* Lost limited partnership status if participated in Central Management. Not the case anymore.
** Disregarded Entity: single member (e.g. Joes’ trucking company). Cannot possess personal assets, only assets of the company.
A. Defining a General Partnership and the Sharing of Profits and Losses
· Unlike most other business orgs, a GP is not created by filing a public document pursuant to a statute. Instead, a GP arises when two or more person manifest an intention (whether by word or conduct or both) to associate as co-owners in a business for profit (this sentence is the main point of Byker v. Mannes).
· Some GPs have very detailed “partnership agreements”, while some have no written agreement at all.
· Default and Immutable Provisions
o Default- applies if nothing else does- basically exactly how it sounds: default. If they have no addressed the issue in a K, then the statute provides the answer. But if it is addressed in the K, then the statute is disregarded
o Immutable- the statutory prevision cannot be wiped out by a k. Even if the K addresses it it doesn’t matter, the statute still applies over it. Thus, that statute “cannot be muted.”
· Key Characteristics of a Partnership… A partnership is:
o An unincorporated business, intended to make a profit,
o That has two or more participants, who may be either individuals or entities
o Each of whom “brings something to the party”, such as efforts, ideas, money, property, or some combination
o Each of whom co-owns the business
o Each of whom has a right to co-manage the business, and
o Each of whom shares in the profits of the business
· For a partnership to exist, there must be a business relationship whose participants intend the kind of arrangement that the law calls a partnership. The participants must agree to that arrangement, either expressly or by their conduct. It is not necessary, however, that the participants intend or agree to the legal label of partnership. A partnership can exist EVEN THOUGHT THE PARTICIPANTS HAVE NO IDEA THAT THE LEGAL LABEL APPLIES TO THEM.
· The profit-sharing pre-requisite: For participants to be partners they must have the right to share in the business’s profits.
o It is not necessary that the business actually has profits, and profit sharing is not irrefutable evidence of partner status. However, the right to share whatever profits exist is a necessary precondition to being a partner.
o Sharing in revenues, but not profits, does not satisfy the profit sharing pre-requisite. (Revenues are what you bring in. Profit is Revenue-Cost=Profit).
· The role of loss sharing: Express agreements to share losses are very strong evidence of a partnership, but neither RUPA nor the UPA mentions loss sharing as a pre-requisite for the finding of a partnership.
· The Co-Ownership pre-requisite: basically what this means is that the two entrepreneurs co-own the assets of the business- that they share the two predominant characteristics of property ownership: the right to control use and disposition (of the assets of the business), and the right to benefit or suffer economically from the exercise of that right to control.
· The three types of Partnerships:
o 1. Partnership at Will: Each partner has the right to cause the partnership to come to an end, at any time and without having to state or have cause
o 2. Partnership for a term: The partnership comes to an end at the end of the time period specified in the partner’s agreement
o 3. Partnership for a particular undertaking: The partnership ends when the particular task or goal specified in the partnership agreement has been accomplished.
· Joint Ventures: This is confusing, but a jv is distinguished form a partnership by having a more narrow scope than a partnership formed to conduct an ongoing business. In most states, joint ventures are analogized to partnerships and therefore governed by partnership law.
· Liability for losses: THE GENERAL RULE IS THAT ALL PARTNERS ARE PERSONALLY LIABLE FOR ALL DEBTS AND OTHER OBLIGATIONS OF THE PARTNERSHIP. THE LIABILITY RESULTS MERELY FROM THE STATUS OF PARTNER AND IS AUTOMATIC AND STRICT AND APPLIES REGARDLESS OF WHETHER A PARTICULAR PARTNER PARTICIPATES IN OR APPROVES THE CONDUCT THAT CREATES THE OBLIGATION. Today, partners can avoid this risk by causing their general partnership to be a limited liability partnership
· The disputes and problems that arise over partnerships usually center around that fact that the partners are personally liable for the debts of the partnership or the fact that the partners share profits with each other.
· THE PIVOTAL QUESTIONS TO DECIDE IN ORDER TO DETERMINE IF THERE IS A PARTNERSHIP OR NOT GREAT CHART OF THIS ON 237:
o 1. Control: Co-management is key. The more an alleged partner participates in management decisions or exercises control over the business, the more likely finding is that of a partnership.
o 2. Agreements to share losses- these are strong evidence of a partnership
o 3. Contributions of Property to the business- a contribution of property is not a perquisite to finding of partnership, and many partners bring only their skills, talents, and labor. However, this is still an important thing that courts look at.
o 4. The extent to which profit share constitutes the recipient’s only remuneration from the business: If he only receives profit, and no wages or anything, the fact favors the partnership characterization. If, in contrast, the profit share is just a bit of “icing” on top of some other payments, courts are more inclined toward one of the protected categories.
o 5. The Parties Own characterizat
y other act which would make it impossible to carry on the partnership’s ordinary business, confessing a judgment against the partnership, or submitting a claim by or against the partnership to arbitration must have unanimous consent and adding a new partner, under the RUPA only adding a new partner or an act outside the ordinary course of business (basically substantial changes to the business) of a partnership and amendment to the partnership agreement requires it).
ú In a management deadlock where no majority can be reached, the party who is moving for the change loses under the UPA and RUPA since a majority is required for the change. Since it is not a majority but rather a tie then they lose and there is no change.
o ” ” to veto certain decisions
· The Duty of Loyalty- “Copartners owe to one another, while the enterprise continues, the duty of the finest loyalty…not honor alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.” Judge Cardozo- Meinhard v. Salmon.
o Cardozo’s language instructs courts to approach partner selfishness with a critical eye.
o These duties can be divided into 2 distinct categories: Partner v. Partnership duty of loyalty in which selfishness is not allowed without the partners consent, and the partner v. partner issues which are less clear and less stringent.
§ Partner v. Partnership Duty of Loyalty- In general, a partner may not profit at the expense- either direct or indirect- of the partnership. In particular, without the consent of fellow partners, a partner is prohibited from:
ú Competing with the partnership
ú Taking business opportunities from which the partnership might have benefited or that the partnership might have needed;
ú Using partnership property for personal gain
ú Engaging in conflict of interest transactions
ú Additional information expanding on these areas can be found on 288
Obligation of Good Faith and Fair Dealing: “A partner shall discharge the duties to the partnership and the other partners under this Act or under the partnership agreement and exercise and rights consistently with the obligation of good faith and fair dealing.”ß RUPA. This language is not a fiduciary duty but warrants mention BECAUSE IT MAY SERVE TO
