Partnerships

Formation of general partnership

A partnership is an association of two or more people to carry on as co-owners as a business for profit, regardless of whether the parties subjectively intended to form a partnership. The intent needed is the intent to carry on a business as co-owners. No formal writing is needed unless they wish to have an enforceable agreement for more than 1 year, subject to SOF. Capacity, a legal purpose, and consent are additional requirements.

Partnership may be created by estoppel, if by a person’s words or conduct they represent themselves as a partner or consent to being represented by another as a partner, and a 3rd party relies on that representation in extending credit to the actual or apparent partnership, the partnership will be created by estoppel to hold the parties liable to protect the 3rd party.

Factors for determining partnership where intent is uncertain

If there is a sharing of profits, a presumption of partnership is raised unless the share was received as payment of a debt, compensation or wages for services rendered, as an annuity or other retirement benefit, as interest on a loan, or for the sale of goodwill of a business. A person’s right to participate in the control of the business, or the sharing of losses are additional factors.

Additional evidence may include title to property that is held in joint tenancy or in common, the parties designate their relationship as a partnership, the venture requires extensive activity, and sharing of gross returns.

Voting in general partnership

Unless otherwise agreed, all partners have equal voting rights and rights in managing the business, meaning each partner gets one vote, and decisions regarding matters within the ordinary course of the partnership business require a majority vote. A unanimous vote is required for authorizing extraordinary acts.

Sharing profits and losses

unless otherwise agreed, profits and losses are share equally among the partners by number.

Liability to 3rd party

Each partner is an agent of the partnership for the purpose of its business, so the authority of a partner to bind the partnership when dealing with 3rd parties follows agency law.

In torts, partnerships are liable for loss or injury caused to a person as a result of the tortious conduct of a partner or employee acting in the ordinary course of business of the partnership or with authority of the partnership.

Partnerships are liable for all contracts entered into by a partner in the scope of the business or with actual/apparent authority.

Partners are jointly and severally liable for all obligations of the contract, whether arising in tort or contract.

Statement of partnership authority (calling it SPA)

Filing a statement of partnership authority with the secretary of state creates actual authority for the partners to enter into transactions on behalf of the partnership, and can also limit it. Under this any restrictions or grants of partner authority to transfer the partnerships’ real property is BINDING on 3rd parties if the SPA was recorded in the county where the real property is located. Grant of partnership authority for all other transactions other than real property are binding on the partnership unless the 3rd party had actual knowledge that the partner lacked authority, but restrictions of authority for all other transactions are NOT binding on 3rd parties.

Apparent authority

Partner equals agent status, so as agents of the partnership partners have apparent authority to bind the partnership to any contract within the course of of the partnership’s business or business of any kind carried out by the partnership, unless the 3rd party is aware that a partner lacks actual authority. if a contract is outside the scope of the partnership business then the partnership is generally NOT bound unless the partner has actual authority, meaning the partner reasonably believed they had authority based on the communications between them and the partnership.

renumeration

partners have NO right to renumeration, meaning payment for their services, to the partnership except for winding up the partnership business

Indemnification

Partners have right to be indemnified by fellow partners for expenses incurred on behalf of the partnership.

Contribution

partners have right to contribution from fellowvpartners where the partner has paid more than their share of a partnership liability.

Actual authority may come from

a statement of partnership authority, meaning the partnership agreement, filed with the secretary of state, granting or limiting a partner’s authority to enter into transactions on behalf of the partnership OR a vote of the partners, majority for ordinary business, unanimous for extraordinary acts

Partners rights

Partners have equal rights of management of the partnership (unless the agreement provides otherwise), to equal distributions of profits and losses (unless agreement provide otherwise), to indemnification, contribution, to inspect and copy partnership books, and may sue his partnership or be sued by his partnership as a partner.

liability of incoming v. outgoing partners

Outgoing partners remain liable for all partnership obligations incurred while they were a partner (unless there has been payment, release or novation) and may be liable for acts done after dissociation of the partnership, where an incoming partner generally has no liability for obligations incurred before they became a partner

