Select Page

Business Associations
Rutgers University, Newark School of Law
Dennis, Donna I.

PARTNERSHIPS
·         Definition: Uniform Partnership Act of 1914 §(6)(1)
o   Elements (all must be met)::
i.      A partnership is an agreement to associate
1.      no contract required;
2.      voluntary;
3.      word partnership need not be in a contract
ii.      of two or more persons to carry on
iii.      a business
1.      must be business; not just an investment
a.       joint control (hardest element to prove)
iv.      in anticipation of  profit
1.      Anticipation of profit. Cannot be a non-profit.
v.      joint control and Profit sharing (as co-owners)
1.      inspecting the books, veto any business decisions, direction how to realize profits.
2.      profit sharing; no loss sharing;
o   Aggregate: partners have unlimited joint and several personal liability for the debts and obligations of the business. No taxes paid by partnership, but only at the personal level on the indiv partner’s share of partnership’s income.
o   Entity: capacity to sue or be sued. Partnership can own and convey title to property in its own name without all of the partner’s joining in the conveyance.

o   Fenwick v. Unemployment Compensation Commission: the “co-owners” element of joint control was not found when Fenwick decided to compensate Cheshire based on profits of the business, created a partnership contract with her, but retained all control and managerial duties to himself. Court errs in this case b/c it considers loss sharing as one of the elements.
o   Martin v. Peyton: Peyton’s agreement to loan some securities as a collateral for KNK to get $$ from the bank, in return from passively overseeing the business (inspecting books, being advised/consulted on important matters, ability to veto the business, but not being able to initiate the business) was deemed to be a loan and not a partnership.
·         Fiduciary Obligations of Partners:
o   Joint ventures own a highest degree of loyalty to their partners. Degree is even higher for managing c0-partners.
o   Usurping opportunities: partners can not usurp and take for themselves an opportunity arising from the joint venture
·         Meinhard v. Salmon: Gearry leased hotel to Salmon (20 yrs) who was also in partnership with Meinhard. Meinhard was a silent partner, while Salmon did all the work. When the lease expired, Salmon left Meinhard of a deal on the property for 80 years. Court ruled Meinhard was entitled to 49% of the new venture b/c there was a close nexus between the original venture and the oppty that was brought to Salmon and Salmon had fiduciary duty to tell Meinhard of this opportunity.
·         RUPA § 404 – So long as partnet is loyal to the P as a whole and does not sacrifice the other partner’s interest, he can make decisions that will benefit him only.
·         Property Interest of Partners:
o   Ownership: property in a partnership is owned by the partnership and not by the individual partners.
o   UPA: partner’s property rights in a P consist of rights in specific P property, an interest in the P, a right to participate in the management of the P and an ability to transfer the interest in the P.   
·         18e – all pa

the order made by the second partner (2 partners total). Upon dissolution of the business, the partner was held liable, b/c the order for bread was made in ordinary course of business. The objection was not enough to enjoin the other partner from ordering a delivery since it was 50% and not majority of total partnership votes.
o   Liability:
§ Partners are liable for the debts of the company.
§ Liability extended to personal assets.
·         Dissolution
o   Losses:
§ RUPA 401(b): each partner is entitled to equal share of the profits, and is charged with the share of the losses, in proportion to the profits.
§ General Rule: partners intend to share equally profits and losses, absent of the agreement to the contrary.
·         Exception: where one partner contributes $$ and the other contributes services, neither party is liable for the losses to the other. On a rationale that each party looses the value of its investment.
o   Kovacik v. Reed: Kovacik contributed $$ and Reed services to the kitchen remodeling business. On dissolution, Kovacik sued Reed for half the value of the investment. However, Reed was not entitled to pay any $$ to Kovacik, b/c there was no agreement to share losses, and he only put it services and no capital.
§ Exiting Partnership:
·         For partner to exit a partnership, a partner needs a unanimous consent of all the partners.