BUSINESS ASSOCIATIONS OUTLINE

AGENCY LAW XE "Agency Law" 1. Page numbers

a. 3 8

2. Code Sections

a. UPA 2; UPA 6; UPA 7; UPA 15; UPA 18, RUPA 201; RUPA 202; RUPA 306; RUPA 401

3. General Agency Principles

a. Deals with principals being responsible for the actions of agents

i. Big exception is when agent is not acting in the course of duty (frolic or detour)

4. Forming Agency Relationshipa. Agency Restatement 1.01 Agency defined XE "Agency-Elements" i. Elements

1. Fiduciary relationship that

2. Arises when one person (principal)

3. Manifests assent to another person (agent)

4. That the agent

a. shall act on the principals behalf, and

b. subject to the principals control

5. and the agent

a. manifests assent OR

b. otherwise consents to act

ii. Doesnt seem to require consideration, once there is reliance will usually be enforceable

b. Agency Restatement 1.03- XE "Agency- Manifestation of intent" Manifestation-person manifests intent through

i. Written or

ii. Oral or

iii. Other conduct

c. Class Hypo: X tells Y, Y, Give this $100 to Z. Y takes the bill

i. Has an agency relationship been formed? Has Y consented to act as an agent?

1. Yes, by taking the bill, Y manifested consent even though he didnt say anything.

2. 1.03 of agency says manifestation of assent may be written, oral, or other conduct

ii. Because an agency relationship exists, Y is a fiduciary (so Y is supposed to look out for Xs interests above his own). Now, Y must carry out the order (subject to exceptionsit must be a legal instruction).

5. Identifying Agents in BA XE "Agency-Identifying Agents in BA" a. Sole Proprietorship: Employer = Principal; Employee = Agentb. Partnership: all partners are both agents and principalsc. Corporations: corporation (entity) = principal; employees = agentsd. Lawyer client: lawyer=agent, client =principali. Special because have 2 master fiduciary relationship to client and law6. Importance of agency Lawa. Corporations can only act through agents7. Major Issue arising in agency:a. Who Owes fiduciary duties? XE "Fiduciary duty- Who has them overview"

XE "Fiduciary duty- Who has them overview" i. Agents ( principalsii. Employees ( Corporationiii. Partners ( Partnershipiv. Directors ( Corporation/Shareholdersb. Liability of Principal: Is the principal responsible for what the agent does?

i. Yes under the doctrine of Respondeat Superior

c. Respondeat Superior XE "Respondeat Superior" XE "Partnership- Agnecy- Resp. Superior"

XE "Corporation- Agnecy- Resp. Superior" i. Agency Restatement 2.04 : Respondeat Superior-Employer liable for torts committed by employees while acting in the scope of their employmentii. The employee is also responsible for the tort because he is the tortfeasorBut of course people go after the employer because he has deeper pockets.

1. Rationale for Respondeat Superior: The employer is hiring someone to do what he doesnt have time for. If youre going to use other people to conduct your business, then youre responsible for what they do (a quid pro quo bargain ( you can use employees, but in exchange, youre responsible for them). Also, business is in a better position to insure against these problems and pass the insurance costs along to those that use their services.

d. Authority of Agents to bind their Principals in K XE "Agency-authority"

XE "Authority in Agency" i. Agency Restatement 2.01: Actual Authority XE "Actual Authority" -An agent acts with actual authority when:1. At the time of taking action that has legal consequence for the principal, the agent reasonably believes in accordance w/ principals manifestations to the agent that the principals wishes the agent so to actii. Agency Restatement 2.02:-Scope of Actual Authority XE "Actual Authority-Scope" 1. Agent has actual authority toa. take action designated or implied in principals manifestations and acts necessary or incidental to achieving the principals objectives as the agent reasonably understands them when the agent determines how to act2. An agents interpretation is reasonable ifa. it reflects any meaning known to agent to be ascribed to principal in the absence of any meaning known to the agent as a reasonable person in the agents position would interpret the manifestations in light of the contextb. Includes circumstances in which agent has notice and the agents fiduciary duty to the principal3. An agents understanding of the principals objective is reasonable ifa. it accords w/ the principals manifestations AND inferences that a reasonable person in the agents position would draw from the circumstancesiii. Agency Restatement 2.03 :Apparent Authority XE "Apparent Authority" -1. The power held by an agent or other actor to affect a principals legal relations w/ 3rd parties2. When a 3rd party reasonably believes the actor has authority to act on behalf of the principal AND that belief is traceable to the principals manifestations

e. Other agency lawi. Agency Restatement 2.05 Estoppel to Deny Existence of Agency Relationship XE "Agency- Estoppel to deny existence" 1. A person who has not made a manifestation that an actor has authority as an agent and who is not otherwise liable as a party to a transaction purportedly done by the actor on that persons account is liable to a third party who justifiably is induced to make a detrimental change in position because the transaction is believed to be on the persons account ifa. person intentionally or carelessly caused such a belief ORb. having notice of such belief and that it might induce others to change their positions, the person did not take reasonable steps to notify them of the facts.ii. Agency Restatement 3.10 Manifestation Terminating Actual Authority- XE "Actual Authority- Manifesting termination" An agents actual authority terminates if1. The agent renounces it by a manifestation to the principal OR2. The principal revokes the agent actual authority by manifestation to the agent.3. Revocation is effective when the other party has notice of itiii. Agency Restatement 3.11 Termination of Apparent Authority XE "Apparent Authority- Termination" 1. Termination of actual authority does not by itself end any apparent authority held by the agent2. Apparent authority ends whena. it is no longer reasonable for the 3rd party with whom the agent deals to believe that the agent continues to act with actual authorityOVERVIEW OF VARIOUS BUSINESS ASSOCIATIONS XE "Overview of BA" 1. Page numbers

a. pg. 8 16

2. Code sections

a. UPA 15; UPA 31;b. RUPA 201; RUPA 306; RUPA 307; RUPA 1001; c. ULLCA 112; ULLCA 202; ULLCA 203; ULLCA 301; ULLCA 404; d. RMBCA 2.01; RMBCA 2.02; RMBCA 2.03; RMBCA 2.0

3. Intro

a. UPA ( governs partnerships (including LLPs)

b. RUPA isnt our law. We only read this to understand modernization

i. We will add a few sections from the RUPA to the UPA. EX: Georgia is governed by the UPA (almost word for word), along with a couple of the RUPA replacing some of the UPA provisions.

c. ULLCA ( governs limited liability companies

d. RMBCA ( governs corporations, regardless of close or public

4. 3 questions to Ask yourself:

i. Formation: How do you create each of these business entities? How does it come into being? Does it require formality or can it happen accidentally?

ii. Management; Liability: Once the entity is formed, how is it organized? Consider liability issues. How are the agents of the organization potentially liable?

iii. How do you end (dissolve) these business entities?

iv. Limited Liability

b. Whenever you want to create any kind of limited liability association, you have to file something

5. All of the business organizations are governed by state law.

a. With the exception of some federal law that controls for publicly held corporations

i. Ex. SEC

6. Business Forms

a. Sole Proprietorship-informal business i. Owned by single individualii. Owner remains fully and personally liable for all business obligationsiii. Along with GP, the only business associations that do NOT require some formal filing or decision or intent to formiv. Standard problem here are agency issuesb. Joint Venture-similar to partnershipi. Business undertaking for profit owned by 2 or more individualsii. Usually limited to purpose and period of timeiii. Joint venturers are partners for that activity, UPA rules apply w/in that scopeiv. Ex. Chevron and Exxon joint venture to build oil rigs, but joint venture only in that scopec. General Partnership (GP)-informal business i. Default form for business owned by 2 or more personsii. Partners are fully and personally liable for all business obligations of the partnershipiii. Can be dissolved anytime by a partneriv. Along with GP, the only business associations that do NOT require some formal filing or decision or intent to formv. An oral agreement to share profits in some agreed upon ratio may be sufficient, even if financial contributions are unequalvi. GP ( LLPd. Limited Liability Partnership (LLP) i. Modern Modification of the general partnershipii. General partnership in all respects except that the statute provides that partners have no personal liability for firm obligations that exceed the assets of the general partnership1. Exception: Partners still have responsibility for personal misconductiii. Tax benefits for being a partnershipiv. Have to draft partnership agreement and file RUPA 1001-1003e. Traditional Limited Partnership (LP)i. Two different kinds of partners-one partner contributes capital (Limited partner) and the other party (general partner) assumes daily responsibility of operating businessii. Creature of statuteiii. Formed by filing certificate in public office; failure to file renders partnership a GPiv. Limited partners have no liability for firms debtsv. Limited partner could lose shield of limited liability if he takes part in the control of the business1. only applies to persons who transacted business w/ limited partner believing that the limited partner is a general partnervi. If general partner departs, partnership is dissolved. If ltd. partner departs, partnership is NOT dissolved RUPA 801f. Limited Partnership with Corporate General Partneri. General partners in a limited partnership may form a corporation to provide themselves with limited liability.ii. Quite common solution prior to the invention of limited liability lawsiii. LP LLLPg. Limited Liability Limited Partnership (LLLP)i. Has both limited and general partners ii. General partners have the protection of LLP partnersh. Limited Liability Companies (LLC)i. Provides limited liability for all participants ii. Permits flexibility in internal managementi. Corporations i. Publicly Held: means that the corporation has shares that are traded on public securities markets subject to federal regulationii. Closely Held: do not have publicly traded shares; shares are usually held by a few private individuals (family, friends, etc.)iii. Provides limited liability for all investors and participants whether active or passive, to assets of the corporation

