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Business Associations Outline 1!!
By: SunsetSailor Date: February 17, 2011, 4:13 pm
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1. AGENCY
1. General
1. Key points:
1. Agency is the treat that runs through
all issues in business associations.
2. Agency costs: When you have someone
acting as an agent, that person can create liability on your
behalf. (Note: you can still have liability w/out actual
agency).
3. You can have multiple layers of agency.
E.g. Employees w/ supervisory powers are both the agents (of the
mangers to whom they report) and principals (to the employees
who report to them).
4. Labeling as principal or agent
irrelevant (R3Agency: §1.02)
5. Lawyers are not agents of their clients.
2. “True Agency”
1. Defined. R3Agency §1.01: Agency is the
fiduciary relationship that arises when one person (a
"principal") manifests assent to another person (an "agent")
that the agent shall act on the principal's behalf and subject
to the principal's control, and the agent manifests assent or
otherwise consents so to act.
1. Satisfaction creates “actual authority.”
2. Intent not required: “otherwise consents
so to act.”
1. E.g. Farmer hypo, permitted BigCo
to have de facto control of business.
3. Scope of Authority
1. Power v. Authority
1. Power: The ability of a person to
produce a change in a given legal relation by doing or not doing
a given act.
2. Authority: A type of power. The power
of an agent to affect the legal relations of the Principal by
acts done in accordance w/ the Principal’s manifestations of
assent to the Agent.
3. Note: Every kind of authority is a
power; however, not all powers are authorized powers.
2. General
1. Can be limited or general.
2. Defined and limited by the
manifestations
3. Just because a person has agency
authority for a P in one respect doesn’t not mean that the
person has authority in other respects.
4. There can be a true agency relationship
with respect to a scope of activity, but when agent acts outside
of scope is when alternative theories come into play.
4. Liability to Third Parties in K.
1. General:
1. Two sides of the problem:
1. Liability of P to 3p.
2. Responsibility of A or actor to P
(discussed in fiduciary duties)
2. Theories of Attribution: A principal
can be liable to a third party for the actions of an agent under
five theories which are not mutually exclusive and overlap:
1. Actual Authority
2. Apparent Authority
3. Estoppel
4. Ratification
5. Inherent Authority
2. Actual Authority:
1. R3Agence §2.01: An agent acts with
actual authority when, at the time of taking action that has
legal consequences for the principal, the agent reasonably
believes, in accordance with the principal's manifestations to
the agent, that the principal wishes the agent so to act.
2. Must prove:
1. Basis for Actual Authority
1. True Agency
2. Manifestation of assent or
intention by P to A that A has authority to act for the P.
1. May be explicit
(designation, expression of authority), or implicit (determined
by custom: e.g. e/e given job w/out instruction. Look to
custom). R3Agency §1.03.
2. Scope of Authority. Determined
by:
1. Express: Actual
designations or expressions.
2. Implied authority by the
manifestation. Take into account:
1. The context that
manifestation was made
2. Any meaning known by
agent to be ascribed by the principal.
3. Authority that is necessary
or incidental to achieving the P’s objectives, as understood by
A.
3. Reasonableness. A’s
interpretation of the manifestation must be reasonable in light
of: 1) circumstances that A knows or should have known (R3Agency
§2.02) and 2) the A’s fiduciary duty to the P. (R3Agency §3.01).
3. Apparent Authority
1. R3Agency §2.03: Apparent authority is
the power held by an agent or other actor to affect a
principal's legal relations with third parties when a third
party reasonably believes the actor has authority to act on
behalf of the principal and that belief is traceable to the
principal's manifestations.
2. AA is a power , not an authority.
3. Agency not necessary. Indeed, there may
be no authority at all.
4. Must show:
1. Manifestation by principal to the
third party.
2. Reasonableness. 3p must
reasonably believe that the actor has the authority.
4. Estoppel
1. R3Agency §2.05. A person who has not
made a manifestation that an actor has authority as an agent and
who is not otherwise liable as a party to a transaction
purportedly done by the actor on that person's account is
subject to liability to a third party who justifiably is induced
to make a detrimental change in position because the transaction
is believed to be on the person's account, if . . . below.
