partnerships

General partnership

-Two or more persons, as co-owners, carry on a business for profits(sharing of profits)

-Intent to carry on business; no intent to create partnership

-This agreement can be made expressly( oral or written) or implicitly(from the conduct of the parties)

-persons include individuals, associations, and corporations

Limited partnership

An LP is composed of at least one general partner and limited partner(s). All general partners are agents of the partnership

An LP is formed upon filing a Certificate of Limited Partnership with the Secretary of State, which must include:

1) name of Pship;

2) address of Pship;

3) name and address of each partner;

4) whether the Pship is an LLP; and

5) signed by a general partner.

Limited Liability Partnership (LLP)

In an LLP, all partners have limited personal liability.

To become an LLP:

1) It must be approved by the same vote necessary to amend the partnership agreement; AND

2) A Statement of Qualification must be filed with the Secretary of State containing:

• i. name and address of partnership;

• ii.statement that Pship elects to become an LLP

• iii. and a deferred effective date (if any).

General partners are exposed to personal liability for partnership debts and obligations?

True

Limited partners are not agents of the partnership

true

General Partners duty to each other

Fiduciary Duties—owed to the partnership (P) and current partners

• Duty of Loyalty—a partner has a duty not to compete, advance an adverse interest, or self-deal (just as with corporations) unless approved by a majority after full disclosure; the P agreement cannot eliminate the duty of loyalty

• Duty of Care—a partner must not knowingly violate the law or engage in reckless or grossly negligent misconduct

* Duty to provide full information: Partners shall disclose (without demand) full information concerning the Pship’s business and affairs.

General partner duties to third party

• The same as agency principles( actual/apparent authority)

Liability of limited liability partners

A partner in an LLP is NOT liable for partnership obligations. But partners are liable: (a) for their own misconduct; OR (b) when the partner signs a personal guarantee for the obligation. OR © For obligations incurred before the partnership became an LLP

General Partnership ( AUTHORITY RULE)

• All partners have equal rights in the management and conduct of the partnership business and every partner is an agent of the partnership for the purpose of its business. The act of a partner for apparently carrying on in the ordinary course of business of the partnership binds the partnership, unless: (1) the partner has no authority to act in the matter; and (2) the person with whom he is dealing has knowledge that he has no such authority. A partner acting in the ordinary course of business need not seek the prior approval of the other partners unless the partner has reason to believe that the other partners might not approve or might expect to be consulted.

Rights of partners among themselves( General partnership)

1. sharing or profits and losses

   1. profits shared equally, share losses in proportion to share of profit

2. right to management and control

   1. each partner has equal rights in management and control of business

3. Transfer of partnership ownership(their own property)

   1. a partner can only transfer his interest in the share of profits and losses; AND

   2. the right to receive distributions

   3. any other rights cant be transferred, unless partnership says

4. right to partnership property

   1. All property acquired by a partnership is owned by the partnership, not the partners individually § Partners have an equal right to use the property for partnership purposes

Rights for Limited partnerships

1. Management and Control in a LP

• § General Partner has full management rights and control

• § Limited Partner has NO say or control as to how the LP is run, and DOES NOT have the right to manage or control day-to-day business

2. Limited Partner’s Right to Inspect Records

   • § RULPA -> Limited partners have the right to inspect and copy records the LP is legally required to keep

Liability of limited partners

Limited partners are NOT personally liable for obligations of the Limited Partners

• § Exceptions

  • Liable for their own misconduct

  • At risk of losing their capital contribution to the partnership; OR

  • May become personally liable if the partner participates in management

Dissociation( Withdrawal of a partner)

• a partner may dissociate (withdraw) from the P ship at any time upon notice

• dissociate when:

  • a) partner provides notice of express will to withdraw;

  • b) occurrence of an agreed upon event;

  • c) expulsion pursuant to the Pship agreement;

  • d) expulsion by unanimous vote if it’s unlawful to carry on business with that partner or he transferred all of his Pship interest (other than for security purposes);

  • e) judicial expulsion;

  • f) bankruptcy;

  • g) incapacity or death;

  • h) appointment of a personal representative or receiver; OR

  • i) termination of an entity partner

Wrongful dissociation

Dissociation is deemed wrongful if: (a) not consistent with the terms of the Pship agreement; OR (b) before the completion of agreed upon term or undertaking.

• A wrongfully dissociated partner may be liable to the Pship and other partners for damages, AND may not participate in the winding up process.

What happens under RUPA if partner dissociate

the remaining partners have the option to waive dissolution, and buy the dissociated partner’s interest regardless if the dissociation was rightful or wrongful.

Dissolution vs. Winding Up vs. Termination

Dissolution :Occurs upon the occurrence of any specified statutory event (see above).

Winding Up: Is the period between dissolution and termination, in which assets are liquidated to satisfy creditors.

termination: The real end of the Pship, in which the Pship ceases to exist.

Dissolution

1. According to type

• At-will—if no fixed term or undertaking, the P dissolves when any partner dissociates

• For a specific term or undertaking—may dissolve by its terms with unanimous consent or after a partner is dissociated if at least half of remaining partners consent

2. Triggering events—any P may dissolve per the P agreement, due to an event that causes unresolved illegality, or by judicial determination

Winding up

liquidate assets, pay creditors, and distribute remainder to the partners

Consequence of dissociation of partner

* The partnership must purchase the dissociated partner’s interest for a buyout price, and the buyout price must be equal to the greater of either the liquidation value or the value of the partnership’s assets based on a sale of the entire business as a going concern

* If no agreement for the purchase of a dissociated partner’s interest is reached within 120 days after a written demand for payment, the partnership must pay the amount the partnership estimates to be the buyout price.

Dissolution of limited partnership

1. happening of an event specified in the Pship agreement;

2. consent of all general partners and limited partners owning a majority interest;

3. after the dissociation of a general partner either upon consent of the partners or the passage of 90 days after the dissociation (if the LP does not have a remaining general partner);

4. 90 days after dissociation of the last limited partner, unless the LP admits at least one limited partner; OR

5. the filing of a declaration of administrative dissolution by the Secretary of State.