Management and Liability in Partnerships: Chapter 8 Overview

Management

Decision-making authority within a business firm.

Liability

Legal responsibility for obligations of the firm.

Egalitarian Default Rules

Equal rights for partners in management decisions.

Alternative Rules

Custom agreements among partners overriding default rules.

Partner's Power to Bind

Authority to create liabilities for other partners.

Agency Law

Legal principles governing relationships between agents and principals.

Statements of Authority

Declarations that define a partner's decision-making power.

Imputation of Notice

Legal principle that assigns knowledge to partners.

Limiting Authority

Partners can restrict each other's decision-making powers.

Incoming Partners' Liability

Limited to loss of contribution for existing obligations.

Joint and Several Liability

Shared liability among partners for obligations.

Ordinary Course of Business

Routine activities authorized by the partnership.

Exhaustion Rule

Creditors must pursue partnership assets first.

Partners' Property Rights

Distinction between partnership property and individual interests.

Transfer of Interest

Financial entitlement transfer without ownership change.

Foreclosure on Interest

Selling a partner's interest as a debt recovery option.

RUPA §401(h)

Governs equal rights in management for partners.

RUPA §401(k)

Majority vote required for ordinary business disputes.

RUPA §301

Individual partner's binding arrangements on the partnership.

Voting Systems

Mechanisms for decision-making based on partnership shares.

Governing Boards

Groups with managerial powers in larger partnerships.

Creditor Rights Enforcement

Challenges in asserting claims against partners' assets.

Partner's Power to Bind

Ability to create liabilities for all partners.

RUPA §301

Establishes partners' authority to bind firm.

Joint and Several Liability

All partners share liability for contracts made.

Restatement (Third) of Agency

Guides agent's authority in partnership agreements.

RUPA §302

Special rules for property transfers in partnerships.

Statements Under RUPA

Modify partners' powers as per §§303 and 304.

RUPA §303

Public statements system to clarify partnership authority.

Default Partnership Terms

Non-waivable terms listed in RUPA §105.

Authority to Transfer Property

Determines who can legally bind the firm.

Dissociation and Dissolution

Events affecting a partner's status in the firm.

Imputed Notice and Knowledge

Partner's knowledge attributed to the firm.

Admissions of a Partner

Partner's statements may bind the partnership.

RUPA §103(e)

Defines rules on notice and knowledge.

Public Recording System

Modeled after real estate transfer recording.

Northmon Investment Co. Case

Example of minority partners' binding authority dispute.

Effect of Properly Filed Statements

Resolves legal questions about partner authority.

Knowledge, Notice, Notification

Precisely defined terms in RUPA §103.

Sample Documents

Relevant documents for understanding partnership authority.

Majority vs. Minority Partners

Disputes arise over authority to act.

Firm's Only Asset

Critical asset status affecting partnership decisions.

RUPA Simplification Goal

Aims to reduce uncertainties from UPA.

Authority Limitations

Partner actions can be disapproved by others.

Unenforceable Lease

Lease deemed invalid despite ordinary business course.

Partner Authority

Partners can bind partnership in ordinary business transactions.

Equal Rights in Management

Partners have equal rights to manage partnership affairs.

Absolute Right to Interfere

Partners can prevent transactions with third parties.

Partnership Agreement Termination

Partnership agreement may specify termination date.

RUPA §303

Allows partners to limit authority for property transactions.

Statements of Authority

Documents detailing partners' specific powers and limitations.

Liability of Incoming Partners

New partners not liable for pre-admission obligations.

RUPA §306(b)

New partners shielded from past partnership debts.

Double Liability

New partner may face liability for outgoing partner's debts.

Capital Contribution

New partner's investment available to creditors.

Departing Partner's Liability

Outgoing partner remains liable unless released by creditors.

NATIONAL BISCUIT COMPANY v. STROUD

Case illustrating partner authority limitations.

Firm Obligations

Debts incurred by partnership during its existence.

Unanimous Approval for New Partners

Default requirement for admitting new partners.

Dexter's Authority

Sole authority to order vegetables in partnership.

Carlos's Authority

Sole authority to order fruit in partnership.

Temporary Illness

Carlos's condition affecting partnership operations.

Contract Recovery

Determines if third party can enforce contract.

Pre-Admission Creditors

Creditors can access new partner's capital contributions.

Firm's Ready Assets

Assets available to satisfy partnership obligations.

Partnership Profits

Share of earnings distributed among partners.

General Partner

A partner with authority to bind the partnership.

Uniform Partnership Act (UPA)

Regulates partnership operations and partner authority.

Revised Uniform Partnership Act (RUPA)

Updates UPA, clarifying partner rights and responsibilities.

Partnership Dissolution

Legal termination of a partnership agreement.

Ordinary Business Transactions

Routine activities conducted within partnership operations.

Authority to Act

Power of partners to make binding decisions.

Partnership Agreement

Document outlining terms and conditions of partnership.

Partnership Assets

Resources owned collectively by the partnership.

Public Notice of Dissolution

Announcement to inform third parties of partnership end.

Equal Rights in Management

All partners share equal authority in business decisions.

Power of Attorney

Legal authority granted to act on behalf of another.

Contracting Powers

Legal abilities of partners to enter agreements.

Third Party Transactions

Deals made with individuals outside the partnership.

Liability of Partners

Legal responsibility for partnership debts and obligations.

Majority Rule

Decisions made by majority consent of partners.

Nonpayment of Debt

Failure to settle financial obligations owed.

Partnership Interest

Ownership stake held by a partner in the business.

Breach of Partnership Duties

Failure to uphold responsibilities outlined in partnership.

Limited Partnership

Partnership with both general and limited partners.

Judicial Intervention

Court involvement in resolving partnership disputes.

Business Continuity

Ongoing operation of a business despite changes.

Legal Precedent

Previous court decisions influencing future cases.

Partnership Liability

Extent to which partners are responsible for debts.

Actual Authority

Authority granted by a partner to act.

Apparent Authority

Authority perceived by third parties based on actions.

Majority Rule

Decisions made by more than half of partners.

Partnership Agreement

Contract outlining roles and responsibilities of partners.

Disputed Question

A disagreement among partners regarding business actions.

Estoppel

Legal principle preventing denial of facts due to behavior.

Ratification

Approval of an act after it has occurred.

Unilateral Decision

Action taken by one partner without consent.

Partnership Funds

Money available for partnership expenses and operations.

Legitimate Partnership Expense

Valid costs incurred for partnership operations.

Third Party

An external individual involved in a partnership transaction.