2. P is estopped from denying the agency
relationship and may be liable for something purportedly done on
P’s behalf.
3. Manifestations not necessary.
4. Must show:
1. P intentionally or carelessly
caused 3p to believe that act was on P’s account
2. Or having notice of belief of 3p
that the belief might cause 3p to change position, without
taking steps to notify 3p of facts.
3. 3P has to have been induced to
make a detrimental change in position because the 3p
(reasonably) believed that the act or transaction was on P’s
account.
1. e.g. Customer calls and
operator says 6 mo free. C tells friends. Supervisor of
operator hears and does nothing about. Reasonable?
5. Note: This cannot overlap with
apparent authority since the P has made no manifestation to the
3p.
6. Estoppel of an undisclosed P (in
worksheet, not in class)
5. Ratification
1. R3Agency §4.01 Ratification is the 1)
affirmance of a prior act done by another that 2) may have been
done without actual or apparent authority. However, 3) the
actor must have acted or purported to act as an agent, and 4)
the person must have full knowledge or notice on order to be
able to ratify.
1. A person ratifies an act by:
1. manifesting assent that the
act shall affect the person's legal relations, or
2. conduct that justifies a
reasonable assumption that the person so consents.
2. Ratification does not occur unless
1. the ratification is timely.
2. the ratification encompasses
the act in its entirety.
3. Ratification creates the
effect of actual authority.
6. Inherent Authority
1. Not incorporated into R3Agency.
2. Used to be a “gap filler”. Now subsumed
under “implied” actual authority. Is a power, not authority.
3. Will often be used to find for little
guy against the big D. Court will say A had power and its not
fair for P to deny liability, notwithstanding fact of a complete
misunderstanding.
7. Power given as a security
1. Incident to an agency relationship.
2. Created in form of a manifestation of
actual authority, but for the benefit of the holder of the power
and not the creator of the power.
3. e.g. (stock given as collateral for a
loan and stockholder asks for right to vote if debtor defaults
or if loan is outstanding. Debtor can give this power, but
holder would not be acting as an agent. Also, debtor would not
have any control)
8. Restitution (remedyso you must still
establish liability on the putative principle).
1. P liable to make restitution to 3P’s
where P is unjustly enriched by A’s actions not within A’s
actual or apparent authority.
5. Liability to third party in tort.
1. General
1. Concerns attribution of tort liability
from A to P
2. Grew out of “master/servant” /
“respondeat superiorg” doctrine, not agency.
1. R2Agency: Master liable for torts
of servant committed while acting w/in scope of authority.
3. Tort liability will refer to e/e’s as
agents, although the definition is broader.
4. Always consider when establishing a
business the costs/sacrifices, risks/tradeoffs.
5. ExamTip! These overlap. Look for all
plausible theories of attributing liability.
2. Direct Liability of P regardless of whether
the actor was an e/e type or an agent acting within scope of
authority
1. Rule: P is subject to direct liability
to a 3p for acts of A’s when:
1. A acts with actual authority.
R3Agency §7.03(1)
2. P ratifies A’s conduct. Id.
3. The harm was caused by the P’s
negligence in selecting, training, retraining, supervising, or
otherwise controlling the agent. R3Agency §7.05
4. The P has a special relationship
w/ the injured person
1. Defined: Special
Relationship: P owes person a duty of reasonable care w/ regard
to risks arising out the relationship. (e.g.
schoolstudent)
3. Vicarious liability of P for acts of A’s who
meet the definition of e/e.
1. Rule: An employer is subject to
liability for torts committed by employees while acting within
the scope of their employment. R3Agenc 2.04
1. Test: 1) Is the person an agent
who meets the definition of e/edetermined by whether
there is control. 2) if so, was the conduct within actor’s
scope of employment or engagement?
2. Defined:
1. Employee: An e/e is an agent
whose P controls or who has the right to control the manner and
means of the agent’s performance of work. §7.07(3).
1. Note: Gratuitous
performance does not relieve P from liability.
2. Factors considered (R2,
R3Comment)
1. Extent of P’s control
over details of work.
