Florida Partnerships

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Formation of General Partnership
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Terms in this set (51)
1. Even if a written partnership agreement includes "This agreement does not create a partnership," there still can be a partnership.
2. The question is whether they are carrying on a for profit business as co-owners?
3. Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership DOES NOT, BY ITSELF, est. a partnership even if the co-owners share profits made by the use of the property.
4. Sharing gross returns IS NOT enough to est. a partnership.
1. The partnership agreement CANNOT ELIMINATE THE DUTY OF LOYALTY.
2. The partnership agreement CAN specify particular activities that do not count as violations (REASONABLE)
3. The partners can agree unanimously, after the fact, to authorize or ratify conduct that would otherwise be a duty-of-loyalty violation.
1. Obligation of Good Faith and Fair Dealing
2. The partnership agreement cannot eliminate the duty of good faith and fair dealing.
3. A partnership agreement may "prescribe the standards by which the performance of the obligation is to be measured" as long as the agreement is not manifestly unreasonable.
General Partnership Profits and Losses1. Without an agreement to the contrary, partners share profits and losses equally. 2. If the partnership agreement addressed how partners share PROFITS, the partners will share LOSSES proportionately. 3. Parties can change profit and loss sharing by agreement.Partnership AccountingPartners in a partnership are deemed to have capital accounts. Capital Accounts are accounts that the partnership keeps for each partner, reflecting money that they partners have contributed, gains they've received but haven't had distributed yet, and losses that have been assessed to them. A PARTNER CANNOT DEMAND A DISTRIBUTION OF PARTNERSHIP GAINS.Partnership Interest (Right to receive the partnership's profits)1. By default, a partner can unilaterally transfer their right to the partnership interest to a 3rd party. 2. By default, a partner cannot unilaterally transfer their management rights to a 3rd party.Charging OrderIs a lien on the partner's partnership interest.Partnership Property1. Property acquired in the name of the partnership is partnership property. 2. Property purchased with partnership assets or credit is presumed to be partnership property. 3. The "partnership interest" - that is, the right to receive distributions from the partnership - is INDIVIDUAL PROPERTY.Partnership PropertyBy default, a partner may use or possess partnership property only for the purpose of partnership business.New PartnersBy default, in order to become a new partner, ALL PARTNERS must APPROVE that person's partnership status.Management Rights1.By default, each partner gets AN EQUAL VOTE in the ordinary course of business in the partnership (Even if one partner contributes more initially) 2. A MAJORITY is sufficient to bind the partnership.Partnership ServicesA partner is not entitled to payment for services rendered during the ordinary operation of the partnership. Exception: A partner may be paid for winding up the partnership.Events Causing a Partner's Dissociation1. Partner who gives express will to the partnership to dissociate has dissociated. 2. The happening of an event specified in the partnership agreement. 3. The partners can expel a partner under the partnership agreement (if the agreement allows it). 4. The partner is expelled by the court. 5. The partner is expelled by all partners if remaining in the partnership with the partner would be against the law (unanimous vote of all the partners). 6. A partner's bankruptcy. 7. A partner dies. 8. A partner is declared incapable. 9. An entity that is a partner terminates existence.Dissociation Rights & PowersA partner has the power to dissociate from the partnership at any time, even if it is wrongful to do so. (Partner promises not to leave within 10 years - can leave but faces consequences of leaving prematurely). The partnership agreement cannot prevent a partner from dissociating from a partnership. The partnership agreement cannot prevent the partnership or a group of partners from seeking judicial expulsion of a partner.Wrongful DissociationIn an at-will partnership, any partner can leave at any time. Leaving is not wrongful. A partnership for a term is a partnership for a particular period of time/# of years. A partnership for an undertaking is a partnership for a period until the project is complete (particular purpose). A dissociation from a partnership for a term or undertaking is wrongful if: 1. Partner withdraws early from the partnership. 2. The partner is expelled by court order. 3. Partner is expelled because of bankruptcy. 4. The partner leaving is an entity that decides to terminate on its own.Wrongful Dissociation RemedyIf a partner wrongfully dissociates from a partnership, the partnership ordinarily recover damages. The partnership recovers costs suffered because of wrongful termination.Effects of Dissociation1. The dissociation of a partner does not cause automatic dissolution and winding up of a business. 