1. EXCEPTION: Piercing the Corporate veil (below)

iv. Piercing the corporate veil-permits creditors of closely held corporations in limited circumstances to recover directly from directors, officers, and shareholders

The General Partnership XE "General Partnerhsip"

XE "GP"

XE "partnership" 1. Pages

a. 25-34, 49-522. Code sectionsa. UPA 13; UPA 14; UPA 15; UPA 18; b. RUPA 105; RUPA 301; RUPA 3033. Definition of Partnership XE "partnership- definition" a. UPA 6-A partnership is an association of two or more persons to carry on as co-owners of a business for profit XE "UPA 6- Definition of Partnership" b. RUPA 201-a partnership is an entity distinct from its partners XE "RUPA 201-Definition of Partnership" i. A limited liability partnership continues to be the same entity that existed before the filing of a statement of qualification under 1001 (must be approved by vote necessary to amend partnership agreement)

4. Partnership Formation XE "Partnership- Formation"

XE "GP- Formation" i. Very minimal requirements:

1. No writing necessary

2. May be express or implied

b. Default is that Unanimous Consent is Required

i. XE "UPA 18(g)- joining part. requires consent of all" UPA 18(g)- No person can become a member of the partnership without the consent of all other partners

c. UPA 7-In determining the existence of a partnership: XE "UPA 7 - Determining existence of Partnership" i. Receipt (or an agreement to receive) by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business.

ii. HOWEVER, no such inference shall be drawn if such profits were received in payment:

1. as a debt by installments or otherwise

2. as wages of an employee or rent to a landlord,

3. as an annuity to a widow or representative of a deceased partner,

4. as interest on a loan though the amount of payment varies w/ profits of business

5. as consideration for sale of goodwill business or other property by installment or otherwise

iii. Other UPA 7 Points

1. persons who are not partners as to each other are not partners as to 3rd persons

2. Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does NOT of itself establish a partnership, whether such co-owners do or do not share profits made by use of property

3. Sharing of gross returns does not itself establish a partnership, whether or not persons sharing them have a joint or common right in any property

d. RUPA 202- XE "RUPA 202 - Determining Existence of Partnership" i. Except as provided in (b) (formed under a different statute), the association of two or more persons to carry on as co-owners a business for profit forms a partnership

ii. In determining whether a partnership is formed, the following rules apply

1. Joint tenancy, etc. does not by itself establish partnership, even w/ shared profit

2. Sharing of gross returns does not by itself establish partnership

3. Person who receives share of the profit of a business is presumed to be a partner in the business, unless profits were received in payment

a. Of a debt or otherwise

b. For services as an independent contractor or of compensation to empee

c. Of rent

d. Of an annuity or other retiree or health benefit to a beneficiary, representative, or designee of a deceased or retired partner

e. Of interest or other charge on a loan, even if payment varies w/ profits of business OR

f. For the sale of the goodwill of a business or other property by installment or otherwise.

e. Key points to Ask?

i. Share of profits? (UPA 7)

ii. Equal rights in management? (UPA 18(e))

5. Adding Someone to the Partnership XE "Partnership- adding new partner"

a. Requires Unanimous Consent

i. XE "UPA 18(g)- joining part. requires consent of all" UPA 18(g)- No person can become a member of the partnership without the consent of all other partners

b. Be on the look out for inadvertent addition to the partnership

6. General Partnership Liability XE "Partnership- Liability"

XE "General Partnership Liability"

XE "GP- Liability" i. NOTE: While UPA 18 says subject to any agreement between them, UPA 13-15 do not say that

b. Partnership Liability XE "Partnership- partnership liability" i. UPA 13- Partnership Bound by Partners Wrongful Act XE "Partnership Bound by Partners Wrongful Act" XE "UPA 13- Partnership bound by partners wrongful act" 1. Elements:

a. When a partner commits a wrongful act/omission

b. While acting in the ordinary course of the business OR with authority from his co-partners

c. And loss/ injury/penalty is incurred

ii. UPA 14: Partnership Bound by Partners Breach of Trust XE "UPA 14- Partnership Bound by Partners Breach of Trust" XE "Partnership Bound by Partners Breach of Trust" :

1. the partnership must make good the loss:a. (a) where a partner with apparent authority receives money or property of a third person and misapplies it; ANDb. (b) where the partnership in the course of its buinsess receives money or property of a third person and it is misapplied by any partner iii. RUPA 305 Partnership liability for Partners Actionable Conduct (same as UPA 14) XE "RUPA 305-Partnership liability" 1. (a) partnership is liable for injury caused by actionable conduct of a partner acting in the ordinary course of business or with the authority of the partnership.

2. (b) if in the course of the partnerships business or with partnership authority a partner receives money or property of a person not a partner, the partnership is liable for the loss.

c. Way to Protect Partnership from Liability

i. Buy Liability insurance to protect the business

1. If you want to protect partners then form LLP under 306 RUPA

d. Partner Liability XE "Partnership- Partner Liability" i. UPA 15-All partners are liable: (replaced by RUPA 306) XE "UPA 15- all partners liable (replaced)" 1. Joint an severally for everything chargeable to the partnership under 13 and 14 AND

2. Jointly for all other debts and obligations of the partnership; BUT any partner may enter into a separate obligation to perform partnership Kii. RUPA 306 (We use this, it replaces UPA 15) XE "RUPA 306- Partner Liability" 1. (a) All partners are jointly and severally liable for ALL obligations of the partnership EXCEPT

a. (b) No personal liability for partnership obligations occurring prior to partner being admitted into partnership

b. (c) No personal liability for an obligation of a partnership incurred while the partnership is a LLP.

i. Exception: still liable for personal torts

iii. XE "UPA 17- Partner liability for incoming partner" UPA 17-Incoming Partners Liability-A person admitted as a partner into an existing partnership is liable for all obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, EXCEPT that his liability shall be paid for solely out of partnership property. (i.e. not personally liable for debts & liabilities)

iv. Silent Partners Liability XE "Silent Partners Liability" : a partner who does not want anyone to know that he is a partner but wants his check regularly is still subject to liability on behalf of the partnership UNLESS there is a limited partnership. In the event there is a loss or claim against the partnership, the silent partner will be liable with any other partners. There is NO real legal concept of a silent partner. This is totally ineffective for avoiding liability; client should use a limited partnership instead.

e. RUPA 307 Actions by and Against Partnership and Partners XE "RUPA 307- Suing Partner or Partnership"

XE "GP- Suing partnership"

XE "GP- Liability and Suing partnership" i. (a) a partnership may sue and be sued in the name of the partnership

ii. (b) An action may be brought against the partnership and any or all of the partners in the same action or in separate actions

iii. (c) Judgment against partnership may not be satisfied from personal assets unless judgment against partner as well

iv. (d) Judgment creditor must first exhaust partnership assets before attacking partner assets EXCEPT

1. Partner is personally liable and

a. (1) writ of execution on partnership returns unsatisfied

b. (2) partnership is a debtor in bankruptcy;

c. (3) partner has agreed that the creditor need not exhaust partnership assets;

d. (4) court grants permission to the judgment creditor to levy execution against the assets of a partner because the assets subject to execution are clearly insufficient to satisfy the judgment;

e. (5) liability is imposed on the partner by law independent from partnership

7. The Partnership Agreement XE "Partnership Agreement"

XE "GP- Partnership agreement"

XE "LP- Partnership agreement"

XE "LLP- Partnership Agreement"

XE "LLLP- Partnership Agreement" a. Contents of Written partnership Agreements XE "Partnership Agreement- Written Contnets" i. ype of Partnership (GP, LP, LLP, LLLP)

ii. Who the parties are

iii. How profits and losses will be shared

iv. What property (if any) is being contributed to the partnership and what is to remain personal property on loan

v. Happenings upon dissolution of partnership the most common provision is that upon withdrawal of any partner the business of the partnership is not to be wound up and terminated, but is to be continued by the remaining partners with the interest of the withdrawing partner begin paid off on some case basis.

