Click your mouse anywhere on the screen to advance the text in each slide. After the starburst appears, click a blue triangle to move to the next slide or previous slide. CHAPTER 34 Partnership In Operation
Quote of the Day “He who has a partner has a master.” Italian proverb, quoted in “The Count of Monte Cristo”
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.
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 partnership’s business or with the actual authority of the partners.
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 partner’s assets until all the partnership’s assets are exhausted.
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.
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.
Financial Rights (cont’d) • 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.
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.
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.”)
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.
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.
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
“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.”