2. A dissociated partner generally does not have the right to continue to manage the business. 3. If the partnership continues operating after a dissociation, it must by default buy out the interest of the dissociated partner within 120 days of a written demand for payment. 4. The partnership is valued as the GREATER of the value of its assets or the value of the business as a going concern.Wrongful DissociationA partner who wrongfully dissociates before the expiration of a definite term or the completion of a particular undertaking is not entitled to payment of any portion of the buy out price until the expiration of the term or completion of the undertaking, unless the partner establishes to the satisfaction of the court that earlier payment will not cause undue hardship to the business of the partnership. A deferred payment must be adequately secured and shall bear interest.Post-Dissociation ActionsAfter dissociating, a partner can still bind the partnership to a 3rd party if the 3rd party: 1. Reasonably believes the partner is still a partner. 2. Doesn't have actual notice. 3. Isn't deemed to have notice. LIMTED TO 1 YEAR AFTER DISSOCIATION.Authority of a Partner1. Authority is the power of partners to bind the partnership with respect to third parties. ~ Actual Authority - Each partner is an agent of the partnership for the purpose of its ordinary business. ~Apparent Authority - An act of a partner... for apparently carrying on in the ordinary course of partnership business or business of the kind carried on by the partnership, in the geographic area in which the partnership operates, binds the partnership unless the partner had no authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority. PROTECTS 3RD PARTIESApparent AuthorityA partner who has no actual authority but who does have apparent authority may still bind the partnership if acting within the ordinary scope of business of the partnership.Statements of AuthorityStatements of Authority are public documents filed with a state office. Partner may still have apparent authority because there is no ACTUAL NOTICE to the business owner the partner is purchasing from. State has notice (because of statement of authority) but the fact that the statement is filed with the state is not deemed to provide notice to all 3rd parties. Real estate is an exception because you expect people involved in real estate transactions to look in the title records.Partner NoticeIf a partner receives legal notice of a fact, the partnership is deemed to be on notice of that fact unless the partner is involved in fraud against the partnership.Partner TortsA partnership is liable for loss or injury caused by a partner acting in the ordinary course of business of the partnership or with authority of the partnership. If, in the course of the partnership's business, a partner receives money or property of a person who is not a partner, and the money or property is misapplied by a partner, the partnership is liable for the loss.Partner LiabilityPartners in a general partnership are liable for the obligations of the partnership. If partner dissociates from the partnership, the partner is liable for the debt incurred before the partner dissociated. A partner cannot just leave the debt.Recovery Against PartnersIn general, without the partner's consent, a creditor must pursue and exhaust remedies from the partnership before seeking a judgment against an individual partner. Common-sense Exception: A court grants permission to the judgment creditor to proceed against or otherwise levy or execute against the assets of a partner based on a finding that partnership assets subject to execution are clearly insufficient to satisfy the judgment, that exhaustion of partnership assets is excessively burdensome, or that the grant of permission is an appropriate exercise of the court's equitable powers.MergerA partnership may marge with another organization, such as another partnership or a limited partnership.Coverstion1. A partnership may convert to a limited partnership if 100% of the partners approve the conversion. 2. To complete the conversion, the partnership must file a statement with the state. 3.Liability for existing obligation of the partnership remains upon conversion to a limited partnership. 4. A former general partner may be liable for up to 90 days after the conversion when dealing with someone who things the partner is still a general partner.Dissolution - Partnership at WillAny dissociation will by default lead to dissolution, though the partners can agree to otherwise.Dissolution - Partnership for a Term or Undertaking1. The term expires or the undertaking is completed. 2. All partners can agree to dissolve. 3. After dissociation of a partner, more than 50% agree to dissolve.Dissolution - Any Partnership1. Some event in the agreement happens. 2. It would be illegal to continue the partnership. 3. Judicial decree upon application by a partner, proving economic reason of business frustrated. 