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Partnerships Cheat Sheet by

Partnerships
law

Forming a Partne­rship

Defintion
An associ­ation of two or more legal persons who carry on a for profit business as co-owners.
Person
Anyone or anything that has a legal capacity to contract
Intent
Only need to intend to carry on as co-owners for profit
Co-own­ership
Presum­ption that people who share profits are partners
Sharing control
One person cannot have all of the control

Conseq­uences of Forming a Partne­rship

Separate Legal Entity
partne­rship is distinct from each of the partners
Partne­rship Liability
Partners are personally liable for the partne­rships obliga­tions
Entity­-level taxation
Does not exist in a partne­rship
Partne­rship agreement
Law of partne­rship; does not need to be written, provision in a partne­rship agreement will typically govern over state law
Mandatory State Laws
Liability to third parties; cannot deny partners access to the books or records, cannot eliminate fiduciary duties

Internal Affairs

Fiduciary Duties
Every partner owes duty of loyalty and care
Duty of Loyalty
Partners must not compete with partne­rship business, advance an interest adverse to partne­rship, usurp a partne­rship opport­unity, etc
Limitation on Duty of Loyalty
cannot eliminate but can limit as long as not manifestly unreas­onable
Safe Harbor
If a partner makes full disclosure of all material facts, then a certain percentage of the other partners may authorize or ratify the transa­ction
Duty of Care
Partne­rsmust not engage in grossly negligent or reckless conduct, engage in intent­ional miscon­duct, engage in a knowing violation of the law
Timing of Duties
Duty of loyalty and care apply only to partners, not prospe­ctive partners or former partners
 

Profits and Losses

Division
Dictated by the agreement. Losses and profits need not be the same. If no agreement, profits divided evenly and losses follow profits
Distri­bution
Default- patterns do not have the right to demand distri­but­ions. Can allow in partne­rship agreement
Transfer of Partne­rship Interests
Default- partner sold not have a right to transfer interest. Partners may agree to require a majority vote. In past, conveying interest would dissolve partne­rship
New Partner
Default- All existing partners must consent to the new partner

Managing/ Governing Relati­onships

Default Rule
Every partner has an equal rights in management and control of the partne­rship. Can be changed by agreement (often to reflect capital contri­bution)
Ordinary Business Matters
Requires vote of the majority of partners
Extrao­rdinary Business
Requires vote of all the partners
Quorums
No default rule regarding parter­nship quorums for partne­rship voting
Access to the Records
Partners and agents must be provided access to the records; CANNOT be abridged by partne­rship agreement

Dissoc­iation

Dissoc­iation
when a partner ceases to be associated with the partne­rship
Voluntary
Partner may give notice to the partne­rship that the partner wants to withdraw
Involu­ntary
Event triggered in the partne­rship agreement; expelled pursuant to partne­rship agreement; unlawful to carry on business with that partner; court order; partner goes bankrupt; partner dies; partner becomes incapa­cit­ated; one of the entities in the partne­rship dissolves
Conseq­uences
Partne­rship does not necess­arily dissolve; former partner has no right to partic­ipate in management and no longer has duties; if partne­rship continues must buy out the dissoc­iated partner's interest
Wrongful Dissoc­iation
the wrongfully dissoc­iated partner may not be entitled to payment of the buyout price until the expiration of the term or completion of the undert­aking of the partne­rship. Because the partner will also be liable for damages caused by the wrongful dissoc­iation, if the partner’s liability meets or exceeds the buyout value, the partner may not be entitled to receive any buyout price.
 

Liabil­ities of Partne­rship

Agency
Every partner is an agent of the partne­rship
Contract Liability
Partners need authority
Express Authority
comes from the partne­rship agreement, statement of authority filing, or ad hoc author­ization by the partners at a meeting
Implied Authority
Exists based on partner's reasonable belief that an action is necessary to carry out express authority
Apparent Authority
Partne­rship may be bound based on the partner acting in the ordinary course of dealings; based on intera­ctions between partne­rship and third-­parties
Tort Liability
A partne­rship is liable for torts that are committed by partners acting within the scope of their partne­rship
Conseq­uences of the Flow of Liability
Partners are personally liable for the debts or obliga­tions of the partne­rship; joint and several liability; partne­rship creditor must exhaust the partne­rship's funds before going after the partners' personal assets; incoming partner not liable for prior obliga­tions; outgoing partner may be liable for obligation that occurred after dissoc­iation

Termin­ating a Partne­rship

Dissol­ution
Can be brought around by partne­rship or operation of law; triggered by the occurrence of an event
Partne­rship at Will
Open ended partne­rship with no fixed term tied to time period or undert­aking; generally, dissolved when a partner chooses to dissociate
Partne­rship for a Term of Undert­aking
Partne­rship may be dissolved when the term ends or when the undert­aking is completed
Three ways to dissolve partne­rship
Any dissolving event set forth in partne­rship agreement; any event making it unlawful to continue if not cured within 90 days; judicial determ­ination
Winding Up
dispose of and transfer partne­rship property, and discharge partne­rship liabil­ities; person can also preserve partne­rship business to maximize value as a going concern
Who may wind up
Any partner who has not wrongfully dissoc­iated, legal repres­ent­ative of the last surviving partner. May seek judicial superv­ision of winding up
Statement of Dissol­ution
Filing that gives notice to third parties that the partne­rship has been dissolved after 90 days. Limits the partners apparent authority and liability
Priority of Distri­bution
Creditors first and then partners

Limited Liability Partne­rships

Definition
Partne­rship in which a partner's personal liability is elimin­ated; must file with the state
Formation
To transforma a general partne­rship into an LLP, you must vote to authorize transf­orm­ation
Name
Must end with either: Registered Limited Liability Partne­rship (RLLP) or Limited Liability Partne­rship (LLP)
Liabil­ities
Limited partners are not personally liable; limited partners are personally respon­sible for their own personal misconduct or negligence
Termin­ating LLP Status
Partners can volunt­arily transform and cancel LLP status; government can revoke LLP status

Limited Partne­rships

Definition
A partne­rship formed by two or more persons that has at least one general partner and one limited partner
Limited partners
Have limited liability (unless serves as general partner or partic­ipates in partne­rship); may be admitted by agreement of all partners; default- don't vote; right to records
Things a limited partner can do without running business
Be an officer, director, or shareh­older; consult general partner or partne­rship affairs; act as surety of the partne­rship request to attend meetings; wind up the partne­rship; propose or approve of partne­rship matters
General Partners
Have personal liability; admitted upon consent of all partners; same rights as general partne­rship
Termin­ation of general partner status
volunt­arily withdr­awal; removal if tries to assign interest; goes bankrupt or becomes insolvent; death or incapa­cit­ation; busine­ss-­entity partner is terminated

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