UPA PARTNERSHIPS PROFESSOR WILLIAM BIRDTHISTLE CHICAGO KENT COLLEGE OF LAW

Transcription

1 UPA PARTNERSHIPS PROFESSOR WILLIAM BIRDTHISTLE CHICAGO KENT COLLEGE OF LAW CHAPTER 1: DISTINCTIONS BETWEEN THE UNIFORM PARTNERSHIP (UPA) AND THE REVISED UNIFORM PARTNERSHIP ACT (RUPA) A. Fur Majr Distinctins 1) As a general matter, the UPA is than the RUPA. 2) At times, the UPA generally refers t a partnership as an f. That is different than the RUPA which treats the partnership as a distinct entity. 3) Generally, in a UPA partnership there are fewer. RUPA sets frth a lt f cncrete fiduciary duties that apply t a partnership. 4) When smebdy wants t leave a UPA partnership, the standard rule is that the partnership. RUPA has put a lt mre emphasis n allwing the partnership t cntinue, even if smebdy walks away. CHAPTER 2: FORMATION OF A PARTNERSHIP A. Frming a Partnership Definitin: An assciatin f t carry n a as. A partnership may be frmed ut f tw r mre r by tw r mre wh have a casual cnversatin and speak partnership int being. 1. Persns Anything, human r therwise, that has the capacity t. 2. Intent Nt Nt thse wh are The intent that yu need des nt extend s far as t have the specific intent t frm what yu think is a partnership. Instead,

2 Example 1: A & B decide t sell flwers at the cunty fair frm A s garden. B was given the task f securing space at the fair and A was in charge f cutting the flwers. They agreed t split the sales. Was there a partnership? By cntrast, t frm a crpratin. 3. Prfits If tw r mre persns agree t share, yu have a presumptin f partnership. Nt every divisin is a divisin f prfits. 4. Sharing Cntrl Example: grss incme, debt payments, interest charges, rent, wages, gd will payments, r annuities. Areas f cntrl are. Example 2: Back t A & B, cutting and selling flwers. They never said when they agreed t becme a partnership; they never said that they wuld have 50/50 cntrl ver the peratin. Instead, what was said was A will d the flwers and B is ging dwn t the fair t get the bth. They have separate areas f cntrl but they bth d have cntrl. Cntrl has been divided amngst them. Tw examples that lk like a divisin f prfits and a divisin f cntrl that are nt partnerships: 1) Emplyer / Emplyee relatinship 2) Lender / Brrwer Relatinship Example 3: Fenwick v. The Unemplyment Cmpensatin Cmmissin, 132 N.J.L. 185, (N.J. Sup. Ct. 1947). An emplyer/wner f a hair saln did nt want t pay unemplyment s they drew up a partnership agreement and split the prfits 80/20, subject t his apprval. That lks like a partnership, there is a divisin f prfits but there is n divisin f cntrl. It said it was a partnership agreement but there was n divisin f cntrl the emplyer had all the cntrl. He culd decide whether t pay the prfits r nt. Example 4: One party gives anther mney and says in exchange fr giving yu this mney, I have vet ver yur hiring decisins, I want t see yur bks and recrds every nw and then, and I want t make sure yu d nt take n any additinal debt. This is nt the divisin f prfits r an impsitin n cntrl. These are standard terms that apply t any kind f lan Themis Bar Review, LLC UPA Partnerships

3 B. Cnsequences f a Partnership Aggregate: A cllectin f individuals. Nte that this is nt explicitly stated in the UPA and many curts have interpreted UPA partnerships t perate as entities but it is, nevertheless, a majr distinctin between the UPA and the RUPA. RUPA, hwever, des explicitly state that partnerships are entities, that they are distinct frm their partners, that they may hld prperty in their wn names distinct frm the partners, that they may sell prperty in their names distinct frm the partners, and that they may sue and be sued as a distinct entity. In UPA jurisdictins, t sue, each partner wuld have t be identified. Partnerships d nt have limited liability. In a UPA jurisdictin, yu can sue the and the partner, in turn, attempts t recver the balance frm the partners. In a RUPA jurisdictin, yu satisfy a partnership bligatin ut f the partnership assets first and nly then wuld yu turn t the partners in their persnal capacity. N entity-level. With a crpratin, there is. C. Partnership Agreement The partnership agreement is the law f partnerships. If there is n partnership agreement, will gvern the partnership with default rules. Hwever, when there is a written partnership agreement,. Exceptin: When it cnflicts with. Example 5: agreement. Partners cannt waive persnal liability in the partnership Which state laws are mandatry? Liability t Access t duties CHAPTER 3: INTERNAL AFFAIRS OF A PARTNERSHIP In UPA jurisdictins, partners can sue the partners and partnership in nly tw brad areas: 1) Disslutin 2) Accunting UPA Partnerships 2016 Themis Bar Review, LLC 3

