Chapter 31

General Partnerships

 

Objectives:

1. Identify types of business associations and factors in choosing

2. Legal entities v. legal aggregates; When is a partnership an entity and when an aggregate?

3. Partner's rights in specific property vs. rights in the partnership

4. Dissolution and dissociation of partnership

5. Effect of dissolution on authority of partner

 

I. Choosing a Business Association

          A. Factors affecting choice

                   1. Ease of formation

                   2. Taxation

                   3. External liability, limited liability

                   4. Management and control

                   5. Continuity

 

          B. Forms of Business Associations

                   1. Sole proprietorship

                   2. General partnership

                   3. Joint venture

                   4. Limited partnership

                   5. Limited liability company

                   6. Limited liability partnership

                   7. Limited liability limited partnership

                   8. Corporation

                   9. Business trust

 

II. Formation of Partnership

          A. Nature of partnership

                   1. Definition

                   2. Entity theory v. aggregate theory

                             a. Partnership as legal entity

                             b. Partnership as legal aggregate

          B. Formation of partnership

                   1. Partnership agreement

                             a. Statute of frauds

                             b. Firm name

                   2. Tests of partnership existence

                             a. Association

                             b. Business for profit

                             c. Co-ownership (see indicia of ownership, p. 608)

                   Chaiken v. ESC, p. 609.

                   Facts: Three barbers enter partnership. Two only provided their scissors and rudimentary equipment, the other everything else. The other partner had total control. Profits were shared, but on the basis of how much work the two did. Also, the two were not liable for partnership debts. Government challenged partnership claiming that the two were employees, and unemployment contributions were due.

                   Issue: Was this a partnership?
                   Holding: No. The way they shared profits and the lack of responsibility for debts killed the partnership.

          C. Partnership Capital and Property

                   1. Property in the partnership (parties' intent is the key)

                   Thomas v. Lloyd, p. 611.

                   Facts: M and W become romantically involved. M lied about job, wealth, and marital status. They got "married" in Canada. They bought farm in Missouri, as joint tenants with right of survivorship. They bought equipment and improved the property. They break up. M makes claim on real property. Trial court held farm was not a partnership asset, gave 98% to W and 2% to M.

                   Issue: Was the farm a partnership asset?
                   Holding: No. W paid for the vast majority with her own separate funds.

                    2. Partner's rights in specific partnership property (generally none)

                   3. Partner's right to interest in the partnership

                             a. Assignability

                             b. Creditors' rights

 

III. Dissociation and Dissolution under RUPA

          A. Dissociation (partner leaves)

                   1. Wrongful dissociation

                   2. Rightful dissociation

                   3. Effect of dissociation

          B. Dissolution

                   1. Causes of dissolution

                             a. Act of partners

                             b. Operation of law

                             c. Court order

                   Horizon, p. 616

                   Facts: Two corporation set up partnership to jointly operate a hospital. Agreement called for 20 year term and damages for wrongful dissolution. Partnership could be dissolved if irreconcilable differences existed. Trial court ordered dissolution, and partner sought damages for wrongful discharge.

                   Issue: Can the partner received damages for wrongful dissolution?
                   Holding: No. Court dissolved, finding irreconcilable differences. That is valid reason to dissolve.

                   2. Effect of dissolution

                             a. Authority (actual authority ends, apparent authority may continue)

                             b. Liability

                   3. Winding up

                             a. Participation in winding up

                             b. Distribution of assets

                             c. Marshaling of assets

          C. Dissociation without dissolution

                   1. Non-dissolving dissociation

                             a. Partnership at will v. term partnership

                   2. Continuation at dissolution

                   Creel v. Lilly, p. 620

                   Facts: D set up NASCAR memorabilia shop. Brought in two partners to run the shop. D dies. Partners change name, continue the business. They had an accountant value the business, and offered to pay D's W her share. W sued, saying business should be shut down.

                    Issue: Did the dissociation by death require dissolution of the partnership?
                   Holding: No. Law prefers partnership entity to survive. It was valid to value the partnership rather than selling everything off.

                   3. Dissociated partner's power to bind partnership

                   4. Dissociated partner's liability to third persons

          D. Dissolution of general partnership

                   1. Causes

                             a. Act of partners

                             b. Operation of law

                             c. Court order

                   2. Effects of dissolution

          E. Winding up

                   1. Right to wind up

                   2. Distribution of assets

                   3. Marshaling of assets

          F. Continuation after dissolution

                   1. Rights to continue partnership

                             a. Continuation after wrongful dissolution

                             b. Continuation after expulsion

                             c. Continuation by agreement of parties

                   2. Creditors' rights