My Bus Org Miller Outline PDF

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General Partnership I.

Formation

A. Statutes: 1. Uniform Partner Act (UPA) - followed by NY 2. Revised UPA = followed by majority B. Threshold Question: 1. Generally: Court will apply the law of the state with the most significant relationship to the partnership 2. Note: Parties may contract around this 3. RUPA §106(a): Law of the state in which the partnership has its chief executive office governs internal partnership affairs

C. Definition of Partnership: 1. UPA §6: Partnership is an association of two or more persons to carry on as co owners of a business for profit (also called actual partnership) 2. Objective Test: a. Look to the intent of the partnership to be formed b. Right to exercise control/management 3. Characteristics: a. May be created informally b. No written agreement required c. May be created without filing any organizational documents with state 4. UPA §7(4): Receipts of a share of profits of a business is prima facie evidence that he is a partner in the business unless payment is for: (a) Debt owned; (b) Wages; (c) Interest on a loan (Note: this only establishes that the person is a partner, but does not establish estoppel partnership) D. Partnership by Estoppel: 1. Definition: Idea that a person holds himself out to be a partner to a 3P a. This does not create liability to partners b. But it does create liability to third parties who substantially relied on that representation c. Rule: Where a person reasonably relied to their detriment on that

representation of the persons as partners 2. UPA §16: When a person, by words spoken or written or by conduct, represents himself or consents to another representing him to anyone, as a partner in an existing partnership, he is liable to any such person to whom such representation was made 3. Factors considered: a. Agreement to share profits b. Agreement to share losses c. Community of interest fun the venture 4. Case: Martin v Peyton: a. Rule: Individuals receiving a financial benefit from a partnership creates a prima facie evidence that a partnership exists. However, intent of the parties must also be considered (here, Peyton and others were more concerned about the internet on their loan) Case: Cheesecake Factory v Banes: a. Note: It was not argued that this was a partnership because the facts are clear that triples was a corporation. However cheesecake filed suit on the basis of partnership by estoppel based on its reliance on banes’s representation b. RULE: To assert partnership by estoppel, injured party must show that he relied on the representation of the other party c. UPA is not clear about requirement of reliance. Precedent has interpreted UPA as not requiring reliance. BUT this is in conflict with RUPA which requires reliance. d. Agency Argument: Cheesecake could have argued apparent authority or better yet estoppel because banes was an agent of an undisclosed principal. II. Management and Control A. UPA §9(1) Every partner is an agent of the partnership for the purpose of its business B. Rights and Duties 1. UPA §18(e): All partners have equal rights in the management and conduct of the partnership business (can contract around) 2. UPA §18(h): Any difference arising as to ordinary matters connected within the partnership may be decided by a majority of the partners; but extraordinary or contrary acts to agreement requires unanimity 3. Default Rules: Voting (does not have to be formal) a. Ordinary business matters = Majority required b. Extraordinary matters (i.e., anything amending partnership agreement)= unanimous c. Deadlock: where you have even number of votes (usually resolved by adding a provision in agreement 4. Case: Summers v Dooley: a. Note: A partner is personally liable only if the partner is liable b. Rule: Any difference arising as to the ordinary matters connected with the partnership business may be decided by a majority of the partners Problem: theres just two of them - likely result in deadlock. Here the court says two votes were required to hire this employee. Thus, partner

