PARTNERSHIP OUTLINE1

1. INTRODUCTIONa. Partnership is the simplest form of business organization.

It requires no formalities to create. It does not protect the partners from liability. It ceases to exist at a stated time, when a partner dies or a partner leaves the partnership. Management of the partnership is in the hands of the partners.

b. Partnership can last for a definite time or until a specified event or at will.

2. DEFINITIONa. A partnership is an agreement by two or more persons to

go into business for a profit. b. No formalities are required. This means that partnerships

are not chartered by the state, no writing is required and the partners don’t even have to have a subjective intent to form a partnership. A partnership may be inferred from conduct.

c. Partnerships can own property. Partners may be any legal entity recognized by law as a person; i.e. a corporation. Partners must have contractual capacity. Sharing of profits raises a presumption of partnership. Participation in management raises presumption.

d. Payment out of partnership proceeds does not raise a presumption of partnership if payments are made to pay a debt, for services, payment of a loan, or for sale of goodwill.

3. PROPERTY OF A PARTNERSHIPa. Property titled in the name of the pship is presumed to be

pship property.b. Property purchased with pship funds is pship property.c. Property that is in a partner’s name is presumed to be

property of that partner if pship funds were not used to buy the property even if the property is used for pship purposes.

d. Pship property does not belong to the individual partners, but rather to the pship.

1 Copyright 2007 by Daniel Wilson. Unauthorized use is prohibited and will be reported to the appropriate licensing authority.

4. PARTNER’S INTEREST IN THE PSHIP.a. Partners can sell or assign their rights to profits and

distributions. Partners cannot sell their interest in the pship. An assignee of such an interest does not become a partner, has no management rights, nor the other rights associated with being a partner such as accounting.

b. Creditors of partner cannot levy directly of P-ship property. Creditor may get judgment against partner and then execute on partner's interest in partnership. Has no right to manage, see books, or force dissolution of p-ship.

5. PARTNER’S RIGHTS AND DUTIESa. Partners owe each other the fiduciary duties of loyalty and

care.b. Duty of loyalty is

i. Duty to account for profits or other business opportunities,

ii. To not deal with the pship as an adverse party,iii. To not compete.iv. Seems similar to the duty of loyalty of corporate

directors and officers.c. Duty of care is to refrain from engaging in grossly

negligent or intentional conduct in connection with pship business. Seems to be similar to the business judgment rule in corporations.

d. Partner has a right to inspect the books, is entitled to an accounting and distribution on dissolution, indemnification for expenditures on behalf of pship business.

e. Partner has right to participate in management of the business, and to share in profits and losses.

6. PARTNERSHIP LIABILITY TO THIRD PARTIESa. Each partner is an agent of other partners and the

partnership.b. The rules of agent authority—actual authority, apparent

authority and ratification—apply.c. Partners with apparent or actual authority can bind

partnership in contract.d. Partners are liable on a contract made by any partner

acting in the scope of pship business.e. Partners are liable in tort for torts committed by a partner

in the course of pship business.

f. Don’t forget the pship is also liable.g. Partners are jointly and severally liable.h. Each partner is personally liable for all pship’s liabilities.

Partner is entitled to indemnification from the pship. Partner is entitled to contribution from the other partners.

7. ENDING OF PSHIPa. The following events cause dissolution of a pship

i. Partner leavesii. A pship agreement may provide the pship

terminates at a particular time or at the happening of a particular event.

iii. Partner becomes bankruptiv. Partner dies.

b. Any dissolution event begins the winding up process.c. Remaining partners, between the dissolution event and

winding up, may decide to continue the pship. The effect is that the new pship has the liabilities of the old pship.

d. If the remaining partners do not waive dissolution the pship “winds up”, that it is it continues to function to take care of whatever business is necessary. Remaining contracts, final accounting and distribution of assets and liabilities.

e. Disassociated partner must be bought out of his ownership interest.

8. Other kinds of business organizationsa. Limited Liability Partnership

i. Advantage is that partners are not personally liable for obligations of pship.

ii. Must file with Sec. of State. Must be executed by at least two partners. Statement must contain:

1. name and address of pship;2. statement that pship elects to be an LLP;

iii. Must file annual reportiv. Name must contain "LLP" or the equivalent.v. Partner remains personally liable for his own

wrongful acts.b. Limited Partnership

i. One or more general partnersii. One or more limited partnersiii. Certificate of limited pship

1. filed with SOS2. pship name3. name and address of agent for service4. name and address of each general partner

iv. Name of pship may not contain name of any limited partner unless he is also a general partner. Must include "Limited Pship"

v. General partner is personally liable for pship's obligations

vi. Limited partners only liable to the extent of his contribution, unless

1. limited is also a general2. limited participates in control of business and

third party reasonably believes limited is a general,

a. safe harbor provision for providing services to pship such as being an employee, or taking part in extraordinary activities such as winding down, voting for sale of pship, or bringing derivative action

vii. Rights of both generals and limited partners1. share profits and losses2. assign pship interest3. transact business w pship4. right to withdraw5. remove general

viii. general has right to manage businessix. limited has right to vote on specific matters, inspect

and copy books, tax returns, and other information, upon reasonable demand.