Partnerships

1) the association

2) of 2 or more persons

3) to carry on as co-owners (shared control)

4) a business (must be a business activity)

5) for profit

As of January 1, 2010, the Texas Business Organization Code applied to partnerships.

NOTE: The statute is only a set of default rules. Partnership agreements control.

No. If actions conform with 5 prong definition, a partnership is formed.

None.

1) receipt or the right to receive a share of the profits of a business. (necessary condition, but doesn't always indicate a partnership) [can be used as compensation- not indicative of a partnership]
2) expression of the intent to be partners in a business
3) participation or the right of participation in control of the business
4) agreement to share of sharing in the losses of the business of liability for the claim by
5) agreement to contribute or actually contribute money or property to the business.

No, but statute of frauds may be applicable if the partnership involves contracts that
1) cannot be performed within one year or
2) involves the transfer of real estate to the partnership

Yes. Not within the statute of frauds because it's capable of being performed within one year

Partnership agreements may not
1) alter a partner's power to withdraw from the partnership
2) unreasonably restrict a partner's access to records
3) eliminate the partners' duty of loyalty
4) eliminate the partners' duty of care
5) alter the court's ability to expel a partner
6) restrict the rights of a third party
7) choose a governing law from a state with no reasonable relationship to the partnership
8) modify or waive provisions of the TOBC

A third party can hold a person personally liable for an obligation as if they were a partner in a partnership if:
1) The person represents himself or consents to another representing him as a partner in an actual or purported partnership AND
2) The third party relies on that representation.
NOTE- this is a common law claim.

All partners must agree to admit a new partner unless partnership agreement provides otherwise.

Any "person" capable of entering into a binding contract, including corporations, executors, governmental bodies, guardians, and other business organizations.

Any purpose that is not illegal. Courts will not enforce accounting to partnerships involving illegal purpose.

The partnership is a separate entity from the partners.

Each partner is an agent of the partnership.

1) Duty of care
2) Duty of loyalty

Partners are NOT fiduciaries

Both duties must be discharged in good faith an in a manner the partner reasonably believes is in the best interest of the partnership.

1) Accounting to and holding for the partnership PROFITS, PROPERTY, or BENEFITS received
2) refraining from dealing adversely with the partnership on behalf of a third party
3) refraining from competing or dealing with the partnership in an adverse way.

Partners must act as an ordinarily prudent person would under the circumstances.

Partners presumed to satisfy the duty of care if the act on an informed basis, in good faith, and in a manner reasonably believed to be in the best interest of the partnership.

Profits are shared equally, and losses are shared in the same manner as profits- thus, both are shared equally absent further agreement.

Under the TBOC, each partner is deemed to have a partner account into which capital provided for the partnership and the partner's share of profits are deposited.

All partners have equal rights in the management of the partnership

1) Decisions in the ordinary course of business require a "majority-in-interest" vote (=partners have more than 50% in partnership profits)

2) Decisions regarding extraordinary matters require all partners to consent (unanimous)
a) matters outside normal course of business
b) amendment of the partnership agreement
c) admission of a new partner

1) management rights
2) voting rights
3) compensation rights
4) access to information
5) indemnification rights

Partners are not entitled to compensation for services benefitting the partnership.

Exception: partners are entitled to compensation for services expended in "winding up" the corporation.

Partners are entitled to indemnification for reasonable expenses incurred in carrying on the business of the partnership.

1) Partners, their attorneys, and their agents have access to books and records of the partnership.

2) upon a just and reasonable request, the partnership must provide complete and accurate information about the partnership to a partner.

A partnership agreement cannot unreasonable restrict these right.

1) Partnership Capital: money or property contributed by the partners for the purpose of carrying on business
2) Partnership Property: everything else the partnership owns.

If the property is acquired in:
1) That partnership's name, or
2) The name of one or more partners with an indication in the conveying instrument that either the partner is acting in his partnership capacity or the partnership exists.

1) Deemed partnership property
2) Presumed partnership property

If the property is acquired with the partnership's cash, credit or other property.

This is a rebuttable presumption

1) the property is not acquired using partnership property, and
2) the instrument transferring title to the property does not indicate the person's capacity as partner or the existence of a partnership.

