Chapter 26 Operating Partnership Section 3 Goals List the powers of a partner 2. Explain the duties and potential liabilities of a partner

A Partner’s Rights Every Partner has certain rights which include: Right to participate in Management: Every Partner, as a co-owner of the business, has an equal right to participate in its management. Every partner has the right to buy, sell, hire, fire and make other decisions for the company. But everybody must agree to big changes that affect the nature of the business. ( like the location)

Right to Profits: Partners are entitled to all profits earned. In the absence of contrary agreement, both profits and losses are shared equally regardless of the different amounts of money contributed or time spent. Outsiders are not bound by internal agreements and may hold any or all general partners liable without limit for all partnership debts. If one partner if forced to pay an entire debt it is up to that partner to recover from the other partners their rightful share.

Rights In Partnership property: Partnership property consists of all cash and other property originally contributed by the partners as well as all property later acquired and retained by the firm. Tenancy in partnership is when each partner is a co-owner of all the partnership property and is not the sole owner of any specific piece. Each partner has an equal right to use firm for partnership purposes. No partner can use firm property for personal purposes

Right To Extra Compensation: A partner who brings in more money, business, or works longer or harder is not entitled to extra pay or a larger share of the profits. (unless all partners agree) Common sense and fairness often dictate that a partner who gives more should receive more but all partners must agree to this

A Partner’s Authority Each member has the authority to do: 1.Make Binding Contracts For The Firm Each partner can make binding contracts deemed by that partner to be necessary or desirable (regardless of the risk or result of the deals) 2.Receive money owed to and settle claims against the firm All partners are assumed to have received any payments to the firm even if the partner who actually received the money disappears.

3.Borrow Money in the Firm’s Name In trading partnership, any partner can borrow for partnership purposes. Partners can execute promissory notes binding the firm and can pledge or mortgage partnership property as security. Partners in nontrading partnership property generally do not have power.

4.Sell A partner can sell in the regular course of business any of the firm’s goods and give customary warranties. A partner may not sell the entire inventory (it can end the business) 5.Buy Any partner can buy for cash or credit any property within the scope of the business. 6.Draw and Cash Checks and Draft A partner can draw checks and drafts for partnership purposes and can endorse and cash checks payable to the firm.

7.Hire and Fire Employees and Agents Each partner has the authority to hire and fire employees , agents, and independent contractors to help carry on the business. 8.Receive Notice of Matters Affecting the Partnership When one partner is served with summons and complaint against the firm, all are deemed to have received the notice. (even if they are not confirmed)

A Partner’s Duties and Liablities Each partner has a duty to: 1.Comply with partnership agreement and decisions. 2.Use reasonable care 3.Act with integrity and good faith 4.Not conduct competing business 5.Keep accurate records

A Partner’s Liabilites Partners may make any agreement they choose regarding authority to run the business. Partnership firm and all members are liable without limit for obligations of the firm that arise out of contracts made by any partner within the scope of the firm’s business. Partnership and all partners are liable , when any partner commits a tort. (negligence and fraud) A partner cannot escape responsibility for the firm by withdrawing from the partnership.

A new partner who joins the firm is liable for both existing and new debts of the business. The new partner’s personally owned property cannot be recovered against to satisfy such preexisting claims.