Partnership–General Definition
A partnership is an ass’n of two or more competent persons to carry on as co-owners a business for profit. Partnership law is based on the law of contract and agency.
Partnership - Entity Treatment
A partnership is treated as a legal entity for some purposes but not others. For example, the debts of the partnership are debts of individual partners, but title to land may be in the partnership name and the partnership may be sued in its own capacity.
Formation: Capacity to Form
Anyone capable of entering into a binding contract may enter into a partnership. A would-be partner who lacks capacity is liable only to the extent of his capital contribution.
Formation: Formalities
Generally, no formalities are required to form a partnership. The partnership agreement can be express or implied (i.e., established solely through the conduct of the parties).
A writing is ONLY required if the agreement cannot be performed within a year (violation –> partnership at will).
Formation: Legality of Purpose
A partnership will be VOID if the purpose of its existence is illegal
Formation: Consent of Partners
No one can become a partner without express or implied consent of all partners, unless otherwise agreed.
Proof of Partnership Existence
The express intent of the parties governs. If the intent is not expressed, look to: (1) TITLE (in partnership’s name, or individual’s name?) (2) Designation of the entity by the parties; (3) amount of activity involved in the enterprise undertaken by the parties (more –> more likely to be a partnership); (4) sharing of gross returns; (5) sharing of profits (prima facie evidence of a partnership unless repayment of debt, etc.); and (6) sharing of losses (absence of agreement to share losses is evidence that the parties did not intend to form a partnership).
Partnership by Estoppel
- Liability of Person Held Out as Partner: when a person represents himself, or permits another to represent him as a partner, he will be liable to third parties who extend credit to the partnership in reliance on the representation.
- Liability of Person Who Holds Another Out As Partner: when a person holds another out as a partner, he thereby makes that person his agent to bind him to third parties. IF there is a partnership, only those who know of or consent to this holding out will be bound.
Partnership by estoppel does not concern liability as between would-be partners, but rather extends to third-party dealings (i.e., liability of estopped parties to third persons).
Partnership Property
Partnership CAPITAL is the property/money contributed by each partner for the purpose of carrying on the partnership’s business. Partnership PROPERTY is, broadly, everything the partnership owns, including capital and property subsequently acquired in partnership transactions
Partnership Property: What’s Includable
Controlling factor is partners’ intent to devote the property to partnership purposes, but there is no restriction on what can be included. Consider:
- Source of the funds;
- Use of the property;
- Improvement, if any, by the partnership;
- Relation of the property to the business;
- Title to the property;
- Treatment of the property in the partnership books; and
- Payment of maintenance costs and expenses by partnership
Partner’s Rights in Partnership Property
Partners interest in any specific item of p-ship property is a tenancy in partnership. These rights include:
- right of possession for pship purposes;
- Not assignable, mortgageable, attachable, or subject to individual claims of any partner; and
- Right of ownership vests in surviving partners after p’s death
- Partners have NO RIGHT to use other than for the benefit of the pship
Partner’s Interests in the Partnership
COMPARE with partner’s rights in partnership property:
P’s share of profits + surplus = personal property, assignable without dissolving partnership and attachable.
- But P cannot sell his p status without unanimous consent of other partners.
Fiduciary Duties of Partners
Owed to the partnership. Profits belong to the partnership, and one partner will not be permitted to gain for himself at expense of pship.
Management Rights
All partners have equal rights in management of pship business absent agreement to the contrary.
Distributions
Absent agreement to contrary, each p shares equally in profits + surplus after liabilities, including those to partners, are satisfied. Each p must contribute to the pship losses according to share of profits.
- e.g., equally, if sharing equal in profits (default rule). If agreement modifies sharing of profits, sharing of losses follows.
Remuneration of Partners
Generally, no right to remuneration for services rendered to pship absent agreement to contrary. However, surviving p is entitled to remuneration for services performed while winding up pship business.
Breach of Agreement to Work for Pship
A partner who impliedly or expressly promised to devote time to pship business and fails to do so may be charged in an accounting for damages caused to the pship.
Indemnification
A partnership must indemnify every partner with regards to payments made and personal liability reasonably incurred in ordinary and proper conduct of business or for preservation of business property.
Contribution
Where one P has been required to pay or satisfy more than her share of pship debt she may require pro rata contribution from other Ps
Books and Information
Must be kept at principal place of business. Each partner has right to inspect and copy; upon demand, each p must render true and full information of all things affecting pship.
Legal Actions Between Partners
General rule: p cannot sue or be sued by pship; nor may one p sue another p on matters related to pship business (unless no complex accounting is required).
Actions for Accounting: an equitable proceeding whereby liabilities of pship/partners are converted into liabilities between Ps individually, and action lies to recover the balance due any partner. These generally arise at winding up, but also in actions for wrongful exclusion, to recover secret profits, in accord with pship agreement, or any other circumstance the court deems just and reasonable.
Partners as Agents
Partners are the agents of the pship for purpose of pship business, and can act in contract, tort, or breach of trust. Partners may have actual authority b/c of partnership agreement, majority vote of partners, or a unanimous vote of partners. However, unanimous vote of parters is required for certain actions (e.g., actual authority required):
- submission to arbitration
- assignment of pship property to creditors
- confession of judgment
- disposition of pship’s goodwill
- business other than that contemplated by pship agreement
Selling of Real Property/mortgages
- Title of real property held in pship name may be conveyed by one partner, but if p lacked actual or apparent authority, may be recovered unless subsequently acquired by BFP
- Title in name of fewer than all partners: conveyance by titleholders in own names is effective, but same rights of recovery as above if titleholders lacked actual/apparent authority.
- Title in name of all partners can only be conveyed by all partners.
Notice of Dissolution
Where dissolution is caused by the act, death, or bankruptcy of a p, the acts of other partners will bind the pship as if it were not dissolved until the other partners have NOTICE or KNOWLEDGE of the act, death, or bankruptcy.