Ex. Partner buys computer with personal funds without mentioning the partnership= separate property.

The property belongs to the partnership, not the partners.

A partner only has the right to use partnership property for partnership purposes.

If partner acts with
1) actual authority, express or implied
2) apparent authority
3) absent any authority, if the grantee has conveyed the property to the holder of value who does not know that the partner who made the original conveyance exceeded his authority.

Includes a partner's economic rights (share of profits, losses, and the right to receive distributions) in the partnership.

Does not include a partner's right to participate in management.

A partner can transfer his partnership interest at any time, voluntarily or involuntarily.
(involuntary=creditor)

1) To receive distributions of partnership profits that the transferor would have received.
2) To receive the net amount the transferor's would have received when the partnership is wound-up
3) for the proper purpose, the right to receive reasonable information or accounting and to make reasonable inspection of partnership books.

Does not include management rights.

The transferor retains management right in the partnership, forfeiting only economic interests in the partnership upon transfer.

Transferees have no personal liability for the partnership's obligations until admission into the partnership.

1) The partner has express or implied actual authority
2) The partner has apparent authority
3) The partnership is estopped form denying the partner's authority
4) The partnership ratifies the contract.

1) partnership agreement authorizes the partner's action
2) partners vote on a matter

A partner binds the partnership by acting on contractual matters occurring within the ordinary course of partnership business.

Implied actual authority does not exist in extraordinary matters outside the normal course of partnership business.

If the partner's act is apparently for carrying on in the ordinary course of the partnership's business or business of the kind carries on by the partnership UNLESS
1) The partner does not have authority to act, and
2) the person with whom the partner is dealing knows that the partner lacks authority to act.

The partnership is liable to a person, including a partner, caused by a wrongful act or omission of a partner who acts
1) in the ordinary course of the partnership's business; or
2) with the authority of the partnership

Keep in mind respondeat superior for partnership subagents

A partner's knowledge of a fact related to the partnership is attributed tot he partnership.

A partner's notice of a fact relating to the partnership is effective immediately as notice to the partnership, unless the partner receiving the notice is committing fraud.

Partners ar personally liable, jointly and severally, for partnership obligations under vicarious liability, both in tort and in contract, including those arising from the actions of other partners.

joint & several= each partner liable for entire obligation, but can seek indemnity from partnership and other partners.

Newly admitted partners are not personally liable for partnership obligations arising
1) before the partner's admission
2) for an act or omission occurring before admission of the new partner, OR
3) under a contract or commitment entered into before the partner's admission

A withdrawing partner remains personally liable as a partner for partnership obligations incurred while she was a partner unless the creditor agrees to discharge her.

Creditors must obtain a judgment against both the partnership and the partner (same or separate actions), and the judgment is unsatisfied for 90 days (creditors must look to partnership assets first)
BUT a creditor can proceed directly to a partner's personal assets if:
1) the partnership is a debtor in bankruptcy
2) the partnership and the creditor agree otherwise
3) a court orders such (partnership assets insufficient, collection unduly burdensome)

REDBREW
1) REQUEST by a partner for winding up of an at will partnership whichthe other partners decline
2) EVENT specificied int he partnership agreement
3) DEATH of a partner
4) BANKRUPTCY
5) REDEMPTION of a partnership interest following its transfer
6) EXPULSION of a partner by a court or the partners
7) WRITTEN notice of withdrawal?

The withdrawing partner ceases to be a partner, but the partnership continues to exist (no wind-up required)

Redemption rights: the partner may redeem the fair value of his partnership interest form the partnership so long as the partnership does not wind up for 60 days.

At any time, but withdrawal may be deemed wrongful if it occurs in response to an event other than the REDBREW events.

1) in breach of an express provision in the partnership agreement (term)
2) Occurs by judicial expulsion for partner misconduct
3) Occurs before the completion of a specified period or undertaking by the partner's express will, the partner's status as a debtor in bankruptcy, or an entity partner's willful dissolution/termination.