1. XE "UPA 38- right to compel winding up on partner withdrawing" UPA 38: can be a big pitfall if no agreement In absence of written agreement, partner withdrawing has the right to compel a winding up and termination

b. Written Agreement is NOT requiredi. Advantages of Having XE "Partnership Agreement- advantages of having" :

1. May avoid future disagreements over what the agreement was

2. Readily provable in court, while an oral agreement may involve substantial factual controversy

3. Statute of Frauds:

a. May be necessary where real estate is to be contributed as partnership property or the agreement includes a term of more than one year

4. May focus attention on potential trouble spots in the relationship which may be unnoticed if partnerships proceed on a handshake deal

5. Allows partners to allocate tax burdens among themselves

6. Allows partners to agree to what will happen if one partner dies or retiresa. UPA & RUPA default = dissolution/disassociation

b. Having agreements in writing helps surviving spouses, executors, etc. understand rights as intended by parties

7. Allows partners to specify which property is contributed and which property is loaned to the partnership

8. Advantageous to the partnerships attorneya. justifies higher fee; places suggestions and advice in concrete form so there is no misunderstanding (& no malpractice)

9. Serves a cautionary function: lets the signer know hes entering a serious, legally binding relationship

ii. Disadvantages of not having a written agreement XE "Partnership Agreement- Disadvantages of not having" 1. If there is no written agreement, partnership is governed by statute

a. It is unlikely that the provisions of the statute will reflect all of the expectations and understandings among the partners

2. Default Partnership Agreement: The UPAa. If it is unsaid how profits will be shared then UPA 18(a) governs and each partner will share equally the profits and must equally contribute towards losses in proportion to profit share

8. Sharing of Profits & Losses XE "Partnership-Sharing of Profits & Losses"

XE "GP- Sharing of Profits & Losses"

XE "LP- Sharing of Profits & Losses"

XE "LLP- Sharing of Profits & Losses"

XE "LLLP- Sharing of Profits & Losses" XE "Partnership- profits and losses" i. UPA 18 is the default, but it is subject to any agreement between the parties so it can be modified

b. Default Statutes

i. XE "UPA 18(a)-Partners share profits and loss equally" UPA 18(a)-Rules Determining Rights and Duties of Partners-All partners share equally in profits and surplus remaining after all liabilities (including contributions/loans of partners) of the partnership have been paid, and each partner must contribute towards losses in the proportion in which the partner shares in the profit

ii. RUPA 401(b) XE "RUPA 401(b)- Partners share profit an loss Equally" -each partner is entitled to an equal share of partnership profits, and is chargeable with a share of partnership losses in proportion to the partners share of the profitsc. See Partnership- Formation and UPA 7 about presumption of profit sharing on formation of partnership

i. A couple pages upd. Dividing Profits by Agreement can be accomplished in several ways

i. May share on flat percentage basis w/out regard to any other factors

1. May be established in partnership agreement OR

2. Established issuing partnership units to each partner

ii. One or more partners may be entitled to weekly or monthly salary1. Payment may be treated as a cost and subtracted before profits are computed for division on some other basis OR

2. Payment may be considered an advance to be credited against amount partner is otherwise entitled to after division of the profit

iii. Partners may share on a percentage basis, w/ percentages recomputed each year on the basis of the amount invested during the year by each partner

iv. May share on a percentage basis, w/ percentages recomputed each year on the basis of total income, sales or billing of each partner, time devoted to business, etc.

v. In large partnerships, each partner may be entitled to fixed percentage applied against percentage (perhaps 80%) of income. Remaining is allocated among junior partners as a form of incentive compensation by committee

vi. Agreement may be silent on division, it being contemplated each year that the partners will work out the division of profit by agreement on a mutually acceptable basis

e. Richert v. Handly XE "Richert v. Handly" - GP was formed to cut timber, and one party wanted to split profits w/o first repaying one partys contribution to the partnership. There was no provision for the distribution of losses. So after subtracting cost to buy timber rights and cut timber there was actually a loss, so it must be equally split. When a partnership is established and no provision is made for the distribution of losses, losses of the venture are distributed based upon agreed upon distribution of profits.

i. Also, Where a loss has occurred and one partner contributed money and the other contributed labor, the other partners labor contribution is not given value. Losses are calculated based upon either the agreed upon ratio or the ration of expected profit sharing.

a. Exception: You can agree on the outset that the capital contribution and the labor being equivalent contributions. (kovacik v. reed)9. Partnership Rights and Dutiesa. Right to inspect books XE "Partnership- Right to inspect books" XE "Partnership- Rights and Duties"

XE "GP- Rights and Duties"

XE "LLP- Rights and Duties"

XE "LLLP- Rights and Duties"

XE "LP- Rights and Duties" i. UPA. 19-Each partner is entitled to access/inspect/copy the partnership's books & records. ii. UPA. 20.- The partnership must provide any partner with complete information regarding all things that are affecting the partnership's business (if the partner so requests). 1. When a partner dies, his legal representative has the same right.b. UPA 18(b)-(h) Rules Determining Rights and Duties of Partners XE "UPA 18- Rights and duties of partners" 1. NOTE: Subject to agreement between them

ii. (b) partnership must indemnify every partner in respect to payments made and personal liabilities reasonably incurred by him in ordinary and proper course of business, or for the preservation of business/property.

iii. (c) Any payment made by partner beyond the amount which he agreed to contribute shall be paid interest from the date of payment.

iv. (d) Interest on capital contributed by him limited to that from the date when repayment should be made

v. (e) All partners have equal rights in management and conduct of partnership business ***

1. Rarely completely true in reality

vi. (f) No partnership is entitled to remuneration for acting in the partnership interest, EXCEPT that surviving partner is entitled to reasonable compensation in winding up businessvii. (g) no person can become member w/out consent of ALL partners

viii. (h) any difference arising as to ordinary matters connected w/ partnership business may be decided by majority of partners, but NO ACT in contravention of any agreement between partners may be done w/out consent of ALL partnersc. RUPA 401 Partners Rights and Duties XE "RUPA 401- Rights and Duties of Partners" i. (a) Each partner is deemed to have an account that is: (Capitol/Partner Account) XE "Capital Account"

XE "Partner Account" 1. (1) Credited w/ amount equal to money plus value of any other property, net of the amount of any liabilities, the partner contributes to the partnership and the partners share of the partnership profits AND

2. (2) Charged w/ an amount equal to the money plus the value of any other property, net of the amount of any liabilities, distributed by the partnership to the partner and the partners share of the partnership losses.

a. Bottom Line: Account = capital contribution + share of profits/Losses

b. Account may be negative, and if it is negative upon dissolution of partnership, amount is owed to the partnership RUPA 807(b) XE "RUPA 807(b)- Partner account negative then own partnership" ii. (c) partnership shall reimburse partner for payments made and indemnify a partner for liabilities incurred by the partner in the ordinary course of the business of the partnership or for the preservation of its business or property

iii. (d) A partnership shall reimburse a partners for an advance to the partnership beyond the amount of capital partner agreed to contribute

iv. (e) payment or advance made by partners which gives rise to a partnership obligation under (c) or (d) constitutes a loan to the partnership which accrues interest form the date of the payment or advance.

v. (f) each partner has equal rights in management and conduct of business

vi. (g) partner may use or possess partnership property ONLY on behalf of partnership

vii. (h) partner is NOT entitled to remuneration for services performed for the partnership, EXCEPT for reasonable compensation for services rendered in winding up the business of the partnership

viii. (i) person may become partner with the consent of ALL partners

ix. (j) Difference arising at to matters w/in ordinary course of business may be decided by majority. An act outside the ordinary course of business and an amendment to the partnership agreement may be undertaken only w/consent of ALL partners10. Fictitious Business Statement XE "Fictitious Business Statement"

" : if you start a business under a name that is not yours, you must file this statement (does not apply to corporations)

Limited liability Partnership

11. Limited Liability Partnerships Formation(LLP) XE "LLP- Formation" XE "LLP" a. Overview of Formation (For Exam)i. Must be approved by a vote of the partnership necessary to amend partnership agreement. 1001(b)

ii. File a Certificate of Qualification under RUPA 1001

1. Detail below

iii. Include LLP in name to give public notice according to RUPA 1002

iv. After it is formed must file annual Reports under RUPA 1003

b. RUPA 1001-Statement of Qualification XE "LLP- statement of Qualification"

XE "RUPA 1001- Statement of Qualification" XE "LLP- Becoming an LLP" i. (b) Terms & conditions on which partnership becomes LLP must be approved by a vote necessary to amend the partnership agreement except, in the case of a partnership agreement that expressly considers obligations to contribute, the vote necessary to amend those provisions.

ii. (c) after approval, partnership becomes LLP by filing statement of qualification containing:

1. name of partnership

2. street address of partnerships CEO & street address of an office in the state

3. If the no office in this state, name & address of agent for service of process

4. statement that partnership elected to become LLP and

5. deferred effective date, if any.

iii. (d) agent of LLP for service must be resident of state or authorized to do business in state

iv. (e) status of partnership as LLP is effective on LATER of

1. filing of the statement OR

2. date specified in the statement

-Statement remains effective, regardless of changes in membership, until cancelled

v. (f) Status of partnership as LLP and liability of partners is not affected by errors or later changes in information contained in statement of qualification

vi. (g) filing of statement establishes that partnership has satisfied all conditions precedent to qualify as LLP

vii. (h) an amendment or cancellation of statement of qualification is effective when filed or on a deferred effective date, if specified.

c. XE "RUPA 1002- Name of LLP" RUPA 1002-name of an LLP must end w/ LLP, RLLP, etc.12. LLP Liability XE "LLP- Liability" a. RUPA 306(C)

i. Shields all its members from personal liability so none would be personally liable

Partnership Management XE "Partnership Management"