4 A. Fiduciary Duties Definitin: Every partner is a fiduciary f. UPA des nt enumerate fiduciary duties but cmmn law has created examples. a. Cmmn Law Examples f the Duty f Lyalty Partners must nt: 1) Cmpete with Example 6: If yu are in a law firm that is a UPA partnership and yu start anther law firm n the side with ther peple, the tw are in the same area and, depending hw clsely they are in the same area and hw cmpetitive the tw are accrding t the fact pattern, it may be a vilatin f the duty f lyalty. 2) Advance an interest that is. Example 7: If yu wrk fr a law firm and yu lbby Cngress t utlaw law firms, that wuld be adverse t the law firm and dislyal. 3) a partnership pprtunity. Example 8: A law firm is lking fr new ffices and ne f the partners learns f a fantastic bargain-basement deal fr new ffice space but decides t take it fr herself. That is usurping a partnership pprtunity and is generally cnsidered dislyal. Limitatins n the duty f lyalty: UPA des nt state whether the duty f lyalty can be mdified. will fill in here. b. Duty f Care The duty f care is nt mentined in the UPA but this des nt mean it has nt been filled in by. 1) Engage in 2) Engage in 3) Engage in Example 9: A partner is running a pnzi scheme ut f his ffice. It des nt really have anything t d with the partnership but it might because it is an intentinal vilatin f the law and, as such, wuld qualify as carelessness. Even in a UPA jurisdictin, cmmn law wuld suggest that this wuld be a vilatin f a general fiduciary duty. Timing: Themis Bar Review, LLC UPA Partnerships

5 Duties f lyalty and care apply nly t, nt r. Example 10: If yu are frming a partnership in a UPA jurisdictin and yu are negtiating the terms, yu d nt have t abide by the duties f lyalty r duty f care r ther fiduciary duties. Example 11: If yu have a frmer partner, smebdy wh is retired, and is receiving a pensin frm the partnership and the partners decide t stp that pensin, that partner cannt claim it is a breach f fiduciary duty. B. Prfits and Lsses 1. Divisin f Prfits and Lsses Determined by. 1) Prfits: When there is n partnership agreement regarding divisin f prfits,. Financial cntributins / capital cntributins may have n effect n divisin f prfits and lsses. Divisin f prfits and lsses need nt be the same. 2) Lsses: The UPA says that lsses will fllw. 2. Distributins As a default rule,. Partners have t n distributins. 3. Transfer f Partnership Interests UPA partnerships are. Default rule:. Default rule: When a new partner is intrduced,. C. Management Relatinships Default rule: Every partner has t the management and cnduct f the partnership. Can be changed by agreement. Example 12: The rainmaker in a law firm may be given additinal cntrl. 1. Ordinary and Extrardinary Business Matters Ordinary business requires. An example f rdinary business is. UPA Partnerships 2016 Themis Bar Review, LLC 5

6 Editr's Nte 1: Additin f a new member f the partnership requires cnsent f all the partners. UPA 18 (g).] Extrardinary business requires. Examples include 2. Access t Recrds In bth the UPA and the RUPA, this is a default,. The UPA requires the partnership t allw the partners and their t access the recrds. In the UPA jurisdictins this bligatin extends t require all partners t give infrmatin t ther partners abut partnership business. CHAPTER 4: EXTERNAL AFFAIRS OF A PARTNERSHIP A. Generally Every partner is an. The partnership is bund by cntracts entered int by partners with. B. Cntract and Trt Liability 1. Cntract Liability - What s the authrity? Express authrity is expressly given and it is cmmunicated between, the agent, and it is cmmunicatin between the tw that permits the agent t. 2. Where des it cme frm? 1) Partnership 2) Statement f 3) f the partners Implied authrity exists based n the partner s that an actin is. Example 13: Hiring partner takes a prspective assciate ut t dinner. Des the law firm have t pay fr the dinner? Under express authrity, the partnership agreement never said that the hiring partner was permitted t take the prspective assciate ut t dinner s the firm des nt have t pay. Under an implied authrity analysis, if the partner has a reasnable belief that an actin is necessary t carry ut the express authrity, then it will be authrized under implied authrity. The actin has t be custmary Themis Bar Review, LLC UPA Partnerships

