#11693 - Introduction To The Law Of Partnerships - Business Association (Duke Cox)

Formalities: a partnership can be formed without filings (partnership at will)

RUPA § 101(6): A partnership is an association of two or more persons to carry on as co-owners a business for profit formed under Section 202, predecessor law, or comparable law of another jurisdiction.

1. Own implies control

Alternatives to RUPA- the four element test: where there is no express partnership agreement, four elements must be present:

1. An agreement to share profit

2. An agreement to share losses

3. A mutual right of control

4. A community of interest in the venture

RUPA § 203: All property acquired by the partnership is owned by the partnership, not by the partners individually.

RUPA § 103

1. (a) Except as otherwise provided in (b), inter-partner and intra-partnership relations are governed by partnership agreement. To the extent that the partnership agreement does not otherwise provide, this Act sets default rules for intra-partnership relations.

2. (b) Partnership agreement cannot vary certain rights, including:

   1. Eliminating duty of loyalty and duty of care. (can modify).

   2. Restricting rights of third parties under this Act.

RUPA § 401(f): (By default) Each partner has equal rights in the management and conduct of the partnership business (regardless of ownership interest).

1. If no agreement says otherwise

RUPA § 401(i): A person may become a partner only with the consent of all of the partners.

RUPA § 401(j): (By default)

1. Issue in ordinary course of business need majority of the partners.

2. Issue outside ordinary course of business need consent of all partners (unanimity)

3. An amendment to the partnership agreement need consent of all partners (unanimity)

   1. BUT NOTE: question is how to differentiate what is in the ordinary course, what is not.

   2. Vote counts: the number of partners, not to shares of partnership interest

RUPA § 404(e):

1. A partner does not violate a duty or obligation under this Act or under the partnership agreement merely because the partner’s conduct furthers the partner’s own interest.

   1. Sanchez v. Saylor. A partner does not violate a duty or obligation to the partnership/other partners merely by acting in his own interest, even when that action runs against the interests of the partnership.

   2. But Page v. Page says you can’t act in own self-interest if it contravenes interest of 3P.

2. This rule is radically different in the corporate context, where directors/officers are restricted from acting in a manner that harms the corporation

RUPA § 403: Partner’s Rights and Duties with Respect to Information

1. Partnership shall keep books and records at executive office

2. Partnership shall provide partners, agents, and attorneys access to books and records

   1. Must furnish past partners records pertaining to their period of membership

   2. Partners have right to inspection and copy during normal business hours

   3. Can charge reasonable fee

RUPA § 301: Partners are agents of the partnership

1. Actions of the partners in the ordinary course of business are binding on the partnership unless the partner had no authority to act and the person with whom the partner interacted knew or had notification that the partner lacked authority

   1. Actual knowledge or notice needed

2. Apparent authority—partnership is bound by an act of the partner for apparently carrying on in the usual way (i) the partnership business or (ii) business of the kind carried on by the partnership

RUPA § 303: enables a partnership to file a “Statement of Partnership Authority”

1. (a) Partnership may file a statement of partnership authority that

   1. Must include, among other things, the names of partners authorized to transfer real property for the partnership

   2. May state the authority or limitations on authority of some or all of the partners on any matter

2. (d)(1) Grant of authority in statement is conclusive in favor of third parties, even if they have no actual knowledge of the Statement

3. (e), (f) Limitation of partner’s authority—other than limitation on authority to transfer real property—is not effective unless third party knows of limitation or the statement has been delivered to him

RUPA § 305: Partnership Liable for Partner’s Actionable Conduct

1. Partnerships are liable for loss or injury cased as a result of a wrongful act or omission or other actionable conduct of a partner acting in the ordinary course of business or with authority of the partnership

RUPA § 306: “[A]ll partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed . . .”

1. 306(b): A person admitted into an existing partnership is not personally liable for partnership obligations incurred before the person’s admission

2. 306(c): Obligations incurred while the partnership is an LLP is solely the obligation of the partnership

A partner commits a tort and there is a claim against the partnership all partners could potentially lose everything

1. We make partners responsible for each other’s liabilities because they are co-owners.

Income partner at a law firm is not a partner for legal purposes. No personal liability. Davis v. Loftus

Partnerships are a contractual arrangement between the partners, who are co-owners, and no one can enter without consent of all other parties (RUPA § 401(i))

RUPA § 203: “Property acquired by a partnership is property of the partnership and not of the partners individually.”

RUPA § 501: “A partner is not a co-owner of partnership property and has no interest in partnership property which can be transferred, either voluntarily or involuntarily.”

1. Cannot transfer interest.

Example, A, B and C form a partnership. B owes money to Creditor. Creditor cannot go after partnership property, because property is not of the individual partners. However, Creditor can get a charging order to have the right to distributions that the partnership may make to B.

Dissociation

1. RUPA § 601: DISSOCIATION occurs upon any of the following events:

   1. (1) “I quit”

   2. (2): an event agreed to in the partnership agreement as causing the partner’s dissociation

   3. (3): partner’s expulsion pursuant to the partnership agreement

   4. (6) bankruptcy of a partner

   5. (7) death of a partner

   6. DISSOCIATION under § 601 has TWO POSSIBLE OUTCOMES:

      1. DISSOLUTION and WIND UP (Chapter 8)

      2. BUY OUT (Chapter 7): § 701 Any dissociation not resulting in dissolution and wind up under § 801 is subject to § 701 buyout.

2. 602: Partner can dissociate at any time

   1. (b) dissociation can be wrongful if it is a breach of the partnership agreement, or it is before the expiration of the term (if term partnership)

   2. (c) Partner who wrongfully dissociates is liable to the partnership and other partners

Dissolution and wind up

1. RUPA § 801: A partnership is DISSOLVED, and its business MUST BE WOUND UP, only upon the occurrence of any of the following events:

   1. (1) PARTNERSHIP AT WILL: saying I QUIT will force DISSOLUTION/WIND UP/LIQUIDATION

   2. (2) in a partnership for a definite term or particular undertaking:

      1. (i) within 90 days after a partner’s dissociation by death or otherwise under 601(6) through (10) or wrongful dissociation under 602(b), the express will of at least half of the remaining partners to wind up the partnership business, for which purpose a partner’s rightful dissociation pursuant to Section 602(b)(2)(i) constitutes the expression of that partner’s will to wind up the partnership business;

      2. (ii) the express will of all of the partners to wind up; or

      3. (iii) the expiration of the term or the completion of the undertaking

   3. (3) Event agreed to in partnership agreement

2. § 802(a): Partnership continues after dissolution only for purpose of winding up. Partnership terminated after winding up.

3. § 803(a): After dissolution, a partner that hasn’t wrongfully dissociated may participate in the winding up and may order judicial supervision of the winding up for good cause.

4. § 804: Partnership bound by partner’s act after dissolution if the act is appropriate for winding up or would have bound the partnership before dissolution, if the other party to the transaction had no notice of dissolution

Buyout

1. RUPA § 701

   1. (a) Any dissociation not resulting in dissolution and wind up under § 801 is subject to § 701 buyout, at price determined by (b).

      1. This includes saying I QUIT from a TERM/UNDERTAKING PARTNERSHIP. That action causes dissociation but not dissolution/wind up. Instead, it results in buyout.

   2. (b)...