Redemption price= the lesser of
1) fair value of the withdrawn partner's partnership interest on the date of withdrawal, OR
2) the liquidation value of the partnership interest (amount the withdrawn partner would have received during winding up)

Yes. A withdrawing partner has lingering apparent authority for 1 year.

Withdrawing partners can bind the partnership if the other party to the transaction
1) had no knowledge of the withdrawal
2) had done business with the partnership within one year before withdrawal; AND
3) reasonably believed the withdrawn partner was still a partner at the time of the transaction.

Withdrawing partner still liable tot he partnership for these transactions.

1) Partners who have not withdrawn
2) legal representatives of the last surviving partner
3) a person appointed by the court

Period in which partnership prepares for termination. Includes:
1) Prosecution and defense of the partnership in legal actions
2) selling of assets
3) payment of debts

Partnerships can conduct business only related to winding up its affairs and cannot enter new business activities.

Actions that:
1) are appropriate for winding up
2) would have bound the partnership if the partnership were not winding up, provided the other party does not have notice of the even requiring winding up.

A partner who has notice of the winding up but creates an inappropriate liability is liable to the partnership for losses occurring in connection with the liability.

Nothing

1) Expiration of the term completion of the undertaking UNLESS all partners agree to continue; OR
2) Unanimous agreement of partners to wind up the partnership before completion of the term/undertaking.

1) A majority-in-interest of the partners agree to wind up (MII=50% or more ownership)
2) When any partner requests winding up UNLESS a majority in interest agree to continue (dissenting partner effectively withdraws)

1) partnerships business becomes illegal, absent curing of the illegality within 90 days of notice
2) the sale of all or substantially all of the property of the partnership outside the ordinary course of business
3) court grants a partner's application for winding up due to:
a) unreasonable frustration of partnership's economic purpose, or
b) a partner's action makes it unreasonably impracticable to continue

1) creditors (including partner creditors)
2) partners

1. increased by contribution to partnership
2. decreased by partnership distributions
3. increased by partner's share of profits
4. decreased by partner's share of losses

negaitve balance= partner must pay partnership balance due

Limited Liability Partnership- a partnership in which the partners cannot be held personally liable for the tortious or contractual conduct of other partners, only for their own tortious or contractual conduct.

No personal liability for the actions of other partners, only liability for a partner's own conduct.

1. Registration with Secretary of State
2. Name must include LLP or "Limited Liability Partnership"
3. Pay fee per partner required by statute
4. Renew status annually

Failure to do any of these eliminates LLP designation

No. Formerly required $100,000, but abrogated in Sep. 2011

No. Formerly, a partner was liable for another partner's misconduct or negligent conuct if
1) the partner was supervising or directing the culpable individua
2) the partner was directly involved
3) the partner had notice of the misconduct but failed to take appropriate steps

Abrogated Sep., 2011

A partnership with at least one general partner and at least one limited partner.
General partners=personally liable manager
limited partners=not personally liable, no management

File a certificate of formation with Secretary of State containing:
1) name containing "limited", "limited partnership", or "LP/ltd."
2) name and address of agent for service purposes
3) name an address of all general partners
4) address of principal office where statutorily mandated records will be kept.

Limited partnership agreement governs, but the Texas Business Organization Code provides default rules (cannot be amended to affect rights of third parties)

no authority? use general partnership law.

general partners may be held personally liable for the obligations of the limited partnership. Limited partners may not be held personally liable.

the same rights as a general partner in a general partnership, including voting/management rights, distribution rights, etc.

General partners owe a duty of care and a duty of loyalty to the LP and can be held personally liable for the obligations of the LP.

A general partner can withdraw from a limited partnership at any time upon written notice to the other partners as well as occurrence of general partnership withdrawal events

Absent agreement otherwise, the remaining general partners (or, absent any general partners, a majority in interest of the limited partners) can:
1) convert withdrawn partner's interest to a limited partnership interest, OR
2) pay the withdrawn partner cash value minus damages caused by withdrawal

1) Voting Rights tot he extent granted by the limited partnership agreement
2) Access to records
3) Distrubutions

A limited partner DOES NOT face personal liability UNLESS they participate in control of the business, but only to a person who transacts business with the partnership and believes, based ont he limited partner's conduct, that the limited partner is actually a general partner

EXCEPTIONS: safe harbors- if a limited partner is an employee, they are generally excluded from control of the partnership.