was not liable 5. Case: Nabisco Biscuit v Stroud: a. Relying on UPA §(e), the court found that the partners had equal rights in management and conducting business. Buying bread is an ordinary business matter and requires majority voting for any changes the partnership wants to make. b. Rule: Burden of getting the majority vote is on the partner who wants to change the nature of the business. (here, the burden was on stroud) c. Note: In a 2 party partnership, the majority vote = unanimous vote III. Partnership Liability in Third Parties A. Contract 1. UPA §9(1): Every partner is an agent of the partnership for the purposes of business and the act of every partner including the execution of the partnership name of an instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member, unless the partner acting has in fact no authority to act for the partnership in a particular matter, and the person with whom he is dealing with has knowledge of the fact that he has no such authority 2. UPA §9(2): An act of a partner which is not apparently for the carrying on of the business of the partnership in the usual way does not bind the partnership unless authorized by other partners 3. Case: Burns v Gonzalez: a. Rule: A partner will only bind a partnership to a contract if he has authority to do so Apparent Authority by a partner is evidenced by: —> Partner reasonably appearing to the 3P that he is carrying on in the usual way of the partnership; and - Industry standard of the same business - Practice of actual partnership business —> 3P did not know that partner did not have actual authority B. Tort 1. UPA §14: Wrongful Act: Where by any wrongful act or commission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is able therefore to the same extent as the partner so acting or omitting to act a. Note: Must show: (1) Authorization by partnership; or (2) Partner acting within the scope of partnership during tort 2. UPA §15: All partners are liable: (a) Jointly and Severally for every charge to the partnership; and (b) Jointly for all other debts and obligations of the partnership a. Note: There is no distinction in nY regarding tort/wrongful conduct and other obligations

3. Case: Sheridan v Desmond: a. Rule: Liability is imposed on a part for the tortious acts of his partner only where: (1) that act occurred in the ordinary course of the partnership’s business’ or (2) the tortfeasor partner acts with authority of his partner/s b. Note: Tortfeasor is always personally liable for his own tort IV. Financial Rights and Accounting A. Profits and Losses: 1. UPA §18(a) : Each partner shall be repaid his contribution whether by way of capital or advances to the partnership properly and share equally in the profits and surplus remaining after all liabilities, including those to partners, are satisfied; and must contribute towards the losses whether of capital or otherwise, sustained by the partnership according to his share in the profits ` 2. RUPA §401(b): Each partner is entitled to an equal share of the partnership profits and is chargeable with a share of the partnership losses in proportion to the partners’s share of the profits 3. Default: Each partner is entitled to receive an amount equal to his or her capital account if the business were to be sold a. Profits = Partners share equally (50-50) b. Losses = Partners contribute according to share of profits 4. Case: Schymanski v. Conventz: a. Issue: whether a partner who only provides personal service should receive equal half of the partnership profits b. Rule: in the absence of an agreement a partner contributing only personal service is ordinarily not entitled to any share of the partnership Capital pursuant to a dissolution. personal services May however qualify as capital contributions to a partnership where an Express or implied agreement to such affect exist c. Generally: Partners get their initial contribution first in any leftover is split between the partners refer to outline for image example B. Indemnity and Contribution 1. If a partner pays a partnership obligation he is entitled to be identified (repaid) by the partnership a. if a partner is unable to pay the other partners must contribute in Pay according to their lost shares b. Note: every partner is liable for partnership obligations i. BUT: if life was caused by wrongful Act of one of the partners the culpable partner Bears the entire loss and must indemnify the partnership or any partner who paid the third parties claim 2. Any bird party make left the entirety of the partnership obligation from any partner 3. Statutory Rules: a. UPA §18( b): the partnership must indemnify every partner in respective

payments made in personal liabilities reasonably incurred by him in the ordinary and proper conduct of its business or for the preservation of its business or property b. RUPA §401( c): a partner shall reimburse a partner for payments made in indentify a partner for liabilities by the partner in ordinary course the business of the partnership or the preservation of its business or property c. UPA §18(f): no partner is entitled to remuneration For acting in the partnership business except that a surviving partner is entitled to reasonable compensation for his services and winding up the partnership affairs d. RUPA §401(h): A partner is not entitled to remuneration for services performed for the partnership except for a reasonable compensation for services remuneration in winding up business of the partnership C. Capital Accounts 1. Capital contribution= can you show a property that partner gives a partnership and is not expected to be recharged until partnership ends a. Note: this is different from a loan because with loans you can expect payment immediately (always get it back) b. Note: look at intent of Partners at the time of agreement to figure out whether the contribution was a capital contribution or a loan 2. Computation of Capital Account Balance: Capital Contribution - Distribution (draw) + Profits (share allowed) - Losses _______________________ CAPITAL ACCOUNT BALANCE 3. Default a. A quarter service is not valued as a contribution b. a partner is not entitled to compensation or salary for services REFER TO OUTLINE FOR DIAGRAM EXAMPLE 4. Services Only Exception:Partners who contributed Services only do not contribute to losses because essentially they lost their service a. But: IT services only partner receive salary exception does not apply b. But: RUPA does not have this exception in New York is not clear about rules c. Case: Kessler v Antinora i. RULE: Where one partner contributes money Capital does the others skill and labor neither party is liable to the other for contribution for any loss sustained V. Ownership Interests and Transferability