7 Apparent authrity is based n cmmunicatins between a. Express Example 14: The partnership says t a restaurant we are ging t be taking a lt f peple ut here. Please send the bill t us fr the hiring dinners. A week later, the partnership has a vte and fires Je Blggs as a lusy hiring partner and says that his authrity has ended. A few days later, Je Blggs takes smebdy t that restaurant and the restaurant sends the bill t the firm. The firm cannt say t the restaurant that it terminated his actual authrity because the restaurant can say it did nt terminate his apparent authrity. b. Implied Example 15: By giving the partner letterhead n which the partner s name appears r giving the partner business cards n which the partner s name appears. If the partner then uses the letterhead t rder ffice supplies, in a way that is the partnership cmmunicating t the ffice-supply stre that it is k fr the ffice-supply stre t send the bill t the partnership. 3. Trt Liability Partners are fr trts cmmitted by the partners Example 16: If the partner cmmits malpractice r defrauds clients f the firm at the firm during the curse f carrying ut their affairs, the rest f the partnership is bund. 4. Cnsequences f Flw f Liability In trt, a partner is. In cntract, a partner is. An incming partner is CHAPTER 5: DISSOLUTION AND TERMINATING A PARTNERSHIP; LIMITED LIABILITY PARTNERSHIPS; LIMITED PARTNERSHIPS A. Generally Unlike the RUPA, which prvides fr a dissciatin f individual partners, UPA jurisdictins nly allw fr. Dissciatin: A prcess by which ne partner, vluntarily r invluntarily, can UPA Partnerships 2016 Themis Bar Review, LLC 7

8 B. Disslutin If a partner withdraws, vluntarily r invluntarily, the partnership is Examples: If a partner If a partner ges If the ther partner is Tw step prcess: and 1. Disslutin Nt the end; it is. Can be brught abut by: The Operatin f law A 2. Winding Up and settling accunts. Partnership at will: Open-ended partnership with n. Generally, disslved when. Partnership fr a term r an undertaking May be disslved when. May be disslved when. Other ways t disslve partnership fr term r undertaking: All the partners. By ne f the partners, r ne f the partners. By a. Either type f partnership may als be disslved in these ther ways: By an event agreed t in the partnership agreement. Example 17: When we stp making $2, a year, the partnership is disslved. If that happens, then the partnership is disslved. If the partnership des smething that makes it unlawful t cntinue and Themis Bar Review, LLC UPA Partnerships

9 Example 18: If the partnership desn t file its apprpriate tax frms r it is bliged t d smething legally and it desn t d it, it can be disslved. By judicial determinatin. Example 19: The ecnmic purpse f the partnership is frustrated. C. Winding Up 1. Wh may wind up? Any partner wh has nt A f ne f the partners The 2. Pririty f Distributins have pririty ver. UPA Distinctin: Nt nly d disslutin payments have t g first t creditrs, they cannt g t partners until. Example 20: If a partner als happens t be a creditr, under the UPA, that partner will have t wait until all ther creditrs are paid. D. Other Types f Partnerships 1. LLPs Partnerships in which a partner s is eliminated. Still persnally respnsible fr. T enjy LLP status, yu have t. T transfrm a partnership int a LLP, yu need. If the agreement is silent, the default rule requires a unanimus decisin. a. Name Must always end with either: Registered Limited Liability Partnership Limited Liability Partnership RLLP LLP Why: Warning t creditrs b. Liabilities Limited partners are nt fr an bligatin f the LLP. UPA Partnerships 2016 Themis Bar Review, LLC 9

10 Example 21: If a law firm LLP has earned $1 millin ver curse f the year but is being sued fr $3 millin the plaintiff can cllect $1 millin frm the firm but it cannt g after the partners fr the $2 millin. A limited partner wh is respnsible fr the miscnduct will be. Examples: Negligence, malpractice, r failure t supervise c. Terminating LLP status Partners can their LLP status. D nt have t disslve t d s. The state can LLP status fr. Example 22: Failure t file yur annual reprts r fail t use yur LLP signifier in yur name. 2. LP A partnership frmed by tw r mre persns that has A limited partner s cntributin is limited t the amunt they cntributed t the partnership. Cnsists f limited partners and general partners a. Frmatin File a. Certificate must cntain: Name f limited partnership In-state address Name f agent All names and addresses f general partners Statement f Executed by general partner Effective date Substantial cmpliance is sufficient. b. Limited Partners Hw d yu becme a limited partner? r the. Vting: Allwed t vte nly t the extent allwed under the partnership agreement. Right t access recrds Themis Bar Review, LLC UPA Partnerships

11 Liability t third parties: A limited partner is fr the bligatins f the partnership UNLESS the limited partner chses t serve as the general partner r. Things limited partners are allwed t d withut running the business: Be fficer, directr, r sharehlder f general partner Cnsult and advise the general partner n partnership affairs Act as a surety f the partnership Request t r attend meetings f the partnership Wind up partnership Prpse r apprve f partnership matters Withdrawing: The limited partner must. c. General Partners Hw d yu becme a general partner?. Rights and pwers: Same rights and pwers f a partner that is nt in a limited partnership. Liabilities t third parties: t third parties fr the bligatins f the partnership and t ther partners and t the partnership. T prtect frm liability, many general partners are r LLCs. Terminating status: Vluntarily The general partner Act accrding t The general partner is an entity wh The general partner is a natural persn wh [END OF HANDOUT] UPA Partnerships 2016 Themis Bar Review, LLC 11

12 Themis Bar Review, LLC UPA Partnerships