A limited partner lacks the power to withdraw absent the occurrence of an event specified in the limited partnership agreement.

Prior to formation, a person becomes a limited partner at the occurrence of the latter of:
1) the date of formation
2) the date specified in the limited partnership agreement

After formation, a limited partner is admitted with the consent of ALL partners.

If a person, in good faith, believes he is a limited partner, the contributor is not liable if, within a reasonable time after discovering the error, the contributor does one of the following:
1) corrects the certificate of formation
2) withdraws from participation in future profits
3) files a statement with the secretary of state stating the error

BUT- contributor still liable if third party transacted business with partnership before corrective action believing based on partner's conduct that the contributor was a general partner and extended credit in reliance on the credit of the contributor.

Only the right to distributions. A transferee does not become a partner and has no rights as a partner (voting, records, etc.)

A transferor of a limited partnership interest is still considered a partner and retains partnership rights (voting, etc.)

A majority in interest of the limited partners can vote to terminate the general partner's status as a general partner.

1) all partners give written consent
2) court decree
3) expiration of period of duration or occurrence of event requiring winding up
4) event of withdrawal occurs specific to a general partner
5) no limited partners left

1) credtors, including partners
2) partner with unpaid interim distributions owed, or payment of any amounts owed to withdrawn partners
3) repayment of partner contributions
4) distribution of remaining assets in accordance with each partner's share of profits.

A certificate of termination with the TExas Secretary of State.

Majority in interest of general partners

a limited partnership in which general partners are not personally liable for actions of partnership.

A combination of a corporation and a partnership in which members and managers are not personally liable for LLC obligations, and the LLC is not taxed as a separate entity.

An LLC's owners are referred to as members, but the COF can also provide for managers with different agency authority.

As few as one member is necessary, and an unlimited number can form an LLC.

coporations, other LLCs, trusts, etc. can be members.

Only liable for promised contributions to the LLC. Not personally liable.

A professional limited liability company (doctors, lawyers). Members must be licensed professionals.

1) Name (must contain LLC, "limited company" or "limited liability company"
2) Duration (can be perpetual)
3) Purpose (broad- "any business purpose")
4) names and addresses of organizers and agents
5) **Management structure (member managed or manager managed?)
6)

The following priority:
1) Certificate of Formation
2) Company Agreement
3) Texas Business Organization Code

Upon filing of the certificate of formation with the Texas Secretary of State.

A quorum is a majority of members.

Electronic/remote participation counts with no agreement/consent necessary.

Each member/manager has 1 vote.

A majority of members from the quorum present at a meeting.

ex. 7 members, 5 present, 3 required

a absolute majority of all members, regardless of presence at the meeting.

ex. 7 members, 5 present, 4 required

1) Any action making it impossible to continue LLC business
2)Any fundamental business activity

Fundamental business activity=
a) merger
b interest exchange
c) sale of substantially all LLC assets.

Note- manager management=irrelevant

1) amendment of the certificate of formation or company agreement
2) admission of a new member
3) changing of management structure from manager managed to member managed

Generally, absent a fundamental business transaction or matter outside ordinary business, a member vote at a meeting with a quorum of members present is required.

HOWEVER- with unanimous written consent from all voting parties, an LLC can act without a meeting.

1) company agreement
2) if CA is silent, look to value of contributions.

ex. A=$500, B=$500- both receive 50% of profits

Always: an agent or employee vested with actual or apparent authority

Manager managed LLC: managers only, members cannot

Member managed LLC:
both members and managers are agents that can bind the LLC

1) ditributions
2) right to receive reasonable information, receive an account of transactions, or make reasonable inspections of the LLC's books.

The transferee is not a member and has no management or voting rights.

any member can transfer their interest at any time.

A transferor remains a member of the LLC and retains the same rights as a member would have.

1) majority of all members vote to wind up
2) court decree
3) expiration of period of duration or occurrence of specified event
4) last remaining membership terminated.

Certificate of termination must be filed with Secretary of State.