 | Term | Definition |
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General partnership liability by estoppel: |
one who represents to a 3rd party that a general partnership exists will be liable as if a general partnership exists. |
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Limited Partnerships Defined: |
partnership w/ at least 1 general partner AND at least 1 limited partner |
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limited partnership Formation: |
to form a limited partnership must FILE a limited partnership certificate (more than necessary for general) that includes: names of all general partners! |
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limited partnership Liability and Control |
1) General Partners: still liable for ALL limited partnership obligation. but ALSO have right to manage and control the business. 2) Limited Partners: limited liability so NOT liable for limited partnership's obligations. Liable for 1 thing only: must pay full consideration for interest. nuance: can limited partners still manage or control the business. In growing # of minority states (IL), limited partners now may manage business w/o forfeiting limited liability status |
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Registered Limited Liability Partnerships (RLLP) Formation: |
register by filing w/ state a statement of qualification PLUS annual reports. |
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RLLP Liabilities: |
no partners, NOT EVEN GENERAL are liable for obligations of registered limited liability partnership. Can always sue individual partners for own personal malpractice |
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rights and liabilities between partners |
General Partners are FIDUCIARIES of each other and of the partnership: therefore, owe: 1) duty of loyalty. 2) action for accounting |
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Duty of Loyalty. |
just like agents, GPs may NEVER: (any of these will lead to breach of duty of loyalty). 1) Engage in self dealing. 2) Usurp partnership opportunities. 3) No secret profits at partnership expense |
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Action for Accounting: |
what can partnership recover? Partnership may recover: losses caused by the breach and ALSO may DISGORGE profits made by the breaching partner as well |
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Partners rights in Specific Partnership Assets: |
(generally not liquid) land or leases or equipment owned only by partnership therefore no individual partner may transfer these assets w/o partnership authority |
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Partners rights in Share of profits and surplus |
(only liquid assets) share of profits = personal property owned as such by each indiv. partner. may transfer your share to a 3rd parties |
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Partners rights in Share in management: |
this is an asset owned only by partnership itself. therefore, no indiv. partner may transfer their share in mgmt to a 3rd party |
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Conflict between specific partnership assets and personal property:. |
test: whose $$ Ps was used to buy the property . if partnership $$ used- partnership property. personal $$ used: personal property |
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Management of partnership: |
absent an agreement, each partner entitled to EQUAL control (vote). don't care about profits, contribution, etc. |
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Salary: |
absent an agreement, partners get NO SALARY (doesn't matter if one works 96 hrs/day other not at all) *****Exception: partners get compensation for helping to WIND up the partnership's business |
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Partners share of profits and losses: 2 separate independent default rules |
1) Absent an agreement PROFITS SHARED EQUALLY. 2) Absent an agreement, LOSSES SHARED LIKE PROFITS |
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If agreement silent on profits and losses: |
w/o agreement on profits they are shared equally. Secondly, w/o agreement on losses, they are shared just like profits. which here, is equally as well |
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If agreement says profits shared 60/40. losses shared? |
Share profits 60/40. W/o agreement on losses, share losses 60/40 as well |
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If agreement says LOSSES shared 60/40. |
Profits shared? SO losses shared 60/40 go to default rule for profits. W/o agreement- shared EQUALLY |
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Partner A puts up all of the $$ partner B does all of the work. Partner C gives the partnership its fine name. Partner D does nothing. |
How are profits shared?? W/o an agreement profits are shared EQUALLY! |
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Dissolution: |
In absence of agreement that specifies dissolution events, dissolution occurs AUTOMATICALLY upon notice on express will of any 1 GP to dissociate. Dissolutions just BEGINS PROCESS of ending. Termination is the real end |
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Termination: |
real end of the partnership |
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Winding up: |
period between dissolution and termination in which remaining partners liquidate the partnerships assets to satisfy the partnership's creditors |
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Compensation for winding up: |
exception to rule re: no salary. DO get compensation for helping to liquidate assets and satisfy creditors |
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Partnership's liability for winding up |
1) Old business? Partnership and therefore individual GP's still retain liability on ALL transactions entered into to wind up old business w/ existing creditors. 2) New business? partnership and therefore its individual GP's still retain liability EVEN ON new business transactions UNTIL ACTUAL NOTICE of dissolution is given to creditors OR until 90 days after filing what is called a statement of dissolution |
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Priority of distribution: |
Each level of priority must be fully satisfied before beginning the next level in order |
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order of distribution |
FIRST, creditors must be paid: nuanced b/c includes 2 kinds of creditor groups: all outside non-partner trade creditors PLUS all partners who have LOANED $$ to the partnership and have become inside creditor partners thereby. SECOND, capital contributions by partners may be paid: nuance: right here, right now partnership liable to OWN partners for full repayment of all capital contribution. THIRD, profits and surplus, if any. go to default rule: profits, if any, are shared equally w/o an agreement |
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Rule re: distribution: |
each partner MUST be repaid his or her loans and capital contributions, plus that partners share of the profits (if profits) or minus that partner's share of the losses |
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Distribution Hypo: |
A and B dissolve the AyeBee Partnership. In winding up, they liquidate the partnership assets and have a total of $1mil to distribute. How should that amt be distributed if 1) the partnership owes $600,000 to trade creditors; 2) Partner A loaned the partnership $100,000; and 3) partner B made capital contributions of $200,000. FIRST, all outside creditors PLUS Partner A must be repaid for its loan. = $700,000. SECOND, Partner B now must be repaid its $200,000 capital contribution. . Leftovers of $100,000. How then will Partner A and B share in remaining? w/o agreement, profits shared EQUALLY! Each get equal remaining share. |
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Bad news hypo: |
suppose the AyeBee partnership only has $700,000 to distribute. FIRST, All outside creditors PLUS Partner A must be repaid total of $700,000. So far so good. SECOND, partnership is still liable to partner B for full $200,000 capital contribution. How will A and B share in loss? w/o agreement profits shared equally, losses shared equally AS WELL. Partner A must PAY IN $100,000 as equal share of loss. B must also PAY IN $100,000 as equal share of loss. Recouped to pay back B for capital contribution |
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