A. Partnership Property 1. Generally: Partners themselves do not own partnership property but partnership does 2. Theory: aggregate of Partners (partnership can be separate and apart from the partners) a. Limited possessory rights ( partner can only use property for partnership purpose) b. not assignable (Ex. partner cannot assign partnership van for someone to rent) c. not subject to execution of Partners personal debts ( personal creditor cannot reach partnership property) 3. UPA §8 (1): all property originally brought into the partnership stock or subsequently acquired by purchase or otherwise on account of the partnership is partnership property 4. UPA §8 (2): unless the contrary intention appears property acquired with partners of funds is partnership property 5. UPA §25 (1): partners own partnership property as tenants in Partnership. THEREFORE: a. a partner may not use partnership property for non partnership purpose b. a partner may not assign his interest in Partnership property c. Partners interest in Partnership property is subject to attachment or execution of personal claim against the partner d. upon death of a partner his interest in Partnership property becomes vested in surviving partners e. a partner's interest in Partnership property is not subject to dower curtesy or allowances to widows, heirs or next of kin 6. Note: Under RUPA, It is clear that partnership rather than the individual Partners on partnership property 7. UPA §26: Partner’s Interest. a partner's interest in the partnership is his share of the profits and surplus in the same is personal property B. Admitting New Partners 1. Property rights of partners are: a. his rights in specific partnership property; b. is interest in the partnership; and c. he's a right to participate in management 2. Rapoport v 55 Perry Co.: a. Rule: Unless parties have a great otherwise a person cannot become a member of the partnership without consent of all the partners but an assignment of a partnership interest may be made without consent for immediate family members who have reached majority age b. THUS: Right to appoint new members = need unanimity Assignment of Interest = no votes needed (limited to profits) C. Rights of a Partner’s Creditors

1. Charging order = write a personal creditor 2. but not on partnership assets VI. Fiduciary Duties A. Duty of Loyalty 1. Case: Meinhard v Salmon: a. Rule: Joint adventurer like pool Partners oh to one another while the Enterprise continues the duty of loyalty ( here although the new lease included a lot more the new lease is still the Nexus of Oles + issue of selfinterest because salmon was a manager) 2. Case: Singer v Singer: a. Rule: where the partnership agreement form is competition among Partners the duty of loyalty does not apply 3. RUPA §103 (b): partnership agreement may not eliminate duty of loyalty entirely but aspects may be waived as long as it is not manifestly unreasonable a. Note: UPA is silent on waiver of Duty of loyalty 4. Case: En ea v Superior Court (self interest) a. Rule: Partnership is a fiduciary relationship and partners may not take advantage for themselves at the expense of a partnership. Partners obligation themselves to the Enterprise with the highest of Faith toward one another (here, conflict with William was on both sides of the transaction → as a partner in renter. this conflict needs to be disclosed in consent must be given by other partners B. Duty of Disclosure 1. Case: Walter v Holiday Inn: a. Rule: A partner does not reach its fiduciary duties to another partner merely by non-disclosure of all information it possesses b. ANALYSIS: i. is there a duty to disclose? ii. if yes partner only needs to disclose material facts 2. Case: Meehan v Shaughnessy : a. Note: planning to the Pete was not a breach of fiduciary duty but preemptive actions such as denying that they were leaving and taking clients through one-sided letter was a breach of their duty of loyalty b. Remedy: Disgorgement. plaintiff must pay damages for breach of Duty of Loyalty → partner will split contingency fee with a firm and they will pay the firm their share for the cases that settle even though cases have been taken by partner 3. UPA §20: No Affirmative Duty: Partner shall render on demand true and full information of all things affecting the partnership to any partner 4. UPA § 403 (c) : Duty to Affirmatively Disclose: Each partner shall furnish

