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Business Entities
Stetson University School of Law
Furlow, Clark

Business Entities – Furlow – Spring 2011
I.  PARTNERSHIPS –
Florida Revised Uniform Partnership Agreement – FRUPA
  I.            PARTNERSHIPS – THE NATURE OF THE RELATIONSHIP
                  A.            What is a General Partnership? (8202)
                                    1.            Voluntary Association of 2 or more persons
                                    2.            to carry on as co-owners
                                    3.            In a business for profit
                                    4.            Whether intentional or not….(8202) – consensual, but can be stumbled into.
NO written agreement OR governmental action required
Just a mutual manifestation of consent; can be words (written or spoken) or by deeds that demonstrate
                                    5.            All states, except LA, base laws on Uniform Partnership Act (UPA)
Partnership is governed by a Partnership Agreement (P.A.) (if there is one), anything not addressed – default in Florida is FRUPA.
RUPA has two kinds of rules; mandatory and default (only apply when partners haven’t agree to their own set of rules)
So Law of P’ship goes: Mandatory RUPA rules > P.Agreement created default rules (as long as not in conflict with Mandatory) >  Common Law (to “plug the gaps”)
                                 6.               A Partnership is an entity distinct from its partners (8201)
               B.            Per RUPA – The P.A. may not:
Unreasonably restrict rights to books and records
Eliminate duty of loyalty (may modify though)
Unreasonably reduce the duty of care
Eliminate GFFD
vary power to dissociate as a partner (but notice must still be in writing)
vary power of court to expel a partner under events in 8601(5)
vary requirement to wind up business in cases 8801(4), (5),(6)
Restrict rights of 3rd parties
E.   Why do we care if it is a partnership or not?
                                    1.            Bc if it is, all of the default rules of RUPA come into play
F.  If in doubt, How to Determine if it is a Partnership (an owner is always a partner)
                                    1.            Intent –
“to carry on as co-owners a business for profit” (Byker – “Super-partnership)
A P.A. alone might not be enough to prove – (Hynansky-D signed a P’ship agreement but didn’t intend it to begin until zoning.  P made decisions & used money w/o D’s approval >P sum judge denied)
                                    2.            Co-ownership of real property, assets,  is often an issue –
                                                      a.            JT, TIC, TBE, by themselves are not enough, standing alone, to create a Partnership. (202p3)
                                                      b.            But it can be a factor in determining if there is a Partnership.
                                                       c.            Alternatively, co-owners may own NOTHING tangible (just a idea) and still be in P’ship.  Or one owns tractor and one owns tiller – yet they share equipment/assets/talents
                                    2.            Sharing profit (8202) – creates a presumption of Partnership – agreed to share the losses.   One “thinks like an owner”  – (not Gross returns)
                                    3.            Sharing revenue – creates a factor but not presumption – agreed to share money made
                                                      a.            Distinction between revenue and profit (8202p3) –
                                                                          i.            Revenue: you may just be a commission salesman, no incentive to hold down expenses.
                                                                        ii.            Profit – you will try to hold down expenses – you will think like an owner
                                    4.            Course of conduct and what the partners call themselves
                                    5.            Control is an issue – supports conclusion you are an owner
                                    5.            Contributions- Also supports/indicative of Partnership. May be just skill, labor
                                    6.             if you sign Partnership agreement, w/o intending to make it a Partnership yet, you are showing you are voluntarily associating.  Business is for profit always
                                    7.            What is the result if it is a partnership? – the default RUPA rules apply.
II.             AGENCY and LIABILITY OF PARTNERS (Article 3 – 8301) (Agency Not on Exam???)
                  A.            AGENCY: In dealings w/3rd parties, every partner is an agent of the Partnership (8301)
                                      i.            CONTRACTUAL LIABILITY:  Tf, when a partner engages in bus that is related to Partnership, the partner is acting with apparent Partnership authority.
                                    1.        Means that Partnership will be bound by that conduct – ex: K is binding even if Partnership hasn't authorized.  (policy – protect the 3rd party)
                                    ii.            TORT LIABILITY: Bc every partner is an agent, a wrongful act or omission will impose liability on Partnership – 8305 (ex: partner runs over P, while engaged in Partnership business, has created tort liability to Partnership). 8305
                                  iii.            JOINT & SEVERAL LIABILITY:  Why do we care? All partners become J&S liable for obligations of partnership – 8306 – K obligations and tort obligations.
                                   iv.            TIMING OF PARTNERSHIP:  A person who is a partner at time obligation occurred, is liable for that – BUT a person admitted into Partnership AFTER is not – 8306p2
                  B.            SUING & GETTING SUED:
                                      i.            Partnership is an entity on its own tf may be sued in the name of partnership- 8307p1
                                                      1.            Bc it is an entity, it exists separate and apart from the partners – a judgment against the Partnership does NOT constitute by itself a judgment against partners & their personal assets – 8307.
                                    ii.            Rather, if you want judgment against partners, you must sue (can be in same action as suing Partnership) (or separate action).
                       iii.        Why do we care? Bc liability is only important when P begins to collect – levy an execution on the judgment 8307
                                                      1.            First, you get judgment against Partnership,
                                                      2.            Then, if not satisfied, you get judgment against partner,
                                                                        a.            You can't execute against partner, until Partnership has shown it is incapable of responding to judgment.  8307(4)   Only then can you execute against a Partner.
                                                                        b.            While J&S liable, they are only vulnerable to collection in their role as guarantors of the Partnership.
 