XE "GP- Management"

XE "LLP- Management"

XE "LP- Management"

XE "LLLP- Management" 1. Pages

a. 52-64

2. Codes Sections

a. UPA 9; 15; 18

b. RUPA 105; 301; 303

3. Partnership Management

a. XE "Partnership- decision making" Decision Making

i. XE "UPA 18(e)- partnership decision making" UPA 18(e)-If there is no agreement about management and decision making, all partners have equal votes and power, regardless of how profits are split

ii. XE "RUPA 401(f)- Partnership Decision Making" RUPA 401(f)-identical to UPA 18(e)

b. Partners as Agents (Agency Principles under Partnership Law) XE "Partnership- Agency of Partners" i. UPA 9-Partners as agents of Partnership XE "UPA 9-Partners as agents of Partnership"

XE "Agency- Partners as Agents of Partnership" 1. (1) every partner is an agent of the partnership for business purposes. The act of every partner, including execution of partnership name on any instrument for carrying on the usual business of the partnership binds the partnership UNLESS

a. The partner had no authority to act for the partnership AND

b. The person w/ whom he is dealing has knowledge of that fact2. (2) An act of a partner which is NOT apparently for carrying on the usual business does not bind the partnership UNLESS authorized by the other partners

3. (3) Unless authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have NO AUTHORITY to

a. (a)Assign the partnership in trustb. (b) dispose of the good-will of the business

c. (c) Do any act which would make it impossible to carry on the ordinary business of a partnership

d. (d) Confess a judgment

e. (e) submit a partnership claim or liability to arbitration or reference.

4. (4) No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction

ii. RUPA 301-Partner Agent of Partnership XE "RUPA 301-Partner Agent of Partnership" 1. (1) Each partner is an agent of the partnership for the purpose of its business.

a. An act of a partner for apparently carrying on ordinary course of business binds the partnership

b. UNLESS 1) the partner had no authority to act for the partnership in the particular matter AND 2) the person w/ whom the partner was dealing knew or had received notification that the partner lacked authority.

c. Acts include the execution of an instrument in the partnerships name

2. (2) An act not in the ordinary course of business binds only if the act was authorized by the other partners

c. General Rules

i. All partners are agents of the partnership UPA 9 d. 2 types of Authority (partner acting with actual or apparent authority may bind the partnership)

i. Actual Authority XE "Actual Authority"

XE "Partnership- Actual Authority" - Express or implied, when a partner really has authority to make decisions for a business, and this authority cannot be taken away absent some sort of partnership agreement

1. Methods of conferring actual authority (Nabisco)a. Articles of Partnership

b. Verbal Agreement between parties

c. Partners have full authority to bind their partnership when acting w/in the ordinary scope of the partnerships business

2. Revoking actual authority XE "actual authority- revoking" a. Absent agreement, a partners actual authority can only be eliminated by a majority of the partnership. (Nabisco)3. Ex.a. Nabisco v. Stroud XE "Nabisco v. Stroud" : 2 general partners in grocery store. Disagreement over buying bread and one partner told Nabisco they would no longer purchase while the other made orders. Grocery Partnership was liable for bread order because partner had actual authority to order bread b/c was w/in scope of grocery business and no majority vote denying authority.i. Hypothetically: if there were 3 partners and 2 voted to not buy bread there would be no actual authority, and no apparent authority since Nabisco had noticeb. Roach v. Mead XE "Roach v. Mead" : 2 partners in Law GP. 1 partner took loans from client without providing sound legal advice. Court held that the client reasonably believed he was getting legal advice and was therefore in the ordinary scope of the business. Partnership therefore liable when partner defaulted.ii. Apparent Authority XE "Apparent Authority"

XE "Partnership- Apparent Authority" - reasonable belief, based on some manifestation of the partnership, that the partner has authority.

1. Apparent authority can be created only by the partnership, not by the partner

a. title and past dealing are examples of manifestations by the partnership which might create apparent authority

2. Apparent Authority is defeated if the third party was aware the partner lacked actual authority (Nabisco)

3. Ex

a. Smith v. Dixon: Family farming partnership. Agreed to sell parcel for 225K, but partner contracted to sell for 200K. NO actual authority was present because not in ordinary business and majority vote denied right to sell for 200K. However, there was apparent authority because Partnership had authorized him in the past to be the point man for selling land.

b. Rouse v. Pollard: GP law partnership w/ 7 members. 1 partner secretly embezzled funds from clients by telling them he would act as an investment agent for them. Court held general investing was NOT the ordinary scope of the business so no authority and belief of the client was not reasonable because of no manifestation of authority by the firm.

iii. Authority standoff in 2 person partnerships

1. UPA 18 (e) and (f) state that each partner has equal rights in the management and that business decisions are decided by majority rule.

2. (e) and (f) together mean that if there are 2 partners, there can never be a majority and neither can outvote the other or tell the other what to do as long as they are acting within ordinary matters of the business; but if there are 3 partners, 2/3s can outvote 1/3 even if the 2/3s combine to have less than a majority stake in the partnership

iv. Two ways to consider authority problems

1. Contract Approach XE "Authority problems- Contract Approach" : In the K world, did this agent have authority actual or apparent to enter into this K? It is a scope of authority issue. The partnership is also relieved of liability if the business transacted was NOT in the ordinary scope of the partnerships business. Thus, if no reasonable person could have believed that the transaction was in the normal course of business, then the partnership will not be liable. See Rouse v. Pollard above (must condense and combine)

2. XE "Authority Problems- tort Approach" Tort approach: in a tort world, use master/servant terms, and think about the scope of employment. (It is not an issue of authority because the partnership would not give an agent authority to commit a tort!) The relevant question becomes what the employee was supposed to be doing when the tort was committed. A partnership is liable if the client reasonably believed that the services requested of a partner were undertaken as part of the partnerships business, even if others in the industry would regard the services as outside the scope of the partnerships business. Reasonableness is determined by facts of each case. See Roach v. Mead abovee. RUPA 303-Statement of Partnership Authority XE "RUPA 303-Statement of Partnership Authority" i. (a) Partnership may file a statement of partnership authority, which may state the authority or limitations on the authority of some or all the partners to enter into transactions on behalf of partnership

1. (e) Third parties are deemed to know of the limitation on a partners authority transfer the partnerships real property if a certified copy is on file

2. (g) a statement of partnership authority is valid for 5 years from the latest amendment

Duties of Partners to Each Other (Loyalty & Care) XE "Partnership- duty of Care"

XE "Partnership- duty of Loyalty" a. Pages

a. 64-75

b. Statutes

a. UPA 9; 13; 14; 15; 17; 20; 21; 22; 26b. RUPA 306(b); 404c. Overview of Fiduciary Duties XE "Partnership- Fiduciary Duties" a. Partners owe fiduciary duties to Partnership (Meinhard v. Salmon & UPA 21)

b. Employees owe fiduciary duty as agents (Agency Restatement 1.01)d. Caseii. Meinhard v. Salmon XE "Meinhard v. Salmon" 1. Salmon leased NY hotel with Meihard as financial backing partner. Make big success and lease lasts 20 years. Salmon learned of business opportunity to renew the lease, but didnt tell Meihard b/c wanted to do it alone. Court articulated an extremely high level of fiduciary duty which they described as the duty of finest Loyalty and the punctilio of an honor the most sensitive. Salmon was Legally required to take affirmative steps to inform Meinhard of the new lease opportunity, even if he wanted to do it alone. After informed, could have tried to obtain the lease on his own. Business info is very valuable, and must be shared just like profits.

a. Extremely high standard, but seems to have relaxed

b. Courts cite this case (still good law) when the D will probably loose, and really want to hammer home fiduciary dutyc. This is partnership opportunity case

e. Overview of Statutory law

iii. Tones down the extremely high standards of Meinhard, even though case is still good law

iv. Keeps duty of loyalty and care, but these are limited

v. Partner owes a duty to render complete and true info on demand

vi. Partners owe Fiduciary duty to partnership (put partnership interest above own)

vii. Right to formal accounting

viii. Also allowed to contract all this loyalty and duty away if they want.f. UPA 20-Duty of Partners to Render Information XE "UPA 20-Duty of Partners to Render Information" XE "Duty of Partners to Render Information" -ix. Upon demand, a partners shall give true and full information of all things affecting the partnership to:

1. any partner or 2. the legal representative of any deceased partner or 3. partner under legal disability g. UPA 21-Partner Accountable as a Fiduciary XE "UPA 21-Partner Accountable as a Fiduciary" XE "Partnership- Fiduciary duty of partner" x. (1) A partner must account to the partnership for any benefit derived without the consent of the other partners for any transaction connected w/ the formation, conduct, or liquidation of the partnership or from any use by him of its property

1. Hold as trustee profits so derived

xi. (2) section also applies to representatives of a deceased partner engaged in liquidation of partnership affairs h. Example of UPA 21: borrowed 5K from partnership to bet on ponies. Win 100K. Can not just return the 5K. Partnerhsip has rights 100K because benefit derived from partnership.xii. Exception is if you can argue it was a loan, and then only have to repay what was borrowedi. UPA 22-Right to an account XE "Partnership- right to accounting" XE "UPA 22-Right to an accounting" XE "Right to an account" -xiii. Partner has right to formal account:

1. If he is wrongfully excluded from the business or possession of its property by co-partners

2. If the right exists under the terms of any agreement

3. As provided by 214. Whenever other circumstances render it just and reasonable

j. RUPA 404 XE "RUPA 404- Duty of Loyalty and Care" -General Standards of Partners Conduct XE "General Standards of Partners Conduct"

XE "General Standards of Partners Conduct" -

xiv. (a) Only fiduciary duties are loyalty and care

xv. (b) a partners duty of LOYALTY to the partnership and the other partners is limited to:

1. to account for any property, profit, or benefit derived by the partner in the conduct and winding up of the business or derived from use of partnership property, including appropriation of a partnership opportunity2. refrain from dealing with the partnership in conduct or winding up of partnership business as or on behalf of party having adverse interest to partnership

3. refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership.xvi. (c) a partners duty of CARE to the partnership and other partners is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.xvii. (d) partner must discharge duties and exercise any rights consistently with the obligation of good faith and fair dealing.

xviii. (e) partner does NOT violate duty merely because the partners conduct furthers his own interest

xix. (f) partner may lend money to and transact other business w/ partnership and as to each loan or transaction, the rights and obligations of the partner are the same as those of a person not a partner

xx. (g) section applies to a person winding up the business if the person is a representative of the last surviving partnerPartnership Property XE "Partnership- Property" 1. Pagesa. 72-752. Code overviewa. UPA 24, 25, 263. Transferring Interest in Partnership allowed? XE "Partnership- ability to transfer interest"

XE "Partnership- interest transferability"

XE "Partnership- Assignment of interest" a. UPA 26- Partners interest in the Partnership XE "UPA 26- Partners interest in the Partnership" i. A partners interest in the partnership is his share of the profits and surplus,

ii. This is personal property.

1. This right to profits may be transferred , but not management or specific property interests XE "UPA 27- Partner may tranfer right to profits, but not management or specific property" (UPA 27)b. UPA 25- Partners Rights in Specific Partnership Property XE "UPA 25- Partners Rights in Specific Partnership Property" (ex. truck or land)i. (1) a partner is co-owner of specific partnership property

ii. (2)co-ownership means that:

1. (a) a partner only has the right to use partnership property for partnership purposes, unless he is given consent by other partners

2. (b) partners right in specific partnership property is NOT separately assignable.

3. (e) a partners right in specific partnership property is NOT subject to dower, courtesy, or allowances to widows, heirs, or next of kin.

4. Statutesa. UPA 24 Extent of Property rights of a partner XE "UPA 24 Extent of Property rights of a partner" i. 3 rights

1. Rights as co-owner in specific partnership property

2. Interest in partnership

3. Right to participate in management

b. RUPA 204-When Property is partnership property XE "RUPA 204-When Property is partnership property" i. Is partnership property XE "When Property is partnership property" 1. If acquired in the name of the partnership (a)(1)2. If acquired in the name of one or more partners with an indication on the instrument of the persons capacity as a partner but w/out indication of the partnership name (a)(2)3. By a transfer to the partnership in its name (b)(1)4. By a transfer to one or more partners in their capacity as partners if the name of the partnership is indicated in the transferring instrument (b)(2)5. Presumption that property purchased w/ partnership assets even if not in the name of the partnership (c)ii. Not Partnerhsip property1. Property NOT acquired in the name of the partnership is presumed NOT to be partnership property even if the property will be used for partnership purposes (d)c. UPA 28 Charging Order XE "UPA 28 Charging Order (lien)" i. Charging order= When a partners creditor comes into court and sues for debt, if creditor wins the partnership may be forced to give that partners stream of profits to the creditor. (similar to lien)

Partnership Accounting XE "Partnership Accounting" 1. Pagesa. 75-812. Codea. None3. 3 basic instrumentsa. Balance Sheet XE "Balance Sheet" i. Fundamental Equation XE "Balance Sheet" 1. Equity = Assets Liabilities ( or also Assets = Liabilities + Equity)a. Equity is also known as ownership or net worth

ii. Double Entry Bookkeeping

1. When you make an entry on one side of a balance sheet, an equal but opposite entry must be made on the other side so that the two sides are equal

iii. static snapshot of a businesss financial condition at a certain instant.

iv. Bottom line is often not meaningful figure

1. transactions that do not affect the real worth of the business to the owners may increase or decrease the bottom line. Taking out loan increases assets bottom line but the company is not in any better position.

v. Every transaction potentially creates a different or new balance sheet when the transaction is recorded

vi. Numbers cannot be completely accurate b/c hard to quantify good will, reputation, prospects, etc. as assets

vii. Aspects of Balance sheet

1. Assets

a. Cash- includes cash and cash equivalent like stocksi. fairly accurate on balance sheet

b. Accounts Receivable- money people owe companyi. Slightly inaccurate on balance sheet because some people just dont pay, but there is formula to adjust

c. Inventory-goods you have to sell (based on how much business paid for inventory)i. Inaccurate because under valued because usually sell above cost

d. Real Property

i. Inaccurate because hard to sell sometimes, and may not get full value

e. Fixtures-improvement to real properry(carpet, lighting, sheliving)i. Inaccurate because hard to sell sometimes, and may not get full value

f. Equipment- i. Will likely depreciate, so must be reflected in double entry

2. Liabilities

a. Accounts Payable ( money that the company owes to others; not yet paid

b. Note to a Partner ( Partners often lend money to the business, this is different from a capital contribution.3. Equity

a. Assets liabilities

i. Bigger the #, the better for partners

viii. Balance Sheet Example XE "Balance Sheet Example" ASSETSLIABILITIES

Cash$19,000Acct. Payable$73,000

Acc. Reciev.$93,000Loan$25,000

Inventory$95,000

fixture$42,000EQUITY

Equip$9,000Partners capital (200 common shares)$160,000

$258,000$258,000

***Bottom Line must always be equal on either sideix. XE "Balance Sheet- Effects of change" Examples of Effect of changea. BE SPECIFC OF WHAT ACCOUNT, AND LIST TOTALS OF EACH ACCOUNT AFTER

2. Pay off loana. Have to liquidate an asseti. Maybe receive 10,000 from Acct Reciev.1. Adjust that numberii. Increase cashb. Remove 25,000 loan from liabilityc. Remove 25,000 from cash3. Equip depreciatea. Depreciate equip to 4,000b. Decrease equity by 4,0004. What if sale where turn over asset, but not paid immediately XE "Balance Sheet- sale of asset withou immediate payment" a. Still Required to Have double Entry bookkeeping, and totals on either side Matchb. This would be solved by removing the value of the asset from the assets side, but then replacing it on the asset side with the equivalent value in accounts receivablex. Depreciation of assets XE "Balance Sheet- Depreciation" 1. Many assets depreciate over time. This will be reflected on the balance sheet as the assets being listed for a lower book value. Even though this equipment, inventory, livestock, etc. may be still working as well as last year, if the company tried to sell it would be able to receive less money because older and has limited lifetime for usefulness.b. Income Statement XE "Income Statement" i. Income = Revenues Expenses

ii. Dynamic overview (motion picture) of a businesss financial situation over time (tells if making money over period of time)1. Usually comes out monthly, quarterly, or annually

iii. Bottom line here is much more meaningful

iv. Aspects of Incom statement

1. Sales-=gross income brought in

2. costs of sales-=amount it cost to buy inventory

3. gross profit= sales cost of sales4. Net profit= gross profit- other expenses (such as advertising, rentals, depreciation, salaries, Misc.)v. Income Statement Example XE "Income Statement Example" Sales$417,000

Cost of Sales$270,000

GROSS PROFIT$147,000

Expenses

Ads8,000

Rentals24,000

Depreciation5,000

Salaries32,000

Misc.18,000

NET PROFIT$60,000

vi. XE "Income Statement- effects of change" Examples of effects of change1. Ads actually cost 10Ka. Change net profit income statement to 58,000b. Change in cash on balance sheet 17,000c. Change Equity on balance sheet 158,000d. Change income for year on capitol accounts to 29,000 eachc. Capital Accounts XE "Capital Accounts" i. Reflect each partners equity ownership in the company

ii. Does not reflect separate loans to the company

iii. Capital Accounts Example

OpeningIncome for YearDrawing for YearClosing

A100,00030,0000130,000

B030,000030,000

TOTAL160,000

d. The intersection of these 3 toolsi. These tools come together at net worth/equityii. Net profit in Income statement= income for year in capital accounts

iii. Total Closing value of capital accounts= equity in balance sheet

iv. Equity - net profit = initial capital contribution

v. Income statements are bridges between successive balance sheets

e. Value of Business XE "Valuation of Business"

XE "Business Valuation" i. NOT determined solely by looking at equity or assetsii. Must evaluate earning potential v. risk

iii. Really requires a business appraiser

f. Tax effects

i. Each partners share of profits for the year is taxable income even if they do not actually receive the money g. EXAM HINT: Partners Capital is the area that we change around a lot when we do balancing statements and stuff

Partnership Dissolution XE "Partnership Dissolution" 1. Pages

a. 81-90

2. Code Overviewa. UPA 17; 29; 30; 31; 32; 35(1)(b); 36; 38; 41; 423. XE "Partnership Dissolution- 3 stages" Three stages to ending a partnership:

a. Dissolution-i. UPA 29 Dissolution Definition XE "UPA 29- Dissolution Definition"

XE "Dissolution Definition" -the change in the legal relation of the partners caused by any partner ceasing to be associated in the carrying on

1. This should be distinguished from the winding up of the business.

2. Dissolution may be intentional or accidental

ii. UPA 30 Partnership Not Terminated by Dissolution XE "UPA 30- Partnership Not Terminated by Dissolution" 1. Dissolution does not terminate, continues unitl completion of winding up affairs

iii. Not the end of business, business still continues

iv. Not taking on new business, but finishing up old business

b. Winding Up-i. closing things down, selling property, settling affairs, etc.

ii. UPA 37 Right to wind up XE "UPA 37 Right to wind up" 1. As long as partner did not wrongfully dissolve, there is a right to wind up partnership affairs if you can show cause to the court.

