Partnership

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CHAPTER 34
Partnership In Operation
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Quote of the Day

• He who has a partner has a master.
• Italian proverb, quoted in The Count of Monte
  Cristo

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Partners and Outsiders

• Each partner is an agent of the partner-ship for
  the purpose of its business.
• Actual Authority a partnership is liable for
  any authorized act of a partner.
• Implied Authority a partnership is liable for
  any act of a partner that is reasonably necessary
  to carry out an authorized act.
• Apparent Authority a partnership is liable for
  any unauthorized act of a partner, if the partner
  appears to be carrying on partnership business.

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Other Issues

• Ratification
• If the partnership accepts the benefit of the
  unauthorized transaction or fails to repudiate
  it, the partnership has ratified it.
• Information
• Whatever one partner knows, the partnership is
  deemed to know.
• Tort Liability
• A partnership is responsible for the intentional
  and negligent torts of a partner in the ordinary
  course of the partnerships business or with the
  actual authority of the partners.

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Paying the Debts of the Partnership

• All partners are personally liable for all debts
  of the partnership.
• Partners have joint and several liability for
  partnership obligations.
• Also note that, even if creditors have a judgment
  against an individual partner, they cannot go
  after that partners assets until all the
  partnerships assets are exhausted.

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Liability for Previous Debts

• The RUPA provides that a partner is personally
  liable only for obligations the partnership
  incurred while he was a partner.
• His liability for debts incurred before he became
  a partner is limited to his investment in the
  partnership.

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Financial Rights

• Partners share profits equally, unless they agree
  otherwise.
• Partners share losses according to their share of
  profits, unless they agree otherwise.
• Any agreement among partners to share losses is
  binding only on them, not on outsiders.

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Financial Rights (contd)

• Partners are not entitled to any payment beyond
  their share of profits, unless they agree
  otherwise.
• All partnership property belongs to the
  partnership as a whole, not to the individual
  partners.

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Right to Transfer Interest

• Without the approval of the other partners, a
  partner cannot sell her share she can only
  transfer her right to receive profits and losses.
  
• A new partner can only be admitted to a
  partnership by unanimous consent of the other
  partners.
• Creditors can attach partnership profits through
  a changing order issued from the courts.

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Management Rights

• Each and every partner has equal rights in the
  management and conduct of the business, unless
  the partners agree otherwise.
• Large partnerships usually designate managing
  partners (sometimes called members of the
  executive committee).
• Sometimes, managing is done almost dictatorially
  by the partner who brings in the most business
  (the rainmaker.)

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Other Rights

• Right to Vote
• Unless the partners agree otherwise, all partners
  have an equal vote, regardless of their
  contributions to the partnership.
• Right to Know
• Partners have the right to examine all
  partnership books and records for any reason.
• Partners have the duty to volunteer any
  information which may be relevant to the other
  partners.

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Duty of Care

• Partners are liable for
• gross negligence,
• reckless conduct,
• intentional misconduct, or
• a knowing violation of the law.
• Partners are not liable for ordinary negligence.

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Duty of Loyalty

• Partners have a fiduciary duty to their
  partnership.
• Some actions which may violate this fiduciary
  duty include
• Competing with the partnership
• Taking a business opportunity away from the
  partnership
• Using partnership property for private profit
• Conflicts of interest

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A partnership is as complex a form of
organization as humans have ever invented. It
has all the intensity and subtlety of a marriage,
but often with more participants.
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