III.            PROFITS AND LOSSES:
A.      ACCOUNT:  Each partner is deemed to have an account – with plusses and minuses. Uses the word “deemed” bc there may not actually be an account…(think of partner who only puts up his skill or his tractor).
                                      i.            Credited with amount equal to the money plus the value of any property, net of the amount of any liabilities, the partner contributes to the partnership, and the partner’s share of the partnership profits; and  8401p1
                                  iii.            Charged with amount equal to the money plus the value of any other property, net of the amount of liabilities, distributed by the partnership to the partner and the partner’s share of the partnership losses.  This account is sort of economic foundation of Partnership. The return on investment is your equity in Partnership.
                                   iv.            INITIAL CONTRIBUTION: 
                                                      1.            Your contribution is not debt – so does NOT draw interest.
                                                      2.            If you contribute in excess of agreed amount – that is a loan and will get interest 8401p4
B.      PROFIT AND LOSS SHARING – Rules for sharing P&L
                                      i.            PROFIT:  Partners share profits equally 8401
                                    ii.            LOSS:  Partners share losses – in proportion to way you share profits 8401p2
                                  iii.            Reimbursement – for payments made, and for advancements beyond the  amount of capital the partner agreed to contribute
                

         Intentional Misconduct or
                                   iv.            Knowing violation of the law
                                                      1.            Seldom results in damages.
                                                      2.            You must discharge partners obligations and exercise any rights consisting with notion of GFFD.
c.  ACTION BY PARTNER
a partner may maintain an action against a partner for breach of PA, or violation of a duty, causing harm to the partnership.
he may acquire legal or equitable relief
enforce his rights under the PA
enforce his rights under FRUPA
have partner’s interest purchased pursuant to 8701 or
compel dissolution under 8801
V.            DISSOCIATION AND DISSOLUTION –
                  a.            DISSOCIATION
                                      i.            CATEGORIES:  In FRUPA 10 events of Dissociations and these can be divided into 4 categories:
                                     1.        I quit, retire, sick, withdraw – voluntarily
                                     2.        Partner leaves because of occurrence of event defined in Partnership Agreement. Ex; Retire at 70 and it is in PA that is forced retirement – this is an event.
                                     3.        Expulsion – you are kicked out
pursuant to PA
unanimous vote by other partners if: unlawful to carry on with P, P’s interest in P’ship transferred, court order
                                     4.        You are disqualified from being in Partnership.
These are Furlow's categories.
                                    ii.            More detail on above:
                                                      1.            Category 1 –
                                                                        a.            Effective when partner gives notice to partnership 8601 – just saying “I withdraw” expresses will to leave
                                                                        b.            Partner always has power to withdraw
                                                                         c.            Real Question is whether he has a right to withdraw under the circumstances
                                                                        d.            What is the effect of the withdrawal?  To answer-must divide into two categories: at will or term/task partnership
                                                                                            i.At will – mandatory dissolution! Immediately! – doesn't mean Partnership goes out of business, begins to wind up but other partners and withdraw partner can agree to continue. Must be unanimous.
may result in buy out (right to accounting & FMV) or
may dissolve and go to sale
non-wrongful dis.partner has right to force a sale of assets.
can be avoided by prohibiting in P.A.
                                                                                          ii.Term/task –
                                                                                                            1.      Rightful (and not wrongful) – Partnership continues and you buy out
                                                                                                            2.      Wrongful – 90 day decision making period and remaining partners decide whether or not to continue
Expulsion = If P.A. says so or RUPA gives partners right to unanimous vote to expel, or when judge kicks himout
Early withdrawal from term/task? 8601 –