2. This allows the partner to be very demanding3. Most good partnership agreements change this because, this provision would essentially require the business to sell off substantial assets to wind up and as a result kill the business

iii. UPA 42 Rights of Retiring or estate of deceased partner when business continues XE "UPA 42 Rights of Retiring or estate of deceased partner when business continues" 1. If the business continues after a partner leaves, the retiring partner or legal representative has 2 options:

a. May have the legal value of the interest as of dissolution plus interest

b. May have the legal value of the interest as of dissolution plus half the profits attributable to partnership property

2. This gives incentive to go ahead and settle business shortly after dissolution.c. Termination-i. when all partnership affairs are wound upii. duty to business finally ends

4. XE "partnership dissolution- Causes of dissolution" Causes of Dissolution: (UPA 31 and 32)i. MAY and SHOULD be modified by agreement, this is just default

b. UPA 31 Causes of Dissolution (Occurs Automatically) XE "UPA 31 Causes of Dissolution" i. Dissolution is caused by:

1. (1) If there is no violation of the partnership agreement, dissolution occurs automatically when:

a. by termination of the definite term or particular undertaking in the partnership b. by the express will of ANY partner when there is no definite term or particular undertaking 31(1)(B)c. by the express will of ALL partners who have not assigned their interests or suffered them to be charged for their separate debts, d. By the expulsion of any partner in accordance with partnership agreement2. Even if violating the agreement, any partner at any time may dissolve by express will

3. Any event which makes business unlawful 31)(b)(3)4. death of any partner 31(d)(4)5. bankruptcy of any partner OR the partnership 31(d)(5)c. UPA 32 Dissolution by Court Decree (Occurs on order of Court) XE "UPA 32 Dissolution by Court Decree" i. By application by partner1. Partner declared a lunatic 32(1)(A)2. Partner is incapable of performing partnership K 32(1)(B)3. Guilty of conduct which hinders the ability to carry on business 32(1)(c)a. Ex. Such as partner sent to jail

4. Willfully and persistently breaches partnership agreement

5. Partnership can only carry on at loss 32(1)(e)6. Other circumstances making dissolution equitable

ii. By application of purchaser of partners interest

1. End of the specified term or undertaking of the partnership

2. If partnership was at will when interest assigned or charging order granted

5. XE "Partnership dissolution- Common modification by agreement" Common Agreement modification to dissolutiona. Most common provision is a buyout clause that upon any withdrawal, the business of the partnership is NOT to be wound up but is to continue by the remaining partners with the interest of the withdrawing partner being paid off on some cash basis.i. Problem is still coming up with that kind of money

1. Common solutions is buyout overtime

2. Or insurance policy on each partners life

6. Partnership at will XE "Partnership at will" v. Partnership for a term XE "Partnership for a term"

XE "Partnership for a term" XE "Partnership Dissolution- Partnership at will"

XE "Partnership dissolution- Partnership for a term" a. Partnership at will allows partner to dissolve partnership at any time

b. Partnership for a term

i. partnership agreement establishes length of time partnership shall last

ii. any partner can still dissolve partnership at any time, but he is then subject to breach of agreement (partner will receive his partnership interest less the amount of damages he caused the partnership)7. Case Law

a. Collins

i. GP agree to 30 year fixed partnership for a lease of a cafeteria building, but the financer wanted to dissolve partnership because was required to invest more than expected and he didnt think it would be profitable. Court held it would be profitable if he did not mettle, and Collins had violated partnership agreement by meddeling

ii. Each partner has the inherent power (but not the legal right) to dissolve the partnership. Collins was trying to dissolve under 32 to avoid breach damages, but Collins could still dissolve here and just be in breach of K. However he would be liable for massive expectancy damages on 30 year lease for breach of K

iii. If this had been partnership at will, then would have been completely different

iv. Applicable codes UPA 31

b. Caublei. 50/50 GP. 1 partner died and left interest to wife. Living partner continued to operate business. He never settled up with former parters widow. Widow filed suit for accounting of business and winding down. Widow had choices: (1) 37 and 38: She has the right to say that she wants to liquidate the business, pay off the creditors, determine what is left after liquidation, and take the deceased partner's share. (2) 42: Allow the business to continue.

ii. Since continued to operate, under 42 widow was entitled to share of business plus interest or profits.

iii. Applicable codes: UPA 37 and 42 8. UPA 35-Power of Partner to Bind Partnership to Third Persons after Dissolution XE "UPA 35-Power of Partner to Bind Partnership to Third Persons after Dissolution" XE "Power of Partner to Bind Partnership to Third Persons after Dissolution" a. after dissolution a partner can bind the partnership by:i. by any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution;

ii. By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the transaction

1. had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution OR

2. If he had NOT extended credit prior to dissolution, had known of the partnership prior to dissolution, but had no knowledge of notice of dissolution and the dissolution had not been advertised in a general circulation newspaper in the place(s) where the partnership business was regularly conducted

9. UPA 38-Rights of Partners AFTER Dissolution XE "UPA 38-Rights of Partners AFTER Dissolution" XE "Partnership- Dissolution- Rights of Partners AFTER "

a. (1) Dissolution NOT in violation of agreementi. all partners may have the partnership property applied to discharge the partnerships liabilities and the surplus paid to the partners

ii. if the dissolution is caused by expulsion of a partner and the expelled partner is discharged from all partnership liabilities, the expelled partner receives in cash only the net amount due him from the partnership

b. (2) Dissolution by violation of the agreement:i. (a) Rights of partners who did NOT cause dissolution wrongfully1. Be able to have partnership property applied to discharge partnerships liabilities and be paid his share of the surplus

2. Retain the right to sue the partner(s) who caused the dissolution wrongfully for damages for breach of the agreement3. Continue business in same name, either by themselves or with others

ii. (c) Rights of partners who caused dissolution wrongfully1. If business NOT continued, party can apply partnership property to discharge the partnerships liabilities and be paid his share of the surplus, subject to suit for damages by copartners

2. If remaining partners continue business, partners who caused dissolution wrongfully can have the value of his interest in the partnership (less any damages caused to the other partners by the dissolution) ascertained (not including the value of businesss goodwill) and paid to him in cash and be released from all existing liabilities to the partnership.

10. Rules for Distribution UPA 40-in settling accounts between partners after dissolution: XE "UPA 40- Distribution after dissolution" XE "Partnership- Dissolution order" a. (a) assets of the partnership are

i. partnerships property & contributions of the partners necessary for payment of all liabilities specified in (b)

b. (b)* Liabilities of the partnership shall rank in order of payment, as follows:* XE "Dissolution- order of distribution" i. those owing to creditors other than partners,

ii. those owing to partners other than for capital or profits

iii. those owing to partners in respect of capital,

iv. those owing to partners in respect of profits

c. (c) the assets shall be applied in the order of their declaration in (a) to the satisfaction of the liabilities

d. (d) Partners shall contribute, as provided by 18(a) the amount necessary to satisfy the liabilities

i. If any, but not all, of the partners are insolvent or refuse to contribute, partners shall contribute their share of the liabilities, and the additional amount necessary to pay liabilities in the proportion in which they share profits

ii. (e) An assignee for the benefit of the creditors has the right to enforce these contributions

iii. (f) Any partner shall have the right to enforce these contributions to the extent he has paid in excess of his share

iv. (g) individual property of a deceased partner shall be liable for contributions

e. (h) when partnership property and individual properties are in possession of a court for distribution, partnership creditors have priority on partnership property and separate creditors on individual priority, saving the rights of lien and secured parties

f. (i) where a partner has become bankrupt or his estate insolvent, claims against his separate property rank in following order

i. those owing to separate creditors

ii. those owing to partnership creditors

iii. those owing to partners by way of contribution

11. Continuing Business after Dissolution XE "Partnership- Dissolution- continue after" a. If the partnership's business continues (with the remaining partners), after dissolution, then the new partnership is liable for all of the debts of the previous partnership. The creditors of the dissolved partnership become the creditors of the new partnership. UPA 4112. Effects of dissolution on Partner liability XE "Partnership Dissolution- effects" a. UPA 36- Effect of dissolution on Partners Existing Liability XE "UPA 36- Effect of dissolution on Partners Existing Liability"

