#8793 - Creation Of Partnerships - Agency and Other Unincorporated Businesses

CREATON OF PARTNERSHIPS

1. Introduction

-A gen p’ship is easy to form & operate

-It can be created by oral agreement & can be run w/ considerable informality

-No documents are files as part of its creation

-If “2 or more people associate as co-owners to carry on a business for profit” & take no other steps to formalize their relationship in any other way, they have created a p’ship

-All other businesses are statutory in origin

Can create p’ship relationship w/o even knowing you are doing so

2. The LLP

-Provides for the limited liability of partners in a general partnership upon the filing of a doc w/ the State

-The concepts of Gen P’ship applies to LLP’s, w/ the exceptions of vicarious liability of partners

-In “full shield” states; where there is no vicarious liability of partners for the contractual and tort liabilities of their p’ship, partners enjoy protection similar to shareholders of corporations

-In general “partial shield” states provide protection only from vicarious tort liability or limit the availability of the LLP only to certain businesses, or both.

-Some states require LLP’s to maintain ins

-Nearly all states & ULLPA require that an LLP identify itself as a LL entity by including LLP in their name

-ULLP & many states require annual report filing

3. The Partnership Relationship Defined and Distinguished from Other Relationships

1. Historical

Appeared very eary in English commercial law and English Equity courts established the principle:

That partners are fiduciaries of each other and have a right to have p’ship property applied to p’ship purposes.

2. Early Test of Partnership

Waugh v. Carver

“he who takes a moiety of all the profits indefinitely, shall, by operation of law, be made liable to losses, if losses arise, upon the principle that by taking a part of the profits, he takes from creditors a part of that fund which is the proper security to them for payment of their debts”

There is a tough distinction btwn taking profits as profits & taking profits as wages.

BUT CREDITORS DON’T RELY ON PROFITS FOR PAYMENTS! THEY GET PAID BEFORE THERE ARE ANY PROFITS

3. Partnership as Mutual Agency

Cox v. Hickman

Smith & Smith had business together as father and son and fell on hard times

Their creditors at the time had a meeting and took over the business under a new name

Five creditors appointed as trustees & assets transferred to them

Hickman sold them goods on credit-signed by Stanton Iron Co. & when didn’t get paid sues 5 trustees & other creditors, seeking hold them liable as partners

Court resolved under agency and said OBO was for Smiths and so trustees agents and not liable

Dissent: said agency correct but misapplied and the control factor here them Principals and thus liable as partners.

4. Uniform Partnership Act (1914) & Revised UPA (RUPA)(1997)

UPA definition of P’ship: (18 states)

“an association of 2 or more persons to carry on as co-owners a business for profit”

-Association: 2 people engaging

-Carrying on as owners a business for profit: holding land only isn’t “for profit” but can have “tenants in p’ship” which must be for profit

-Co-Owners: basically same as whit is means to be a principal

Share profits (presumed, but rebuttable, to be a partner unless rcvd as “compensation”, royalties, pymt of...