• What are the three essential elements
of a partnership?
• What are the rights and duties of
partners in an ordinary partnership?
• What is meant by joint and several
liability? Why is this often considered
to be a disadvantage of the
partnership form of business? 
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• What advantages do limited liability
partnerships offer to businesspersons
that are not offered by general
partnerships?
• What are the key differences between
the rights and liabilities of general
partners and those of limited
partners?
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• Agency Concepts and Partnership
Law:
–Partnerships are governed both by
common law and by statutory laws.
–Each partner is deemed to be an agent
and fiduciary of the other.
–There may be imputation of liability.
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• Uniform Partnership Act.
–In the absence of a partnership
agreement, the Uniform Partnership
Act, as adopted by most states,
governs the partnership.
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• Definition of a Partnership: created
when two or more persons
(including corporations) agree to
carry on business for profit as coowners with equal right to manage
and share profits (UPA).
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• When Does a Partnership Exist?
Under the UPA there is a presumption of
a partnership if:
–1. A sharing of profits or losses.
–2. A joint ownership of the business.
–3. An equal right to be involved in the
management of the business. 
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• Entity versus Aggregate Theory.
–At common law, a partnership was not a
separate legal entity distinct from its
owners.
–Today, a majority of 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). 
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• Entity versus Aggregate (cont’d).
–A partnership is considered a separate
legal entity (cont’d):
• To have judgments collected against its assets,
and individual partners’ assets.
• To own and convey partnership property.
–Tax Treatment:
–Under federal tax law it is a “pass
through” entity.
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• The Partnership Agreement can be
written or oral, unless the Statute of
Frauds requires a written agreement.
• Duration of Partnership.
–Partnership for a Term.
–Partnership at Will.
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• Partnership by Estoppel. Occurs when
a person who is not a partner holds
himself out to third parties and the third
party relies to her detriment. In this case
the “nonpartner” is considered an agent
whose acts are binding on the
partnership.
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• Rights of Partners: In the absence of a
partnership agreement (oral or written)
state statutes govern the partner rights.
–Management: equal, each one vote,
majority wins; need unanimous consent
for some actions.
–Interest in the Partnership: equal
profits, losses shared as profits shared.
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• Rights of Partners (cont’d):
–Compensation: none.
–Inspection of the Books: always and also
by rep. of deceased partner.
–Accounting: when other partner(s)
committing fraud, embezzlement,
wrongful exclusion, or anytime it is just
and reasonable.
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• Rights of Partners (cont’d):
–Property Rights. Property acquired by
the partnership remains partnership
property. An individual partner has no
right to sell, mortgage, or transfer
partnership property.
• However, creditor of individual partner can petition a
court for a charging order to attach to individual
partner’s property interest.
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• Rights of Partners (cont’d):
–Property Rights (cont’d). Each partner
can:
• Use or possess property on behalf of the
partnership.
• Assign her right to her share of the profits
to another to satisfy individual debt.
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• Duties and Liabilities of Partners.
–Fiduciary Duties. Partners are
fiduciaries and general agents of one
another and the partnership.
– CASE 32.1 Meinhard v. Salmon (1928).
How did Salmon violate his duty of loyalty
to Meinhard?
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• Duties and Liabilities (cont’d).
–Authority of Partners.
• UPA affirms general principles of
agency law.
• Partner may be able to subject
partnership to tort liability.
• Partner has apparent authority when
carrying out partnership business. 
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• Duties and Liabilities (cont’d).
–Authority of Partners (cont’d).
• Scope of Implied Powers.
• Authorized versus Unauthorized
Actions. If partner acts within scope of
authority, partnership is bound.
Partners generally do not have
authority to make charitable
contributions.
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• Duties and Liabilities (cont’d).
–Liability of Partners. If Partner is sued for
Partnership debt, Partner has right to insist
that other partners be sued with her.
• Joint Liability: third party must sue ALL
partners as a group, but each partner can
be held liable for the full amount. 
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• Duties and Liabilities (cont’d).
–Liability of Partners (cont’d).
• Joint and Several Liability: third party can sue
either one or all partners. 3rd party may
collect against personal assets of all
partners.
• Liability of Incoming Partner: new admitted
partner has no personal liability for existing
partnership debts and obligations.
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• Partner’s Dissociation.