2. Is the actor employed
in an obligation or business which is distinct from the putative
principal’s business?
3. Is the work usually
performed under the supervision of this employer?
4. Skill required in the
occupation.
5. Who supplies the
tools, place of work, etc?
6. Length of employment.
7. Method of payment: by
time, job, commission, salary, etc.
8. What do P and the
actor believe their relationship is?
9. Is the putative
principal in business
3. Characterization of the
relationship less important than actual exercise of control.
4. Courts will not focus on
actual control, but the right to control.
2. Scope of Employment: An e/e acts
w/in the scope of employment when performing work assigned by
the e/r or engaging in a course of conduct subject to the e/r’s
control. An e/e/s act is not within the scope of employment
when it occurs within an independent course of conduct not
intended by the e/e to serve the purpose of the e/r. §7.07(2)
1. Factors considered, but not
determinative (R2):
1. Conduct must be the
kind the actor was authorized to perform.
1. Is it the same
general nature as the kind authorized?
2. Was it
incidental to that which was authorized?
2. Conduct must be
substantially within the time and scope authorized.
3. Conduct must be
actuated at least in part by a purpose to serve P.
4. If force was used, P
should have expected that.
5. Is the act commonly
done by persons like the actor?
6. Time, place and
purpose of the act.
7. Previous relations
between actor ad P
8. Was act outside of P’s
enterprise?
9. Was act one that was
not entrusted to the actor?
10. Similarity in quality
of act to the act which was authorized.
11. Has P furnished to the
actor the instrumentality of harm?
12. Extent of the actor’s
departure from the normal method of accomplishing the task.
13. Whether the act is
seriously criminal.
2. Criminal and forbidden acts:
may be within the scope of employment even though forbidden,
done in a forbidden manner, consciously criminal or tortious.
3. Policy: E/R who has control
has greater likelihood to prevent harm.
3. Examples
1. Real estate agent hired to sell
house. If in accident while driving to house, driving was
probably not subject to sufficient control.
2. Truck driver hired on full time
basis. E/R dictates routes, etc. Sufficient.
3. Person told to pick up chickens at
a certain time and to carry a radio. Relationship defined is
Ind. K’r, but control shows otherwise. g
4. Vicarious liability of P for acts of persons
who do not meet the definition of e/e or even agent (Contractual
and non-delegable duties, ADA’s).
1. Independent contractor: Actor who is
not an agent who meets the definition of e/e.
2. Rule: If the actor is an independent
contractor or there was a P/A relationship b the conduct was
outside the scope of employment or the engagement, P still may
be liable if the P was required by K or otherwise by law to
protect another. In that case, P cannot avoid liability by
delegating performance of the duty to an independent contractor.
1. E.g.: Non-delegable duties,
Inherently dangerous work, Work that is dangerous in the absence
of specific precautions.
3. Even if actor does not fit general
definition of A, there is VLiability if taken action taken w/
AAuthority constitutes the tort or action taken with AAuthority
enabled the actor to conceal the commission of the tort. R3.
7.08.
1. E.g.: Tort consisted of a
statement made with AA or a transaction conducted w/ AA.
2. Note on AA: You’re looking for a
manifestation that contributes to the actor being able to commit
the tort (e.g. P manifests that A has certain skills to 3p).
6. Fiduciary obligations of agents (responsibility of A
or actor to P)
1. Purpose: We encourage business growth, but
can’t expose owners to unlimited risk without qualification.
So, in addition to risks, we have four main principles that
govern conduct of A’s (real A’s).
2. Duty of loyalty
1. Rule: An A has a fiduciary duty to act
loyally for the P’s benefit in all matters connected with the
agency relationship. §8.01.
1. Rationale: As an A, you have a
great deal of knowledge of the enterprise.
2. Duties of loyalty
1. Material benefit arising out of
position. An A has a duty not to acquire a material benefit
from a 3p in connection with xactions conducted or other actions
taken on behalf of the P or otherwise through the A’s use of the
A’s position. 8.02
2. Acting on Behalf of an Adverse
Party. An A has a duty not to deal with the P as or on behalf
of an adverse party in a xaction connected with the agency
relationship. 8.03.
