Partnerships
A partnership is an association of two or more persons to carry on as co-owners a business for profit. UPA §6
Creation of Partnership
-General partnerships do not
require formal registration
procedures. IN FACT,
partnership is a legal conclusion
and can be assigned absent
consent of parties.
-TESTS:
-UPA §7
Receiving profits is prima
facie evidence of partnership
unless it is repayment of debt,
wages, goodwill or retirement annuity.
-Lupin test
1) share in profits 2) share in losses
3) mutual rights of control
4) community of interest in venture
(like a sense of ownership)
Modern crts. view these as indices of
partnership, not legal elements.
Legal Status of Partnerships
At Common law and UPA
-a partnership is not a legal entity distinct
from the partners.
-Thus, partners directly own partnership
property, via tenancy-in-partnership
(essentially ownership in name only).
Modern Statutes and RUPA
-a partnership is a separate legal entity
from the partners
-Thus, the partnership owns property in its
own name.
Taxation of Partnership
-Because partnerships were traditionally
seen as inseparable from the partners
themselves, they receive 'pass-through'
taxation.
Liabilities to Third Parties
At Common Law and UPA
-All contract claims were predicated
upon joint liability; thus, T had to serve
all the partners. Could be impossible.
-Torts, crimes and breaches of trusts were
predicated upon joint and several liability;
thus, T only needs to serve 1 partner.
Modern Statutes and RUPA
-All obligations are joint and several. § 306a
-Exhaustion Rule: T may not attach partners'
personal assets until the assets of the
partnership is exhausted and the judgment
is against the partner individually. § 307
-New Partners: like at common law, new
partners are not personally liable for any
partnership obligations before his joining.
But his share of partnership funds may be
attached. RUPA § 306b UPA §17
-Fundamentally, partners are agents
of each other, UPA / the partnership,
RUPA and are fully personally liable.
Infra Partnership Duties and Obligations
-UPA §18 (RUPA §401 et. seq.) Subject to agreements to the contrary: PROFITS are shared equally among partners §18a. LOSSES are shared in
proportion to share of profits §18a. CONTROL of the partnership is equally held among partners - this requires notification and participation §18e.
MAJORITY VOTE controls normal business matters §18h. NO RENUMERATION for partners work (only profits) §18f. INDEMNIFICATION
from partnership for liabilities reasonably incurred in the normal course of business §18b. CONTRIBUTION from each partner for partnership
liabilities §§15 18a. Liabilities of a partner contrary to explicit instruction of partnership get no indemnification Summers v Dooley.
-Partners are AGENTS, fiduciaries, of each other, or the partnership; thus, they owe a DUTY OF CARE AND LOYALTY (often stated as utmost or
finest). Thus, any opportunities or profits w/in the partnership's line of business is owed to the partnership. Partners can seek fiduciary damages
against each other.
Transferability of Ownership Interest
A partner may transfer his interest in partnership profits UPA § 27 RUPA § 502. He may not transfer anything else! Specifically property or
management rights. A transferee has some limited inspection rts. It takes unanimous approval to admit a new partner § 18g. Hard to sell rts.