4. Judicial decree on application by a transferee of someone's property interest.DissolutionOtherwise, the partnership continues and the dissociating partners must be "bought out". General Exception: All partners may agree that there will be a continuation of the business, which will stop dissolution.The Process of Winding Up1. Any partner (even if dissociated, but not wrongfully) or legal representative of the last surviving partner may wind up the partnership. 2. Any partner or legal representative may ask for judicial supervision of the winding up. 3. A person winding up a partnership's business may preserve the partnership business or property as a going concern for how long? reasonable amount of time - maximize money.The Process of Winding Up - Priority of Claims in Liquidation1st - Creditors 2nd - Partners Partners who are also creditors are treated as creditors with respect to their debts. They are paid when the other creditors are paid.Limited Liability Partnerships1. A form of general partnership that provides an individual partner protection against personal liability for certain partnership liabilities. 2.. The individual partner's liability depends on the scope of the state's LLP legislation. 3. Generally, partners in a LLP aren't responsible for another partner's debts, obligations, or liabilities resulting from negligence, malpractice, or misconduct. 4. LLP is specifically designed to limit malpractice claims against uninvolved partners. 5. Each partner is liable for debts and obligations created as a result of his own negligence, malpractice, or misconduct as well as negligence, malpractice, or misconduct by any person under that partner's direct supervision.Limited Liability Partnerships1. General Partners get Limited Liability Protection 2. Must file with The Department of the State 3. The name of the partnership must indicate its limited liability protection.Limited Partnership - Name1. Must contain the words LIMITED PARTNERSHIP or LIMITED or the abbreviations LTD or LP. 2. Cannot contain the phrase "Limited Liability Partnership" or the abbreviation "LLP".Types of Partners1. General Partners - Active in management of the business and liable (personally) for its debts. 2. Limited Partners - Passive (not taking an active role in the management of the business) and no liability for the debts of the Limited Partnership.Liability of Limited PartnersIf a limited partner participates in the management of the limited partnership, he is not/will not be liable for the partnership obligations.Becoming a Limited Partner1. By the partnership agreement. 2. Consent of ALL the parties. 3. MergerBecoming a General Partner1. By the partnership agreement. 2. Consent of ALL parties 3. MergerSharing of Profits & Losses - Limited Partnership1. Profits and losses of a limited partnership shall be allocated among the partners on the basis of the value, as stated in the required records when the limited partnership makes the allocations, of the contributions the limited partnership has received from each partner. 2. Partners can change this default rule. 3. By default, distributions are given to partners based on calculating what their contributions have been. 4. A partner doesn't have the right to receive a distribution upon dissociation.Derivation Actions1. A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation against a third party. 2. In effect, the suing shareholder claims to be acting on behalf of the corporation, because the directors and management are failing to exercise their authority for the benefit of the company and all of its shareholders. This type of suit often arises when there is fraud, mismanagement, self-dealing and/or dishonesty which are being ignored by officers and the Board of Directors of a corporation. Partners is a limited partnership can bring derivative suits. FIRST, they need to make a demand on the partnership unless futile to do so.Limited Liability Limited Partnership1. A limited liability limited partnership is like a limited partnership, except the general partners have limited liability protection. General Partners have limited liability similar to shareholders of a corporation. 2.The difference between an LLLP and a traditional limited partnership lies in the general partner's liability for the debts and obligations of the limited partnership. In a traditional limited partnership the general partners are jointly and severally liable for its debts and obligations; limited partners are not liable for those debts and obligations beyond the amount of their capital contributions. In an LLLP, by having the limited partnership make an election under state law, the general partners are afforded limited liability for the debts and obligations of the limited partnership that arise during the period that the LLLP election is in place. Also, when the partners are sued personally, the assets inside the partnership are protected from being taken by the judgment creditor of a partner. This type of partnership also provides limited liability for the general partners of the limited liability partnership. This is unlike a limited partnership, where the general partners are jointly liable for all obligations of the partnership. 3. Must include the words Limited Liability Limited Partnership or the abbreviation LLLP.