3. Competition. Throughout the
duration of an agency relationship, an A has a duty to refrain
from competing with the P and from taking action on behalf of or
otherwise assisting the P’s competitors. During that time, an A
may take action, not otherwise wrongful, to prepare for
competition following termination of the agency relationship.
8.04.
4. Use of P's Property; Use Of
Confidential Information. An A has a duty
1. not to use property of the
Pl for the agent's own purposes or those of a third party; and
2. not to use or communicate
confidential information of the P for the A’s own purposes or
those of a third party. 8.05
5. Exception: P’s Consent/Waiver.
8.06
1. Conduct by an A that would
otherwise constitute a breach of duty as stated in a, b, c, d
(above) does not constitute a breach of duty if the P consents
to the conduct, provided that:
1. in obtaining the P's
consent, the A
1. acts in good
faith,
2. discloses all
material facts that the A knows, has reason to know, or should
know would reasonably affect the P's judgment unless the P has
manifested that such facts are already known by the principal or
that the P does not wish to know them, and
3. otherwise deals
fairly with the P; and
2. the P's consent
concerns either a specific act or transaction, or acts or
transactions of a specified type that could reasonably be
expected to occur in the ordinary course of the agency
relationship. 8.06(1)
2. An A who acts for more than
one P in a transaction between or among them has a duty
1. to deal in good faith
with each P,
2. to disclose to each P
1. the fact that
the A acts for the other P or P’s, and
2. all other facts
that the A knows, has reason to know, or should know would
reasonably affect the P's judgment unless the P has manifested
that such facts are already known by the P or that the P does
not wish to know them, and
3. otherwise to deal
fairly with each P. 8.06(2)
6. Examples.
1. Accepting a new job and not
telling e/r not a violation.
2. Compiling a list of key
e/e’s not a violation. Giving away, yes (unless publicly
available). But identifying key e/e as good, yes.
3. Duty of care
1. Rule. Subject to any agreement with the
P, an A has a duty to the P to act with the care, competence,
and diligence normally exercised by A’s in similar
circumstances. Special skills or knowledge possessed by an A
are circumstances to be taken into account in determining
whether the A acted with due care and diligence. If an A claims
to possess special skills or knowledge, the agent has a duty to
the P to act w/ the care, competence and diligence normally
exercised by agents with such skills or knowledge. 8.08
4. Duty to abide by K
1. Rule. An A has a duty to act in
accordance w the express and implied terms of any K between the
A and the P. 8.07.
2. Duty to act w/in scope of actual
authority and to comply w/ all lawful instructions.
1. An A has a duty to take action
only within the scope of the A’s actual authority. 8.09(1)
2. An A has a duty to comply w/ all
lawful instructions received from the P and persons designated
by the P concerning that agent’s actions on behalf of the P.
8.09(2)
5. Duty to act reasonably
1. Rule. An A has a duty, within the scope
of the agency relationship, to at reasonably and to refrain from
conduct that is likely to damage the P’s enterprise. 8.10
2. Note: Failure to act reasonably may
also be a violation of duty of care.
6. Duty to provide information
1. Rule. An A has a duty to use reasonable
effort to provide the P with facts that the A knows, has reason
to know, or should know when:
1. Subject to any manifestation by
the P, the A knows or has reason to know that the P would wish
to have the facts or the facts are material to the A’s duties to
the P; and
2. The facts can be provided to the P
without violating a superior duty owed by the A to another
person. 8.11.
2. Could be considered a K duty.
3. Note: lying is violation of duty to
provide information.
7. Recordkeeping, Accounting, Etc.
1. Rule. An A has a duty, subject to any
agreement with the P,
1. Not to deal w/ the P’s personal
property so that it appears to be the A’s property,
2. Note to mingle the P’s property w/
anyone else’s; and
3. To keep and render accounts to the
P of money or other property received or paid out in the P’s
account.
2. Could be considered a K duty.
2. PARTNERSHIPS
1. General
1. Benefitspooling of capital/skills.
Avoiding competition.