XE "Partnership Dissolution- Effect on liability" XE "Partnership- Dissolution- Effect of dissolution on Partners Existing Liability" i. dissolution does not discharge the existing liability of any partner

ii. partner is discharged from existing liability upon dissolution when there is a agreement between

a. Himself

b. the partnership creditor

c. the person or partnership continuing the business

2. such agreement may be inferred from course of dealing between creditor having knowledge of the dissolution and those continuing the business.

iii. Where someone agrees to assume the existing obligations of a dissolved partnership, the partners whose obligations have been assumed shall be discharged from liability to any creditor who consents to a material alteration in the nature or time of payment of such obligations

iv. The individual property of a deceased partner SHALL be liable for all obligations of the partnership incurred while he was a partner but subject to the prior payment of his separate debts.

b. UPA 41-Liability of Persons Continuing the Business in Certain Cases XE "UPA 41-Liability of Persons Continuing the Business in Certain Cases" XE "Partnership- Dissolution- Liability of Persons Continuing the Business in Certain Cases"

XE "Liability of Persons Continuing the Business in Certain Cases" :

i. When persons continue the business after dissolution, creditors of the former partnership become creditors of the continuing business

c. Case Law

i. Sheehan: 1. Large partnership where all the partners signed a long term lease. Sheehan withdrew from partnership before moved in. Several new parters joined but they also left before moving in. The partnership ultimately defaulted on the loss. All pre-existing partners sued based on 2 theories, contractual privity and use of the property. Shehan was liable because he signed the lease. Other partners who joined after lease signed, not liable personally because UPA 17. The incoming partners would be liable for all rents & covenants running w/ property while incoming partner is in possession of the property2. According to UPA 36, Sheehan should have gotten an agreement to release him from liability

13. XE "Partnership- dissolution- Non compete agreement"

XE "Non compete agreement" Competition between departing partner and partnership after dissolution

a. Non-compete agreements are generally allowed in almost every industry, except for law

i. There is a delicate line because of fiduciary duty to partnership

ii. Ethical obligation to allow clients pick their attorney so this is exceptioniii. There is an important distinction in law firms between taking clients and staff/attorneys

iv. Gallantb. XE "Partnership- dissolution- Duties departing partner owes partnership" Duties owed by departing partner to the partnership XE "Partnership Dissolution- Duties owed by departing partner to the partnership" i. Before withdrawl/ informing the partnership a partner owes a fiduciary duty to partnership, but modern practice has made more lenient

ii. Need to tell firm you are witdrawing so they can fairly compete to keep staff

iii. After informing the partnership of intent to withdraw, but prior to witdrawl given more flexibility

1. may then recruit other staff and employees to come

2. still cannot reveal privileged info to competitors even after announcing you are leaving

a. can only reveal information that is publicily available

b. Not client lists, billable hours and rates, and staff reviews

c. A partnership has an obligation to render on demand true and full information of all things affecting the partnership of any partner. UPA 20iv. Gibbs

1. Breach of fiduciary duty by turning over confidential partnership info to potential new employers while still working at old firm. Not a breach for recruiting other people to go with them in this case

XE "Partnership- dissolution- Duties owed to partnership by partners" Duties owed by partnership to partners XE "Partnership Dissolution- Duties owed by partnership to partners" v. The relationship between partners is fiduciary in character, and imposes upon all the participants the obligation of loyalty to the joint concern and of the utmost faith, fairness, and honesty in their dealings with each other with respect to matters pertaining to the enterprise. Bohatch v. Butler & Binionvi. A partnership can expel partner w/out breaching any duty in order to resolve a fundamental schism Bohatchvii. Bohatch v. Butler & Binion-Lawyer fired when she accused partner of overbilling. There is no fiduciary duty to remain partners with someone you do not wish to be partners with.

14. UPA v. RUPA dissolution XE "Partnership- Disolution-RUPA" a. 2 theories of partnership: (1) "The Aggregate" (UPA) (standard approach) vs. (2) "Entity" (RUPA)

i. Aggregate/UPA

1. This is the method we care about

2. Steps: Dissolution ( "Winding Up (40) ( Termination

3. How to avoid: Avoid issues by partnership agreement OR post-dissolution agreement

ii. Entity/RUPA

1. The entity usually isn't affected by the departure of a partner.

2. A partner "dissassocates" when he leaves ("a partner has left, but it isn't necessarily a dissolution event). All that's required is to pay off the departing partner or the estate of the partner (must buy the person out) (book value vs. market value) (question: how do you know if it is book value or market value?

3. How to handle: Should have an agreement saying that you want an orderly buyout

4. How statute works

a. RUPA 601 defines what is disassociation

i. Includes things such as:

1. (1) Partner withdrawing, (2) other agreed event in partnership agreement, (3) Partner expulsion according to partnership agreement, (4) partners expulsion by unanimous vote of other partners, (5) Partner expulsion by judicial determination, (6) Partner becoming bankrupt, (7) Partners death or incompotency, etc.

b. After disassociation code gives 2 options

i. RUPA 701 XE "RUPA 701- Disassociation where partnership continues" : Just buy out the old partner and partnership keeps going

1. General Rule

ii. RUPA 801 XE "RUPA 801- disassocation requiring liquidation" : similar to old UPA, which requires liquidation

Inadvertent Partnerships XE "Inadvertent Partnerships" XE "Partnerships- Inadvertent Creation" 1. Pages

a. 117-122

2. Code Overview

a. UPA 16

3. Language not binding

a. Even if say not partnership is intended, that is not bindingi. Even though not binding is always helpful, so clearly specify intent in writing

b. Issue is whether they actually agreed to carry on a business for profit, as co-owners4. 3 Main ways that an inadvertent partnership are created XE "Partnership- inadvertent creation (3 main causes)" a. XE "Partnership-inadvertent creation- share profits" Agreeing to share profits (creates a rebuttable presumption of partnership)i. Rebuttable in specific circumstances listed in UPA 7 such as sharing profits to pay debts, wages, interest or other loans.

1. See partnership- formation for more

2. Small percentage of profits is less likely to create partnership because it looks more like incentive bonuses to employeesii. Under RUPA 203(c), XE "RUPA 203(c)- Sharing profits is rebuttable presumption of partnership" person who shares profits is presumed a partner

iii. Martin v. Peyton: sharing of profits is prima facie evidence of a partnership, but is not determinative and can be rebutted. See 7(4)(a) (payments on a debt by sharing profits does NOT constitute a partnership)1. Merely giving some control in partnership to person who loaned money does not create partnership necessarily, it is common for creditors to have some control to protect their investment.2. If sharing of profits and veto power are only to protect the lenders as creditors, there was no intent to make the lender a partner. Martin v. Peyton3. Contributing capital alone does not make a partnership

b. XE "Partnership-inadvertent creation- Held out as partner" HELD out to be a partner to third parties XE "Partnership- calling someone partner" i. EXAMPLE: Listed person as a partner on tax returns, listed in name of firmii. Worst case scenario for associate

1. Get paid like an assoicatie with no claims to profit because you cant force someone to be partners, but then get the liability of a partner

iii. UPA 16 Partner by Estoppel XE "UPA 16 Partner by Estoppel" 1. When represent yourself or consent to another person representing you as a partner then you are liable like a partner people to whom the representation was made.2. If representation made in public manner, liable whether or not victim was aware of representation or not3. Person represented as partner cant use this to claim partnership rights though (worst of both worlds)i. Smith V. Kellyii. partners in accounting business hired to work for them, provided salary and small bonus out of profits. Firm held out as partner in public and public documents listed as partner. Where a partnership is not intended to be created, and the partners did not agree that would be entitled to share in the profits, a partnership is not created. 1. NO partnership unless they intentionally create a partnership, can be partnership by estoppel as to THIRD PARTIES, but not as to other partners.2. There is no definitive test which courts apply to determine whether a partnership exists. Courts examine the facts and circumstances, including the existence of the following: the sharing of profit; the sharing of losses; an individual's right to manage/control the business; the intent of the parties (express and implied); and contribution of capital (cash/property) to the business. If some of these factors exist, but not others, then it is a case-by-case determination. Profit-sharing, however, is prima-facie evidence of partnership. If the parties don't share profits, then there probably isn't a partnership.b. Kaplan v. Gibsoni. (Georgia Case, bad decision and never followed) professional corporation of 2 doctors. Both were suergons and one doctor paralyzed patient. Sued both the doctors and corporation. Justified suing the other doctor because he had referred to him as his partner. Court said this was enough under UPA 16 to create partnership by estoppel because patient relied on this representation.1. Very shaky logic here. Wells says UPA 16 only applies to contract liability, not tort. Also hard to believe there was actual reliance on statements.2. Practice tip: just to be safe never refer to business associate as partner if not really partner.iv. How do you try to convince the courts that this person was not a partner?

