Business Organizations Outline

BIZ ORG OUTLINE

PART 1: PARTNERSHIPS

§ Definition: An assn of 2 or more persons to carry on as co-owners a business for
profit—whether or not they intend for it to be PS–RUPA §201(b)

§ Kinds of Partnerships:
o General PS: (see def. above—RUPA 101)—intent is all that matters
o Limited PS: You must file paperwork
§ General partner controls the business and is personally liable /w fiduciary responsibilities.
§ Limited partner provides capital and gets a share of the profit w/out incurring personal liability besides his contribution.
o Limited Liability PS: A PS that has filed a statement of qualification and does not have similar statement in effect in any other jurisdiction (UPA 101(5))

§ Formation
o When to form PS
§ You need more money; to share in financial risk
§ If your cost of equity is less than the cost of the profit then you should join a PS
o Presumption of PS when a person receives a share of profits, unless profits were received as payment for: (RUPA 202(c)(3))
o RUPA § 202: whether a PS exists is a Q of law. Intent is irrelevant, facts are everything.
§ Receipt by a person of a share of business profits is prima facia evidence that they are a partner (creates presumption)
o Holmes v Lerner
· Rich person had $ and other had ideas to start retro finger nail polish co
· The one w/ the idea didn’t contribute the $ but worked a lot for the co and didn’t get pd for it
· Rich person did squeeze out and issue became whether this was PS and ct held that it was b/c it had the attributes of one
o Entity v. Aggregate theory
§ Entity: RUPA 201: advocated the entity theory saying that a PS is an entity distinct from its partners. This is important b/c it means that the PS can still go on if it loses a partner.
§ Aggregate: UPA abides by the aggregate theory that the PS and the partners are one.
o RUPA 103: The RUPA rules for PS are default rules that apply if the parties don’t agree on certain terms in the PS agreement. Things that the PS agreement may not do:
o Distribution and Indemnification: Unless an agreement otherwise, all partners share profits and losses equally
§ Kovacik: One P supplied labor the other $. It was found that D should not share in the $ loss b/c he never agreed to kick in any $. Ct looked to the intent of the parties since there wasn’t an express agreement.
§ This was a departure from the general rule

o RUPA 306: Since PS is entity, Ps are jointly and severally liable
§ A new partner is liable for preexisting PS obligations, using PS property—not personally liable above the amount contributed
§ UPA says that you’re responsible for obligations before and during
o RUPA 401(c): UOA, all partners are entitled to contribution for payments and liabilities incurred in the ordinary course of business.
o RUPA 401(h): If partner expects supplementary comp for extra work, he better get agreement for majority

§ Management:
o RUPA 301: Every partner is an agent of the PS for the purpose of its business & their action in apparently carrying on in an ordinary way of the business of the PS binds the PS, unless;
§ He has no real authority to act AND the 3rd party knew he had no such authority (broad apparent authority)
§ An act not in apparently carrying on in the usual way the business of the PS is not binding, unless authorized by all of the other parties (real authority)
o Factors to see if apparently carrying on in an ordinary way the business of the PS
§ Express agreements between the partners
§ Actual course of PS business
§ Similar business custom or practice in that locality
o RUPA 305: PS is bound by admissions or representations (even if fraudulent) by another partner w/in his scope of authority & it concerns the PS affairs
o RUPA 401: Each partner has equal rts in mgmt and conduct of the PS business.
§ Acts in contravention of any agreement between the parties or an amendment to the PS agreement need unanimous consent.
§ This is b/c it is not an ordinary matter of the business.
§ Ordinary matters just need majority vote
o How long do PS last
§ At Will: creditor can foreclose on a partner’s interest and under §32 petition the ct for an order of dissolution—forcing the business to liquidate
§ For a term: Foreclosure and dissolution must wait until the term is over or the businesses specific purpose is accomplished

§ Fiduciary Duties:
o RUPA 404: Partners have a duty of l