2. ConsequenceRisks associated with the
partnership”agency” costs.
3. Under UPA, a partnership is an entity.
4. Taxes: a partnership itself does not pay
taxes, but only files a return. All profits and losses are
“passed through” to the partners.
5. Unlike corporations, partnerships do not
shield owners from personal liability.
6. % of a partners economic interest equal by
default or as otherwise agreed upon. Compare to a partnership,
where rights are determined by the % of outstanding share.
2. Statutory scheme: Uniform Partnership Act
1. Default Rules: Rules governing the
relationship between partners, they can be changed.
1. e.g. Terminating the relationship,
decision-making, contribution, fiduciary duties, transfers of
interest.
2. Insofar as the rules governing partnership
deals with relationships between persons not partners, the rules
cannot change be changed (Rembodied not just in UPA, but
C.L).
3. What is a partnership and how is it formed? (not
default rules)
1. Formation
1. Defined:
1. Two people . . .
2. Carrying on as co-owners . . .
(intent to associate as such, not to form P)
1. Note: a person can acquire
an ownership interest w/out a contrib.
3. A business for profit.
1. The business doesn’t have to
earn a profit, but there has to be a profit-making objective.
2. Not partnerships:
1. Owner of real estate as J/T, TIC
(no presumption).
2. Gross-return sharing systems (no
presumption) (e.g. rather than calculate profits, you give
share of returns). Pay close attention!
3. A person who receives a share of the
profits is presumed to be a partner , unless the profits were
received in payment:
1. Of a debt by installment or
otherwise (e.g. lender says you can repay through profits).
2. For services as an independent
contractor or of wages or of other compensation to an employee.
3. Of Rent payments.
4. Of annuity or other retirement or
health benefits to a beneficiary, representative, designee of a
deceased or retired partner.
5. Of interest or other charge on a
loan
6. For the sale of the goodwill of
the business or other property by installments.
7. Note: presumptions may always be
overcome. E.g. if the parties weren’t carrying on as
co-owners, thus failing the definition. See fact pattern 15.
4. Intent not required (don’t even have to
be aware).
5. Partnership agreement isn’t necessary.
Where they do not, UPA governs. §103.
6. The partnership agreement, if the
parties have one, may not waive or modify certain provisions of
the UPA, the most important of which relate to duties, fiduciary
and otherwise, of partners.
2. Partnership Property
1. General Rule: Property acquired by a
partnership is property of the partnership and not of the
partners individually (Runder UPA, P is a separate
entity).
2. Partnership Property:
1. Property acquired in the name of:
1. the partnership; or
2. one or more partners with an
indication in the instrument transferring title to the property
of the person's capacity as a partner or of the existence of a
partnership but without an indication of the name of the
partnership.
1. Note: it doesn’t
matter whose name is on the agreement. P’s often do this to
hide purchases. UPA 204.
2. Property is acquired in the name
of the partnership by a transfer to:
1. the partnership in its name;
or
2. one or more partners in
their capacity as partners in the partnership, if the name of
the partnership is indicated in the instrument transferring
title to the property.
3. Property is presumed to be
partnership property if purchased with partnership assets, even
if not acquired in the name of the partnership or of one or more
partners with an indication in the instrument transferring title
to the property of the person's capacity as a partner or of the
existence of a partnership.
4. Property acquired in the name of
one or more of the partners, without an indication in the
instrument transferring title to the property of the person's
capacity as a partner or of the existence of a partnership and
without use of partnership assets, is presumed to be separate
property, even if used for partnership purposes.
1. Note: if purchased in own
name w/ own money, not P property.
4. Liability of partnership and partners to third
persons
1. Liability of partners to third parties (not
default rules)
1. Partners as agents of the partnership §
301
1. Actual Agency Authority: Each
partner is an agent of the partnership for the purpose of its
business. An act of a partner, including the execution of an
instrument in the P name, for apparently carrying on in the
ordinary course the P business or business of the kind carried
on by the P binds the P, unless the p had no authority to act
for the P in the particular matter and the person w/ whom the p
was dealing knew or had received a notification that the p
lacked authority. In short, a partner without actual authority
ma bind the partnership with respect to two categories:
1. Acts that are in the
partnership’s ordinary course of business. Ractual
authority/agency.