Individual partners liability

Individual partners can be liable after the plaintiff exhausts partnership resources (partners are jointly and severally liable for all obligations of the partnership whether contract or tort). Each partner is personally and individually liable for the entire amount of the partnership obligations however, so where one partner paid the whole obligation of the partnership, they are entitled to indemnification from the partnership, and where indemnification is unavailable they may also require other partners to contribute their pro rata shares of payment.

notice

Partners have notice of a fact when they either have actual knowledge of the fact, were notified of the fact, or have reason to know of the fact based on surrounding circumstances. A partner’s notice of a fact relating to the partnership is imputed to the partnership immediately unless they partner having notice is participating in fraud against the ship.

partner’s right to use ships’ property

Partner has no right to use partnership property for any reason other than for the benefit of the partnership. They are not co owners and have no transferrable interest in the property. The partnerSHIP can use its property for any purpose.

Partner duties

Partners each owe a duty of care and loyalty to each other and to the partnership, a statutory duty of disclosure, and a duty of obedience.

duty of loyalty

each partner is required to account to the ship for any benefit derived by the partner in conducting the ship business, using the ship’s property, or appropriating a ship opportunity; is to refrain from dealing with the ship in the conduct of its business as or on behalf of a party having an interest adverse to the ship; and to refrain from competing with the ship in the conduct of its business

Duty of care

Each partner must refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.

Duty of disclosure

Partners and the partnership have duty to provide complete and accurate info regarding the ship; meaning they must furnish without demand any information concerning the ships business and affairs reasonably required for the proper exercise of the partner’s rights and duties; and on demand any other info concerning the ship’s business and affairs, except to the extent the demand or info is unreasonable or other wise improper

This duty may be eliminated by the partnership agreement

Duty of obedience

partners have to obey all reasonable directions of the partnership and not act outside the scope of his or her authority

Partnership property

Titled property is the ship’s if it is titled in the partnership’s name or the name of a partner and the instrument transferring title notes the titleholder’s capacity as partner or the existence of a partnership

Property purchased with partnership funds (cash or credit) is presumed ship property

Under common law, property will probably be partnership property if: it was purchased with ship funds, the property is used by the ship in conducting its business, it was entered in the books as a partnership asset, there is a close relationship between the property and the business operations of the partnership, and maintenance or improvement of the property with partnership funds

Property presumed to be a partners separate property

Under the RUPA, property is rebuttably presumed to be a partner;s property if it is held in the name of one or more partners, the instrument transferring title gives no sign theyre acting for the ship, and the ship funds were not used to acquire it

Partner’s ownership interest

The personal property of the partner, comprised of management rights, which are not unilaterally transferrable, and financial rights, which are transferrable unless otherwise agreed.

Events of dissociation

Partners are dissociated from partnerships upon: notice of partners express will to withdraw, happening of agreed upon event, valid expulsion of partner, partner becoming bankrupt, death of individual partner, termination of a partner that is a business entity, or court decision that partner is incapable of performing their duties.

Partners are liable for post dissociation partnership liabilities incurred two years after dissociation, if when entering the transaction the other party reasonably believed the dissociated partner was still there, and did not have notice of their dissociation. Partners can protect agains by notifying creditors directly or by filing a public notice, which is effective 90 days after filing. The partnership can also file this.

events of dissolution

The partnership is DISOLVED and its business must be wound up when: in a partnership at will a partner gives notice of their express will to withdraw; in a partnership for a definite term or undertaking when: w/in 90 days of partner’s death, bankruptcy or wrongful dissoccation, at least half of the remaining partners express will to wind up the business, all partners express a will to wind up business, OR term expires/undertaking is complete; upon happening of agreed upon event or an even that makes it unlawful for the partnership to continue, or upon judicial decree.

wrongful dissociation

a partner will be deemed to have wrongfully dissociated if the dissociation was in breach of an express term in the partnership agreement, or if the partner withdraws, is expelled, or becomes bankrupt before the end of the term. Partners who wrongfully dissociate are liable to the partnership for any damages caused.

At will partnership

One where partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking, the default form of ships.

Term partnerships

where the partners have agreed, explicitly, implicitly, to remain partners for a definite term or until the completion of a particular undertaking

Property distribution after dissolution

First the partnership must pay all creditors, then repay all capital contributions paid into the partnership by the partners, and lastly, distribute profits or losses if any among the partners.