PARTNERSHIPS

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PARTNERSHIPS
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GENERAL PARTNERSHIPS
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The UNIFORM PARTNERSHIP ACT

• The Code is more what you would call guidelines
  than actual rules.
• Geoffrey Rush, Pirates of the
  Caribbean. Secret of the Black Pearl (2003).

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The UNIFORM PARTNERSHIP ACT defines a partnership
as

• an association of 2 or more persons
• carrying on a business
• as co-owners
• for profit

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The partnership is created as a contract between
2 or more parties. This agreement may be

• EXPRESS
• Example Partnership Agreement
• IMPLIED
• APPARENT (or by estoppel)

• EXPRESS
• Example Partnership Agreement
• IMPLIED
• APPARENT (or by estoppel)

• EXPRESS
• Example Partnership Agreement
• IMPLIED
• APPARENT (or by estoppel)

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TRUCK INSURANCE EXCHANGE v. INDUSTRIALINDEM CO.

• A father and son each owned land and raised seed
  potatoes. They each used their own equipment.
  Money was places in a joint account, and they
  split the profits. Each raised about the same
  amount of potatoes, and they were stored together
  and advertised for sale by Walter Kimm and Son.
  A loss arose. Are the father and son partners so
  that they must share the loss?

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VOLKMAN v. DP ASSOCIATES

• Volkman contacted David McNamee about obtaining
  advice on a residential construction project.
• McNamee informed Volkman that he (McNamee) was
  going into business with Phillip Carroll.
• Later Volkman was introduced to Carroll, who
  responded, I am happy we will be working with
  you.
• Volkman signed a contract with DP Associates, and
  he assumed the organizations name was taken from
  the first letter of David McNamees and Phillip
  Carrolls names.
• In fact, there had been no actual agreement
  between McNamee and Carroll to go into business
  together.
• A dispute arose, and Volkman sued DP Associates
  as a partnership. Carroll sought to be dismissed
  from the lawsuit since he was not in business
  with McNamee.
• Should Carroll be estopped from denying his
  liability as a partner?

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Partnership Formation

• Generally, agreements to form a partnership can
  be
• Oral.
• Written, or
• Implied by Conduct.
• Duration.
• Partnership agreement can specify duration.
• If limited, called Partnership for a Term.

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What should the partnership agreement contain?
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Common Terms in a Partnership
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Entity versus Aggregate Theory of Partnerships

• Today, many states recognize the partnership as a
  separate legal entity for the following purposes
  
• To sue and be sued (for federal questions, yes
  for state questions, differs).
• To have judgments collected against its assets,
  and individual partners assets.

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Entity versus Aggregate Theory of Partnerships

• Partnerships are recognized as separate legal
  entities (contd)
• To own partnership property.
• To convey partnership property.
• At common law -- property owned in tenancy in
  partnership, all partners had to be named and
  sign the conveyance.
• Under UPA partnership property can be held and
  sold in firm name.

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RIGHTS OF PARTNERS

• Management
• Profits and losses
• Return of capital
• Indemnification
• Choice of associates
• Inspection of books records
• Receive an accounting

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Property of Partnerships

• What is Partnership Property?
• Property that was contributed to the partnership
  as well as anything purchased then or later for
  the partnership
• Ownership and Possession
• Right to take possession of firms property for
  partnership purposes but not for personal use
• Creditors of Partners

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PARTNERS PROPERTY RIGHTS

• In their interest in the partnership
• In partnership property

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Partners Rights and Duties

• Right to Compensation
• Generally, there is no right to a salary or wages
• Compensation is presumed to be partners share of
  profits

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PARTNERS DUTIES TO EACH OTHER

• LOYALTY
• OBEDIENCE
• CARE
• INFORM

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Liabilities of Partners

• Joint Liability for Contracts. If Partner is
  sued for Partnership debt, Partner has right to
  insist that other partners be sued with her.
• Joint and Several Liability for Torts 3rd party
  can sue either one or all partners. 3rd party may
  collect against personal assets of all partners.
• Liability of Incoming Partner. Newly admitted
  partner has no personal liability for existing
  partnership debts and obligations.

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MARTIN V. BARBOUR

• A jury returned a 125,000 verdict for the
  plaintiff against Dr. Barbour and Egle. The case
  was based on negligence by Barbour in performing
  an operation. The defendant Egle did not assist
  or participate in the surgery and did not treat
  the plaintiff. However, Egle was a partner in
  the practice of medicine with Barbour at the time
  of surgery. Can Egle be liable for Barbours
  negligence?

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HOW CAN THE PARTNERSHIP BE DISSOLVED?

• Agreement of the parties
• If a partner leaves
• Admission of new partner
• Death of partner
• Partnership is bankrupt
• Illegality
• Judicial decree

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Partners Dissociation

• Dissociation occurs when a partner ceases to be
  associated with the carrying on of partnership
  business.
• Events which can cause dissociation
• Partners giving notice of withdrawal.
• Occurrence of event in partnership agreement.
• Unanimous vote of partners.
• Order of court or arbitrator for wrongful conduct
• Bankruptcy, Assignment to Creditors, Incapacity
  or Death.