2. Acts that are apparently in
the partnership’s ordinary course of business.
3. Note: intent to serve the
partnership, although useful, is not required here as in agency
tort law under master/servant.
2. Scope of Agency Authority: An act
of a p which is not apparently for carrying on in the ordinary
course the partnership business or business of the kind carried
on by the P binds the P only if the act was authorized by the
other p’s.
2. Joint and several liability of the
partnership.
1. The partnership is liable for a
partner’s wrongful act (in the course of business or with
authority) or omission or other actionable conduct. UPA § 305.
2. Partners are personally liable
(jointly and severally) for all partnership obligations unless
the claimant agrees otherwise. §306
1. Partners are not personally
liable for debts incurred before the P’s admission.
2. Note: consider in
conjunction with fact that all p’s are agents, thus binding all
p’s to any liabilities created.
2. Liability of Partners to one Another:
Partnership Duties (default rules subject to limitations on
modification)
1. Fiduciary duties §404: the only FD’s a
p owes to the P and the other p’s are the duty of loyalty and
the duty of care.
1. Note:
significanceliability in tort.
1. Duty of loyalty. Limited to the
following (Rnarrow):
1. To account to the P and hold
as trustee for it any property, profit, or benefit derived by
the p in the conduct and winding up of the P business or derived
from a use by the p of P property, including the appropriation
of a P opportunity;
1. P opportunity. See
fact pattern 18.
2. To refrain from dealing w/
the P in the conduct or winding up of the P business as or on
behalf of a party having in interest adverse to the P; and
3. To refrain from competing w/
the P in the conduct of the P business before the dissolution of
the P.
4. Note: These are, for the
most part, the same as the duties owed by an agent to the
principal.
2. Duty of care. DOC to the P and
other p’s in the conduct and winding up of the P business is
limited to refraining from engaging in grossly negligent or
reckless conduct, intentional misconduct, or a knowing violation
of the law.
1. Ordinary negligence
insufficient.
3. Other duties (not fiduciary:
1. Good faith and fair dealing
(not fiduciary source in K law): A p shall discharge the duties
too the P and the other P’s under the UPA or under the P
agreement and exercise any rights consistently w/ the obligation
of good faith and fair dealing.
2. Provide information (not in
UPA, so no liability in tort)
1. e.g. partnership
opportunity (lease) in Meinhard v. Salmon. Note overlap,
however, with duty of good faith/fair dealing.
3. A p does not violate a duty
or obligation under the UPA or under the P agreement merely
because the p’s conduct furthers the p’s own interest. P must
disclose.
4. Generally
1. A p may lend $ and transact
other business w/ the partnership, and as to each loan or
transaction the rights and obligations of the p are the same as
those of a person who is not a partner, subject to other
applicable law.
2. UPA applies to a person
winding up the P business as the person or legal rep of the last
surviving p as if the person were a p.
2. K duties §403
1. General Rule: Each p and the P
shall furnish to a p , and to the legal representative of a
deceased p or p under legal disability:
1. Without demand, any info
concerning the P’s business affairs reasonably required for the
proper exercise of the p’s rights and duties under the P
agreement of the UPA; and
2. On demand, any other
information concerning the P’s business affairs, except to the
extent the demand or the information demanded is unreasonable or
otherwise improper under the circumstances.
3. Modification of duties/Non-waivable
provisions UPA 103.
1. General Rule (MD and most other
states. Rfreedom of K). :
1. Rules governing the
relationship between partners) can be modified, subject to
certain exceptions.
2. Rules governing the
relationship between partners and third parties may not
modified.
2. Exceptions. The partnership
agreement may not:
1. Eliminate filing duties
under 105 except to eliminate duty to provide copies of all
statements to partners.
2. Unreasonable restrict the
right of access to books and records
3. Eliminate the duty of
loyalty, but:
1. may identify specific
types or categories of activities that do not violate the duty
of loyalty, if not manifestly unreasonable; or
1. Note: This
language often presents difficulty due to deference in
decision-making. There’s often a good reason to allow partners
to do other business (e.g. real-estate) .
