Business Organizations – Hamill Fall 2011
General Partnership (GP)
Formation of a GP
· Formation requires no written agreement, or governmental action all that is required is a mutual manifestation of intent
Byker v. Mannes
· Parties created several businesses together, after one went sour a partner stopped contributing and refused to do so
· RULE: Formation of GP = subjective intent to carry on as co-owners of a business for profit. Whether the parties intend to form a partnership is irrelevant
AL RUPA §202
· Standard for GP formation is worded like in Byker
Hynansky v. Vietri
· Parties entered into a “partnership agreement” on partner said there was no intent to and did not believe he entered one
· Existence of a ”partnership agreement” does not necessarily mean there is a partnership. The subjective intent test is to be used
· The Law and Economics (L&E) approach shows great deference to partnership agreements and if they say you are GP you are a GP
RUPA 201
· A partnership is an entity separate from its partners
RUPA 306(a)
· Partners are jointly and severally liable for one another
RUPA 202(3)
· A person receiving a share of profits is presumed to be a partner
RUPA 203
· Property acquired by the partnership is property of the partnership and not the partners individually
RUPA 204
· Property is partnership property when:
o Its acquired in the name of the partnership, or
o By one or more of the partners with an indication in the instrument transferring title that the partnership exists
RUPA 306(b)
· Partners are J&S liable, but a person admitted as a partner into an existing partnership is not liable for any partnership obligation incurred before the person’s admission as a partner
Sharing profits and loses of GP
· Shamloo v. Ladd
o GP one gave capital contribution the other gave sweat equity
o RULE: under default rules and absent an agreement, a sweat equity partner will be compensated in no way other than profits, so if no profits the sweat equity was all for free
· Kovacik v. Reed
o GP one gave capital other gave sweat equity, sued for lose
o Did not follow default rule in RUPA 401 (Shamloo) court created an exception when one partner contributes nothing but sweat equity, he will not have to share loses with other party
o ALRUPA 401 does not follow Kovacik this is a fairness approach
RUPA 401(a) capital accounts
· Only the net value of property is credited to capital accounts. Property can include intellectual property, such as trade secret of trade mark
o 1) Positive capital accounts. Each partner credited with an 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 partner’s share of the partnership profits
o 2) Charging the capital accounts. Each partner’s capital account is charged by an amount equal to the money plus the value of any property, net of liabilities, transferred by the partnership to the partners and the partners share of the partnerships losses. A partner’s account shall not be charged with debts for which he is not personally liable unless the debt is satisfied out of partnership assets
RUPA 401(b)
· Each partner is entitled to an equal share of profits. Each partner is chargeable with a share of partnership losses in proportion to the partners profit share
Hamill’s approach to splitting profits and loses
· Determine how profits will be allocated. Negotiate a profit split and put in writing
· Determine how losses will be allocated. Negotiate and put in writing
· Determine how capital will be allocated. Especially if one partner is only contributing sweat equity
Agency in GP
· Community counseling v. Reilly
o D was salesman for P and decided to quit and was soliciting while still employed. (Church fundraiser)
o An agent owes a duty of loyalty to his principle. An employee may not solicit business for himself which he is supposed to for his employer
· Hamburger v. Hamburger
o Family feud in business D left to start own business, made logistics arrangements while still employed
o Duty of loyalty owed b
Square I limited partnership
o A partner has a duty to disclose material facts without being asked and to disclose any facts related to the partnership upon request of another party RUPA 403(c)
· Vigneau v. Storch Engineers
o Self-dealing case getting cheaper work from P
o A disloyal partner is entitled to reimbursement for his vested interest or capital contributions notwithstanding self dealing
o = shares – expense cause – secret profits
· Covalt v. High
o Partner left and other charged higher rent to their other GP
o Its not a breach of a partners duty of loyalty when he disagrees with another partner
o Court takes L&E approach to the duty of loyalty – partner knew potential for this going into the GP so no adding terms to the contract
· Starr v Fordham
o Partner was not given % of profits as expected in law firm and was given less than he had earned
o Partnership agreement cannot contract around the duty of loyalty
o Unfair determination of partners shares is a breach of fiduciary duty and covenant of goof faith and fair dealing
o RUPA 104(3)(b) now addresses this issue
· RUPA 103(b) – The duty of loyalty is immutable. However partnership agreements may identify types or categories of behavior that do not violate the duty of loyalty
· RUPA 403 – partnerships may maintain books and records and must keep partners informed
· RUPA 404 – the only fiduciary duties owed by partners to partners are the duty of loyalty and care
o b) Duty of loyalty: Partners must account to the partnership and hold partnership property as a trustee. Partners must refrain from self-dealing. Partners must refrain from competing with partnership
