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Business Organizations
Rutgers University, Camden School of Law
Sablove, Herb

Chapter 2: Partnerships
 
Introduction
Traditional Noncorporate Business Associations
a.       The General Partnership
b.      Joint Ventures
c.       The Limited Partnership
Emergence of Additional Limited Liability Entities as the Norm
a.       Impetus for New Forms
b.      The Limited Liability Company
c.       The Limited Liability Partnership
Determining the Legal Nature of the Relationship
Sharing Profits and Losses
The Partner as Fiduciary
The Common Law Duty of Loyalty
Self-Dealing
Fiduciary Duty and Management of the Partnership’s Business and Affairs
Contracting for Absolute Discretion
The Duty of Care
Dissolution and Dissociation
The Basic Framework
Wrongful Dissociation
Fiduciary Limits on Dissolution “At-Will”
Fiduciary Limits on Expulsion of Unwanted Partners
Contracting to Prevent Opportunistic Withdrawal: The Fiduciary Duties Owed by Withdrawing Partners
 
INTRODUCTION
Traditional Noncorporate Business Associations
 
THE GENERAL PARTNERSHIP
UPA (1997) §§103, 202, 301, 306, 401, 601, 801
 
Formation of general partnership:
–         requires no written agreement or governmental action
–         all that is required is a statutorily specified mutual manifestation of consent
–         it is the association of two or more persons to carry on as co-owners a business for profit creates a partnership
–         each partner participates in all aspects of the business and has substantial confidence in the trustworthiness and skill of fellow partners.
Equal Sharing of Ownership and Management Functions:
–         Each partner is a residual claimant (ultimate risk-bearer), has a full and equal right to participate in management of the firm, and has an equal right to act as an agent of the partnership
–         Each partner also has an equal share of profits and an equal responsibility for losses
Individual Partner’s Adaptability to Changed Circumstances Favored Over Firm’s Continuity and Adaptability:
–         if the partnership wishes to terminate its association with a partner, it may do so only by dissolving the partnership and paying the expelled partner the value of her interest in cashà lack of stability and continuity
–         Ordinary decisions may be made by majority vote of the partners. Extraordinary decisions and changes require unanimity
Unlimited Personal Liability:
–         all partners are jointly and severally liable for all obligations of the partnership and there is no limit on this potential personal liability
–         the misconduct of one partner could result in financial ruin for fellow partners.
Fiduciary Duty:
–         each partner owes a fiduciary duty to other partners
Characteristics:
–         ownership, remuneration, and management
o       ownership: investment in the firm, ownership of firm assets and liability for firm debts and obligations
o       remuneration: whether the individual’s compensation is based on the firm’s profits.
o       Management: the right to engage in policy-making, voting power, firm governance, ability to assign work and to direct activities of the employees.
 
joint ventures
Joint venture vs. General Partnership:
–         general partnership: associates carry on a business as co-owners
–         associates join to exploit a particul

mited Liability:
–         they are not personally liable for the limited partnership’s obligations
–         whereas general partners are jointly an severally liable for the firm’s obligations
Firm’s Continuity and Adaptability to Changed Circumstances Favored Over individual’s Adaptability:
–         Limited partners may not withdraw from the partnership at will (unlike GPs)
–         Withdrawal from the partnership does not automatically or necessarily trigger dissolution or liquidation of the limited partnership
 
EMERGENCE OF ADDITIONAL LIMITED LIABILITY ENTITIES AS THE NORM
The Limited Liability Partnership (LLLP)
UPA §306
–         LLP is governed by general partnership law in all respects except for special liability and distribution provisions defined by statute.
 
Determining the Legal Nature of the Relationship
UPA (1997)§202,
Byker v Mannes
–         in ascertaining the existence of a partnership, the proper focus is on whether the parties intended to, an if fact did “carry on as co-owners a business for profit” and not on whether the parties subjectively intended to form a partnership
 
Hynansky v Vietri
–         an unambiguous agreement to form a general partnership by itself does not establish as a matter of law that the parties to that agreement have formed a general partnership