1. Talk about how the person never made a capital contribution

2. Talk about how he wasnt responsible for the debts of the partnership

3. Talk about how that person had NO say in management

v. Smith v. Kelly (below)

c. XE "Partnership- inadvertent creation- LP becomes involvedFailure to Create a Limited Partnership as Intendedi. Remember: a LP consists of at least one GP and LP

ii. A LP has limited liability because of their lmited control over the business, BUT if a LP begins making management decisions, running the businesss, ect. then he can be held to be liable to 3rd parties as a GP

5. Lender Liability XE "Partnership- inadvertent partnership- banks" a. Common group that must be aware of inadvertent partnerships are banks

b. Banks often put covenants in loan agreements (make the debtor agreement not to borrow more money, spend too much, etc., without the bank's consent). This is common.

c. To avoid having a creditor become a partnership with a debtor: Make sure to follow 7 prima facie case. Make sure that, if they're paid profits, then they aren't called "profits" (for the direct repayment of debt; once the debt is paid, they don't get anything else; merely for the security of a loan).

Limited Partnership XE "Limited Partnership"

XE "LP- general" XE "LP" 1. Pages

a. 135-141

2. Limited partnerships became outdated because of limitations in their format

a. Decline in general use of the LP led to a revision of ULPA to RULPA3. Formation XE "LP- Formation" a. Certificate of Limited Partnership must (1) be signed by all of the general partners, (2) contain the necessary contents (below), and (3) be filed with the secretary of state. RULPA 201(a); 201(b); 204(a).b. Certificate of Limited Partnership Contentsi. The Certificate of Limited Partnership must include the following information: (1) the name & address of the Limited Partnership (see below); (2) the name & address of an agent for service of process; (3) the name & address of each general partner; and (4) the latest date upon which the Limited Partnership is to dissolve. RULPA 201(a)c. Make sure there is at least 1 general Partner and 1 limited partne

d. Name XE "LP- Name" i. The RULPA requires that the name of a Limited Partnership: (1) include the words "limited partnership"; (2) not be the same name or a name that is deceptively similar to the name of any corporation or other Limited Partnership licensed/registered in that state, and (3) not include the name of a limited partner (with exceptions). RULPA 1024. Participants XE "LP- Participants" a. General Partner

i. A general partner is a partner who (1) assumes the management responsibilities of the partnership and (2) assumes full personal liability for the debts of the partnership. RULPA 101(11)b. Limited Partner

i. A limited partner is a partner who (1) makes a contribution (such as cash) to the partnership, (2) obtains an interest in the partnership's returns, (3) doesnt participate in the partnership's management, and (4) isn't liable for the partnership's debts/obligations beyond his contribution. RULPA 101(11)

ii. Like a general partner, a limited partner may be a natural person or any of the entities that can be a general partner (EX: a corporation). RULPA 101(11).5. Record Keeping

a. The RULPA requires that a Limited Partnership maintain a records office with records of: (1) the names & addresses of all partners; (2) copies of the partnership's tax returns for the 3 recent years; (3) copies of partnership agreements for the 3 recent years; and (4) various information that RULPA 105(a)(5) requires that the partnership agreement contain

6. Modern development for Limited Partnerships

a. 3 critical problems limited partnerships under UPLA (1916) XE "LP- common Problems" i. Problem 1:Need to Significantly restricting the potential liability of limited partners for taking part in control of business. 7 of UPLA stated that limited partners were not liable unless he takes part in the control of the business and this was very unclear.ii. Problem 2: Need to Make clear limited partners could not withdraw from the limited partnership during the term of agreement

iii. Problem 3: Need for Corporation or other limited liability entities to be capable as serving as the sole general partners

b. 3 solutions to the above problems XE "LP- Solutions to common problems" i. Solution 1:

1. XE "LP- Limited partner's liability for partnership debts" RUPLA 303(a) XE "RULPA 303(a)- Limited Parter's liability for Partnerhsip debts" states a limited partner was not responsible for partnership debts unless he:a. Is also a General partner OR

b. Participates in the control of the business, BUT only then liable to those who transact with the partnership and reasonably believe the LP is aGP.

2. 303(b) spells out what constitutes participates in control to clear up any confusion (ONLY USE LIST BELOW IF NEEDED FOR PROBLEM)a. (1) Being a contractor for or an agent or employee of the limited partnership or of a general partner or being an officer, director, or shareholder of a general partner that is a corporation;

b. (2) consulting with and advising a general partner with respect to the business of the limited partnership

c. (3) acting as surety for the limited partnership or guaranteeing or assuming one or more specific obligations of the limited partnership

d. (4) taking any action required or permitted by law to bring or pursue a derivative action in the right of the limited partnership;

e. (5) requesting or attending a meeting or partners

f. (6) proposing, approving, or disapproving, by voting or otherwise, one or more of the following matters:

i. (i) the dissolution and winding up of the limited partnership

ii. (ii) the sale, exchange, lease, mortage, pleadge, or other transfer for all or substantially all of the assets of the limited partnership;

iii. (iii) the incurrence of indebtedness by the limited partnership other than in the ordinary course of its business

iv. (iv) a change in the nature of the business

v. (v) the admission or removal of a general partner

vi. (vi) the admission or removal of a limited partner

vii. (vii) a transaction involving an actual or potential conflict of interest between a general partner and the limited partnership or the limited partners;

viii. (viii) an amendment to the partnership agreement or certificate of limited partnership; OR

ix. (ix) matters related to the business of the limited partnership not otherwise enumerate din this subject (b), which the partnership agreement states in writing may be subject to the approval or disapproval of limited partners

g. (7) winding up the partnership; OR

h. (8) exercising any right or power permitted to limited partners under this ACT and not specifically enumerated under (b)

3. MAIN POINT: officers, directors, or shareholders of a corporation acting as general partner did not themselves become general partners of the limited partnership merely by taking part in the management of the general partner corporation.

ii. Solution 2: XE "LP- duration of Partnership"

XE "LP- Ability to withdraw" 1. 602 and 603 of RULPA provide that in limited partnerships set for a particular term:

a. RULPA 602 XE "RULPA 602- ability for Gen. Partner to withdraw from LP" - General partners may withdraw at any time, but may be subject to contract damages

b. RULPA 603 XE "RULPA 603- ability for Limited partner to withdraw from LP" - Limited Partners have no power to withdraw prematurely i. May be able to sell interest, but capital investment must remain in.

iii. Solution 3: XE "LP- Corporations as general Partner" (Book pg 139)1. Started to allow corporations to be the sole general partner in a limited partnership2. The main push for this came from tax incentives of partnership

3. Corporate general partner creates several unique changes

a. First, Corporate general partner is subject to the control of somebody else (may not know who actually makes decisions or what their interest is in partnership)

b. Second, Relatively easy to control transfers of managerial authority (shift who is in control w/o affecting the continued existence)

c. Third, Corporate partner may be completely responsible even though it has nominal assets compared to size of business it operates

d. Fourth, even if Corporate GP has substantial assests at the outset can bleed off the assets to shareholders without consent of LP

e. May be potential conflicts of fiduciary duty

i. The directors of corporate general partners stand in a fiduciary relationship with the limited partners and with shareholders of corporation.

1. General understanding is that the Fiduciary duty to limited partners trumps duty to shareholdersc. Result of these changes is that in the vast majority of limited partnerships today the form of limited partner with corporate general partners is used.

7. XE "LP- Most common uses" Most common modern uses of Limited Partnership

i. Leverage buyout firms

ii. Venture capatilst firms

iii. Family limited partnerships

b. XE "LP- Family limited Partnership" Family limited partnership

i. Most common, used to minimize estate and gift tax

c. Large investors commit funds for relatively long periods of time and have very limited rights to compel liquirdation or the repurchase of their interests. They are two groups of modern economic entities that typically are organized as limited partnerships:

1. Venture capital firms XE "LP- Venture Capital Firms" a. Professionally managed pools of capital that invest their money in equity securities of closely held companies at early and medium stages of their development. Venture capitalists usually sit on the boards of the companies in which they have invested and take a very active role in the corporate governance of these firms

2. Leveraged buyout companies XE "LP- Leveraged Buyout Firms" a. Collects money from investors and combines those funds with money borrowed from financial institutions to buy controlling interests in operating companies

ii. The investors are limited partners who receive periodic distributions of income from the LP. The venture capital firm or leveraged buyout company serves as the general partner in these limited partnerships. Withdrawals of capital by the LPs are regulated by K. the limited partnership structure assures continuous centralized management, centralized investment decisions made by managers of the general partner free of involvement by the limited partners.

iii. In re Spree.com Corp.-

iv. s were sued for making statements to a reporter regarding perspective abilityof the limited partnership to raise capital.

v. Without disclosing confidential material, the venture capitalist breached no duty

Federal Income Taxation XE "LP- Federal Income Taxation" XE "Taxation" 1. Pages

a. 123-131

2. Historically, The Internal Revenue Code recognized 2 distinct methods of taxing business income, which are generally described as corporate and partnership taxation. a. Corporate taxation XE "Taxation- Corporate"

XE "Corporate taxation" 1. Where the entity itself is taxed, and the