to a partner: (1) without demand any information concerning the partnership's business Affairs reasonably required for the proper exercise of the partners rights and duties and (2) on demand any other information concerning the partnership's business and affairs except to the extent of demand or the information demanded is unreasonable or improper 5. Jurisdictional Differences: a. New York: In a buyout situation there is an affirmative duty to disclose material facts unless waived b. Others: in a buyout situation fiduciary obligations no longer apply because relationship becomes adversarial as buyer seller C. Duty of Care: 1. RUPA §404 (c): A Partners duty of care to the partnership and the other partners in cottage of winding up of the partners business is limited to refrain from engaging in grossly negative or Reckless conduct, intentional misconduct , or knowing violation of law a. Note: UPA has nothing on duty of care 2. Case: Bane v Ferguson: a. Rule: A part of the fiduciary of his partnership but not a former partners because of withdrawal of a partner terminates the partnership relationship and the fiduciary relationship ends b. Note: even with duty of care there's no Bridge because Partners had measures of discretion to make decisions for business → BUSINESS JUDGEMENT RULE i. if Law Firm entered the merger to benefit themselves, which is self-interest, then partner can claim breach of loyalty VII. Expulsion A. RUPA §601(4): A partner baby expelled by specific reasons by a unanimous vote of Partners or by court order B. UPA: no default rules ( leads to dissolution) VII. Dissolution under UPA A. Definition: change in the relationship of Partners caused by any partner ceasing to be associated in carrying on of the business [ end of association] refer to chart on outline page 18 B. Grounds for Dissolution 1. Statutory Decree of Court [involuntary] [UPA § 32] a. On application by or for a partner the court shall decree a dissolution whenever i. partner has been declared to be of unsound mind ii. a partner becomes in anyway and capable of performing his part of his partnership contract iii. a partner has been guilty of such conduct as tends to affect

prejudicially the carrying on of the business a partner willfully or persistently commits a breach of the partnership agreement or conducts himself in a manner making it not reasonably practicable to carry on the Business Partnership with him v. the business can only be carried on at a loss 2. Voluntary [ automatic] a. Case: Page v Page: i. Rule: all Partnerships are ordinarily entered into with the hope that they will be profitable but that alone does not make them all Partnerships for term and obligate partners to continue partnership until all of the losses over a period of many years have been recovered ii. Rule re: Terminating Partner: Partner seeking dissolution of the partnership must act in good faith as a fiduciary to his co-partner he may not dissolve a partnership to gain the benefit of the business himself unless he fully compensates his partner for his share of the prospective business opportunity b. UPA §31: Dissolution is calls without violation of the agreement between that Parties by: → end of a specified term → partnership at will and express will of any partner → partnership for term through unanimous consent → expulsion under agreement → event that makes a business unlawful → death of a partner → bankruptcy C. Consequence of Dissolution 1. Winding Up a. UPA §37: unless otherwise agreed the partners who have an or willfully dissolve the partnership or legal representative of the last surviving partner has a right to wind up the partnership affairs b. OPTIONS: i. sales business as a growing concern 1. scale of the whole business 2. includes intangibles and goodwill ii. Sale of assets to the business 1. does not include good will 2. Good Will: reputation of business, Intellectual property, trade secrets 2. Case: Dreifuerst v Dreifuerst: a. Default Rule: unless otherwise agreed Partners who have not wrongfully dissolved a partnership have a right to wind up ( liquidate to cash) the partnership iv.

3. Settling Up [UPA §40(b) a. Rank Order of Payment i. creditors of partnership ii. Loans by partner iii. Partners’ capital iv. prophets of Partners 4. Continuation of Business [ alternative to dissolution] a. Note: other partners who are not dissolving can continue the business without the dissolving partner through: i. Agreement; or ii. wrongful dissolution D. Wrongful Dissolution 1. Note: UPA does not define it→ acting contravention with partnership agreement a. most courts interpret this as any action that violates the spirit of collaborating 2. Case: Drashner v Sorenson: a. Rule: in the Advent of wrongful dissolution UPA allows other partners to continue with the busin...