–Occurs when one partner ceases to be
associated in the partnership business.
–Allows partner to have her interest
purchased by the partnership.
–Terminates her voting interest in the
partnership. 
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• Partner’s Dissociation (cont’d).
–Events Causing Dissociation:
• Notice.
• Triggering Event.
• Unanimous Vote.
• Court or Arbitrator Order.
• Partner’s bankruptcy, assignment of
interest, incapacity, or death. 
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• Partner’s Dissociation (cont’d).
–Wrongful Dissociation.
• Dissociating partner breaches partnership
agreement.
• Dissociating partner files bankruptcy.
• May be liable for costs.
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• Partner’s Dissociation (cont’d).
–Effects of Dissociation: rights and
duties.
–Liability to Third Parties. Partnership
bound for two years by acts of outgoing
partner, unless proper notice given.
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• The termination of a partnership
occurs in two stages:
–Dissolution (is the legal “death” of the
partnership), and
–Winding up and Distribution of Assets
(collecting and distributing partnership
assets).
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• Dissolution: by operation of law or
judicial decree.
–Partners can Agree to Dissolve.
–By Operation of Law:
• Death of a partner.
• Bankruptcy of a partner.
• Bankruptcy of partnership.
• Illegality.
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• Dissolution: (cont’d).
–By Judicial Decree:
• Insanity.
• Incapacity.
• Business Impracticality.
• Improper Conduct.
• Other Circumstances (personal
dissension).
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• Winding Up: after dissolution,
partnership continues to wind up the
partnership affairs. Partners have no
authority except to:
–Complete transactions already begun.
–Collect and preserve partnership assets,
discharge liabilities, and provide an
accounting. 
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• Winding Up (cont’d).
–Partnership obligations are paid in the
following order:
• 1. Payment of debts, including those
owed to partner and nonpartner
creditors.
• 2. Return of capital contributions and
distribution of profits to partners.
•
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• Winding Up (cont’d).
–If liabilities are greater than assets
partners bear losses in proportion in
which they shared profits, unless
agreed otherwise.
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• Designed for professionals service
firms, it allows limits on personal
liability of the partners but allows
“pass through” tax advantages.
• Formation of an LLP. Relatively easy to
convert a partnership to an LLP.
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• Liability in an LLP. Partnership law
makes all partners jointly and
severally liable for another partner’s
tort, including personal assets.
–LLP allows professionals to avoid
personal liability for the malpractice of
other partners. 
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• Liability in an LLP (cont’d).
–Liability Outside the State of
Formation?
–Sharing Liability Among Partners.
• Family Limited Liability Partnerships.
–FLLP is a limited liability partnership in
which the majority of the partners are
related to each other (agriculture).
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• Entity that limits the liability of some
of its owners (the limited partners).
–Consists of at least one general partner
and one limited partner to carry on a
business for profit.
• Formation: creature of state statute.
Certificate of limited partnership. 
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• Liabilities of Partners.
–Only General Partners can manage, but
they have a fiduciary obligation to LP’s.
–LP’s enjoy limited liability as long as
they do not engage in management
functions. 
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• Liabilities of Partners (cont’d).
–General partner assumes all
management and personal liability.
–Limited Partner has no management
rights, and liability is limited to the
amount of investment; however
limited partner can be liable if he
participates in management.
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• Rights and Duties.
–Except for right to participate in
management, limited and general
partners have essentially the same
rights.
–Limited partners have the right to
inspect the LP’s books and be informed
of the LP’s business. 
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• Rights and Duties (cont’d).
–Both general and limited partners owe
each other a fiduciary duty.
–CASE 32.2 1515 North Wells, LP v.
1513 North Wells, LLC (2009). Did any
of the parties commit an ethical
violation?
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• Dissociation and 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. 
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• Dissociation and Dissolution(cont’d).
–Limited partners’ liability is limited to the
capital investment.
–Dissolved in much the same way as a
general partnership (Chapter 36).
–Retirement, withdrawal, death,
bankruptcy or mental incompetence of a
general partner will trigger dissolution 
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• Dissociation and Dissolution(cont’d).
–Creditors are paid first then partners.
–CASE 32.3 In re Dissolution of
Midnight Star Enterprises, LP (2006).
According to the court, why was a
forced sale not appropriate in this case?
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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 LLLP’s.
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