2. Note: The line
is generally drawn for unreasonableness when you directly
compete (e.g. real estate across the street).
3. Note: MD and
other states have modified this approach allowing for free
competition where there is unanimity among partners.
4. Note: Keep in
mind: partnership may not be a good business form where you
want to allow competition, unless you form in a state that
allows (MD).
5. Note: A sole
investor would want stronger competition restrictions.
6. Note: Remember,
agency is more flexible by providing for waiver.
2. all of the partners or
a number or percentage specified in the partnership agreement
may authorize or ratify, after full disclosure of all material
facts, a specific act or transaction that otherwise would
violate the duty of loyalty
4. unreasonably reduce the duty
of care
1. Generally not a
problem because a low standard.
5. eliminate the obligation of
good faith and fair dealing, but the partnership agreement may
prescribe the standards by which the performance of the
obligation is to be measured, if the standards are not
manifestly unreasonable;
6. vary the power to dissociate
as a partner, except to require the notice to be in writing;
7. vary the right of a court to
expel a partner
8. vary the requirement to wind
up the partnership business
9. vary the law applicable to a
limited liability partnership
5. Membership in a partnership (default rules)
1. General Rule: A person may become a p only w/
the consent of all p’s §401(i).
2. Ownership interests accompanying membership
1. Types of rights
1. Economic/Transferable:
1. Profits
2. Distributions
2. Non-Economic/Management Rights
1. Right to Vote
2. Right to bindAgency
Rights
3. Right to information
4. Right to fiduciary duties.
2. Transferable interests (economic): a
person’s right to share in profits and losses of the P and right
to received distributions. §502.
3. Non-transferable interest, undefined,
but see §503(a)(3)
1. Right to participate in management
or condct of the business
2. Access to P information.
3. Right to inspect and copy P books
and records.
4. Rationale for distinction:
3. Note: everyone is called a partner (except in
LLP’s).
6. Partnership Rights Accompanying Membership (default
rules)
1. Finance/Money Matters: Sharing Profits/Losses
§401(a)-(e), (h)
1. Partnerships operate under an accrual
based method of accounting: (recording financial events based
upon net worth, recognizing revenues even when not yet
received).
1. Terminology
1. Profits: $ earned by the
partnership. Doesn’t mean $ available. Rcapital
expenditures deduct from profits prior to distribution.
R2outstanding obligations qualify as a profit.
2. Losses: $ lost by the
partnership.
3. Distributions: $ going from
the partnership to your pocket.
4. Capital Accounts: record of
what each partner’s interest is worth for partnership purposes
(analogous to stockholder equity in corps).
1. Note: balance may or
may not reflect actual revenues because outstanding debts are
recorded under accrual based accounting.
2. General/Default Rule: The sharing of
profits, losses, and distributions (like voting) is equally on a
per capita basis.
1. Each p is deemed to have a capital
account that is:
1. Credited w/ an amount equal
to the money plus the value of any other property, net of the
amount of any liabilities, the p contributes to the P and the
p’s share of the P profits; and
2. Charged with an amount equal
to the # plus the value of any other property, net of the amount
of any liabilities, distributed by the P to the p and the p’s
share of the P losses.
3. E.g. J puts in 0. M put in
5. M has capital account of 5. If M’s owe’s a creditor 3 of 5,
M’s capital account is 3. (e.g. real estate w/ mort.)
2. Each p is entitled to an equal
share of the P profits and is chargeable w a share of the P
losses in proportion to the p’s share of the profits.
#Post#: 94--------------------------------------------------
Re: Business Associations Outline 1!!
By: Embernarn Date: May 20, 2015, 3:44 am
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#Post#: 117--------------------------------------------------
Re: Business Associations Outline 1!!
By: Sinnongyu Date: March 9, 2018, 12:46 am
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#Post#: 145--------------------------------------------------
Re: Business Associations Outline 1!!
By: Toonpravena Date: December 12, 2018, 2:47 am
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