Partnerships

• Partnership creation

  • No written agreement required
  • Parties may or may not use the word partnership
  • UPA and RUPA focus on shared control, shared profits, and shared losses
• 4 Ways an Unintended Partnership can be created

  1. Sharing profits with employees that give them some control

  2. Lending money to partnership with conditions that give lender some control

  3. Long term contract that commits the parties to a joint venture like arrangement (sharing profits, control, etc.)

  4. Estoppel (Price Waterhouse case)
• Minimizing risk of liabilities associated with unintended creation of a partnership


  • Convert the partnership into a limited liability entity such as an LLC
  • This won't prevent expansive liability based on agency theory (Cargill case)
  • For additional protection for the lender (or contractor), that entity too should be a limited liability entity, such as an LLC or corp
• Do partners owe a fiduciary duty to one another?


  • Could those fiduciary duties extend even after partnership is dissolved? (Meinhard v. Salmon, Sandvick, Pav-Saver and others)
  • Can fiduciary duties be waived if the partners agree to do so? (Lawlis, Pav-Saver and others)
• UPA Default Provision: Each Partner shares profits and losses equally
• UPA Default Provision: Each partner has equal voting rights
• UPA Default Provision: Each Partner has agency authority to bind p-ship in ordinary course of business (UPA § 9)
• UPA Default Provision: Actions not in ordinary course of business require majority vote (UPA § 18).
• UPA Default Provision: Actions that require change in partnership agreement require unanimous vote (UPA § 18)
• When can a partnership agreement trump the default rules of the UPA?


  A,B, & C form p-ship. Agreement calls for A to be managing partner, with A alone given agency authority to act for p-ship.
• Day v. Sidley & Austen


  P-ship agreement forms Exec. Committee with authority to bind partnership and authorize actions not in ordinary course of business. (Getting around UPA default)
• Meehan v. Shaughnessy 


  Law firm’s partnership agreement varies profit and voting allotment for each partner (UPA would give equal share and voting rights to all).
• Lawlis v. Kightlinger & Gray


  Law firm’s p-ship agreement allows expulsion by majority vote (UPA § 18 would require unanimous vote to change partnership agreement).
• Dissolution


  The first step toward ending a partnership
• Winding up


  The process that may last a long time after dissolution
• In some cases, a non-wrongfully dissolving partner can continue the business of the partnership indefinitely
• Departure of a partner under the 1914 UPA


  Causes dissolution of the partnership
• Departure of a partner under the 1997 RUPA


  Triggers dissociation (the partnership need not dissolve)
• If the departure is wrongful


  The departing partner must pay damages
• Under the 1914 UPA, a wrongfully departing partner


  Gives up control over the winding up process AND loses the goodwill value of his/her partnership interest
• When is departure wrongful?


  • When the departing partner has violated the partnership agreement
  • When the partner was disloyal or acted in a manner inconsistent with carrying on the partnership
  • If partnership is at will, any partner may leave at anytime, for any reason, without being in the wrong
  • A partnership at will may have an implied term that can lead to wrongful departure
• Critical differences between 1914 and 1997 Partnership Acts


  • Departure does not cause automatic dissolution under the 1997 Act (partnership may continue)
  • Wrongfully departing partner does not lose goodwill value of interest under the 1997 Act
• Conflict of Interest: When partner has personal interest adverse to partnership interest.
• Partners have fiduciary duty to one another and to partnership. Fiduciaries owe loyalty and obedience to principal; must avoid conflicts between own interests and those of principal.
• Dissolution is termination of partnership. It may occur when partners agree or upon happening of event agreed on in partnership agreement.
• Partner's fiduciary duty requires loyalty to partnership
• Partner cannot compete against partnership while still a member