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Partners Dissociation

• Wrongful Dissociation occurs
• If partner lacks right to dissociate, or
• When partners withdrawal is in breach of
  partnership agreement.
• Effects of Dissociation.
• Terminates rights of partner, requires buyout
  of partnership interest, and alters liability to
  third parties.

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Partners Dissociation

• Liability to Third Parties.
• Under UPA, partnership is liable to third parties
  for two years by acts of dissociated partner, IF
  third party reasonably believes dissociated
  partner was still a partner.
• Also, dissociated partner may be personally
  liable to third parties for his wrongful acts.
• Partnership should notify all creditors,
  customers, and clients of a dissociation.

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Winding Up

• Powers during Winding Up
• Purpose of winding up is to liquidate the assets
  at their highest value and bring the affairs of
  the partnership promptly to an end
• Partners have no authority after dissolution
  occurs except to
• Complete transactions already begun.
• Wind up by collecting and preserving partnership
  assets, discharging liabilities, and accounting
  to each partner for the value of his share.

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Winding Up

• Partnership obligations are paid in the following
  order (according to UPA)
• First, 3rd party creditors.
• Second, partner loans to partnership.
• Third, return of capital contributions.
• Fourth, distribution of the balance, if any to
  partners.

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Winding Up

• Duties of Partners during Winding Up
• Fiduciary duties continue during the winding up
• Compensation for Winding Up
• Partners who wind up a partnership business are
  entitled to be paid for that work

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GENERAL PARTNERSHIP

• CREATION
• CONTROL
• LIABILITY
• TAXATION Form 1065, Schedule K-1
• DURATION
• ABILITY TO RAISE CAPITAL
• ADVANTAGES
• DISADVANTAGES

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LIMITED PARTNERSHIPS

• Georgia Filing Procedures

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Limited Partnerships

• Agreement of two or more persons to carry on a
  business for profit with at least one general
  partner and one limited partner.
• Limits the liability of the limited partners to
  their investment.
• An LP is a creature of state statute so filing a
  certificate with the Secretary of State is
  required.

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HOW MUCH CAN A LIMITED PARTNER DO?

• They can do the following without losing limited
  liability status
• Acting as an employee or agent of the partnership
• Consulting with or advising a partner
• Acting as a guarantor of the partnerships
  obligations
• Inspecting and copying any of the partnerships
  financial records
• Demanding true and full information about the
  partnership whenever circumstances render it just
  and reasonable
• Receiving a share of the profits or other
  compensation by way of income
• Approving or disapproving an amendment to the
  partnerships certificate
• Voting on matters of fundamental importance such
  as dissolution, sale of assets, or change of the
  partnerships name.
• Having contribution returned upon dissolution

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PITMAN v. FLANAGAN LUMBER CO., INC.

• Pittman was one of two limited partners in Ramsey
  Homebuilders, a limited partnership that engaged
  in the business of residential construction.
• Michael Ramsey was the sole general partner in
  the partnership. Because Ramsey had a poor
  credit history, he was unable to borrow money or
  obtain the credit that was needed to sustain the
  partnerships business.
• Pitman, who had a personal account with Flanagan
  Lumber, contacted its credit manager and secured
  an account in the partnerships name. After the
  partnership failed to pay the account, Flanagan
  sued Pitman.

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LP-Dissociation and Dissolution

• General partner has right to withdraw, but can
  lead to dissolution.
• On dissolution, the limited partner is entitled
  to return of capital contributions.
• LP interests are considered securities and
  regulated by both federal and state securities
  laws.
• Limited partners liability is limited to the
  capital investment.

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LP-Dissolution

• Dissolved in much the same way as a general
  partnership.
• Retirement, withdrawal, death bankruptcy or
  mental incompetence of a general partner will
  trigger dissolution unless the remaining GPs
  consent to continue.
• Creditors are paid first then partners.

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Limited Liability Limited Partnerships

• Limited Liability Limited Partnership is a type
  of limited partnership.
• Difference between LP and LLLP is that the
  general partner has limited liability, like a
  limited partner, up to the amount of investment.
• Most states do not allow for LLLPs.

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LIMITED PARTNERSHIP

• CREATION
• CONTROL
• LIABILITY
• TAXATION
• DURATION
• ABILITY TO RAISE CAPITAL
• ADVANTAGES
• DISADVANTAGES

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Comparison of General and Limited Partnerships
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Special Business Forms

• Joint Venture two or more entities combine
  efforts or property for a single transaction or
  project.
• Unless agreed otherwise, JVs share profits and
  losses equally.
• Common in international transactions when U.S.
  companies wish to expand overseas.

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JV Characteristics

• Resembles a partnership and is taxed like a
  partnership. However, a JV is limited in time and
  scope, whereas a partnership is an ongoing
  business. Other differences
• JV members has less implied and apparent
  authority than partners.
• Death of JV member does not terminate JV.
• JV members can specify duration. If not, then JV
  terminates when purpose is accomplished.