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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”
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.” “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.”