited partner. Name of partnership cannot be the last name of a limited partner, limited partners can have profit priorities, all partners must still agree to new partners. |
| Priority of payments: | 1) Creditors 2) Limited partners for profit 3) Limited partners for return on capital 4) General partners for profit 5) General partners for return on capital |
| Joint Ventures | – Similar to general partnerships in that they involve co-ownership of a business for profit. Typically established for conducting a single enterprise or transaction and usually continue for a short duration. Most courts hold joint ventures to partnership laws. |
| Limited Liability Company (LLC) | Created under state law by filing articles or organization with the sec. of state's office, which include name, duration of existence, and name and address of registered agent. Name must include LLC in it, owners are members, separate legal entity, no personal liability. |
| Limited Liability Partnership (LLP) | Created by filing also. Required to maintain some specific level of professional liability insurance and pay an annual fee to the state, means one partner cannot be personally liable for another partners malpractice. |
| Sole Proprietorship | Simply an extension of an individual owner. No formalities required, default business choice if nothing else is elected. Not a legal entity, all taxes and income go against the owner on their return. |
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