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I. What is a partnership and how is itformed?

A. DefinedA partnership is alegal entity of anassociation of two ormore people who owna business for profit.Partners may establishtheir own partnershipagreement, but the

Revised Uniform Partnership agreement provides rulesthat govern in the absence of an agreement. Apartnership may own property and be sued either in ajoint or individual capacity.

Partnership capital is the amount contributed by eachpartner to the partnership. Partnership property is the property owned by thepartnership. Property is presumed to be partnershipproperty if it was purchased with partnership funds andthe partnerships name appears in the title to theproperty.

B. How FormedA partnership may be formed by an express or impliedagreement (no writing is required) if the parties intend toact as co-owners of a business. Courts may look to howthe property is held, sharing of profits and how partiesdescribe their relationship or hold themselves out toothers in determining if a partnership was intended. New partner requires unanimous consent of allpartners. Partnership must be formed for a legal purpose. A non-partner who holds herself out to be a partner willbe held liable to third parties who rely on her

representation; a partner who holds another person outas his or her partner is liable to third parties on anagency theory.

C. CharacteristicsEach partner may transfer his/her interest in thepartnership, including any profits and/or propertyowned by the partnership. Each partner is also liable forlosses of the partnership. However, a partner cannot sellher status as a partner to another without the unanimousagreement of all partners.

Transfer of a partners interest only entitles assignee toreceive distributions from the partnership. Assignee doesnot thereby become a partner. A creditor may seek a judgment against a partnersinterest.

II. What are the rights and liabilities ofpartners?A. Rights of Partners

Each partner has the right to: participate in business decisions, which are decidedby majority vote unless matter is outside the partnershipsordinary course of business (unanimous vote required) receive indemnification for costs reasonable incurred inspect partnerships books sue another partner for breach of the partnershipagreement or breach of the duty of loyalty or duty of caretoward the partnership right to withdraw form the partnership by providingwritten notice seek dissolution of the partnership settlement of partnership account upon dissolution

B. Partners Fiduciary DutyDuty of Loyalty: Each partner owes the other a duty ofloyalty. This includes the duty not to compete, to accountfor all profits and property of the partnership and to notin a manner adverse to the interest of the partnership.

Duty of Care: A partner owes a duty of care to thepartnership, and must not commit intentional or negligentacts which cause harm to the partnership.

C. Liabilities of Partners:1) Liability for Acts of Another Partner: Each generalpartner is bound by the act of another partner if it is inthe ordinary course of the partnership or business of thekind performed by the partnership unless:

the partner had no authority to act on behalf of thepartnership and the person dealing w/ the partner knew or receivednotification that the partner was without authority.

* A partner may act with actual or apparent authority.Actual authority exists where the partners authority is

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PPARARTNERTNER SHIPSHIP LLAW CHARAW CHARTT

I. What is a partnership and how is it formed?II. What are the rights and liabilities of partners?III. What occurs upon dissociation of a partner or dissolution of a partnership?

Bar Exam Survival Kit"Law Charts" by Jeff Adachi. 2007 Survival Series Publishing Co. All rights reserved. www.survival-series.com

Law Charts: PartnershipPart II


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III. What occurs upon dissociationof a partner or dissolution of apartnership?A. Dissociation of Partner: A partner may

become dissociated with the partnership

by: withdrawing expulsion by vote of other partners or court order partners bankruptcy death or incapacity appointment of a receiver termination of business entity that is a partner

A partner who is dissociated is entitled to be bought outfor his interest in the business, and is entitled toindemnification of any partnership debts or liabilities.

Liability for Dissociated Partner: A partnership can bebound by the acts of a dissociated partner within 2 yearsof dissociation if 1) the act would have bound thepartnership prior to the partners dissociation; 2) the otherparties reasonably believed the dissociated partner wasa partner and had no notice of the dissociation.

Liability to Other Parties: Dissociated partner may still beheld liable for partnership debts two years afterdissociating if the transacting party reasonably believedthe dissociated partner was still a partner and had nonotice of the dissociation.

NOTE: Dissociated partner can avoid liability by filing anotice of dissociation with the state, and all parties aredeemed to have notice w/i 90 days of filing.

B. Dissolution of Partnership: A partnership

may be dissolved by: withdrawal, if partnership maybe dissolved at will expiration of the term written consent of all the parties w/i 90 days of partners death,at least 1/2 of the partners votefor dissolution

occurrence of an event thatmakes partnership illegal orterminates partnership

court order partnership continues until partnership is wound up

Right of Partner to Request Dissolution: Partner may seekcourt order declaring that purpose of partnership isfrustrated or it is not reasonable practicable to continuepartnership or that the business set forth in thepartnership agreement can no longer be carried out.

based on the partnership agreement or a vote by thepartners. Apparent authority is the authority a thirdparty would believe a partner would have in theordinary course of a partnership.

2) Liability to Third Parties: Each partner is jointly and

severally liable for all contracts entered into by thepartnerships and torts committed by any partner oremployee of the partnership. A new partner is not liablefor obligations prior to his or her becoming a partner,while an outgoing partner remains liable for acts after heleaves the partnership unless the obligation is resolve orthere is a release signed.

3) Liability for Crimes: Unlike corporations, partnershipsare not liable for crimes. A partner is not liable for thecrimes committed by another partner unless he was aprincipal or accessory to the crime.

4) Limited Liability Partnerships (LLP): A partner in an LLP

is not personally liable for the partnerships debts orobligations, or another partners torts or wrongdoing.The partnership must file a statement of qualificationsand use the words LLP in its name.

5) Limited Partnership: Alimited partnership has bothgeneral and limited partners.A limited partner is only liablefor the capital he or sheinvested in the partnership,and shares in profitsaccording to his or hercontribution. Requirements:

The limited partnership must comply with statutoryrequirements, which usually include the filing of acertificate of limited partnership, having an agent toreceive service of process and keeping its partnershiprecords in the state. Limited partner has the right to vote on specificmatters, inspect records and bring a derivative actionif the general partners do not do so or request wouldbe futile. Limited partners name is not included in partnershipname and the partnership must identify itself as alimited partnership.

Limited partner must give 6 months notice to otherpartners of withdrawal from partnership.

NOTE: A limited partner may incur liability forpartnership obligations by participating in the controlof the business, where the person dealing w/ thelimited partner reasonably believes limited partner is ageneral partner. A person who mistakenly believe heis a limited partner can avoid partner liability if he filesa certificate of limited partnership upon learning of themistake.




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Liability of Partners After Dissolution: A partner can stillbe held liable for acts committed after dissolution if theperson dealing w/ the partner did not have notice of thedissolution. Partners wishing to avoid liability can file astatement of dissolution with the state, and all parties aredeemed to have notice w/i 90 days of filing.

Distribution of Assets: Partnership assets are distributedto creditors first, then to general, limited and formerpartners to satisfy any debts owed, and to general andlimited partners to repay initial contributions, and then toall partners, who share in any remaining profits orproperty.



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lc_prtnr_07_sup

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