Partnership
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Partnership. Definition. Partnership: Can be created by contract of inadvertently. Ownership and responsibilities, along with profits and losses, are shared by two or more. Unlimited Liability. Partners carry on a continuing business together with the intention of making profit.

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Partnership

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Partnership

Partnership


Definition

Definition

Partnership:

  • Can be created by contract of inadvertently.

  • Ownership and responsibilities, along with profits and losses, are shared by two or more.

  • Unlimited Liability.

  • Partners carry on a continuing business together with the intention of making profit.

  • Not a separate legal entity.


Two kinds of partnership

Two Kinds of Partnership

General:

  • Unlimited Liability

  • Partners are vicariously liable for the conduct of their general partners and employees

  • Partners are held responsible for the breach of trust of their partners

    Limited:

  • Limited Liability

  • Can lose their limited status

  • Must have at least one general partner


Partnership

Case

Partnership Agreement

A partner may not negotiate a contract on behalf of the partnership in an amount greater that $10,000 without the approval of the two other partners.

Partnership


Partnership

We will provide you this loan, but we decide how you spend it

And we get to see your partnership agreement too

OK…


Partnership

What do you mean you and your partners have financial difficulties and can’t pay me back?!!

See you all in court!


Question

Question

  • Who should be liable for Foster’s loss?

    • Cummings

    • Anderson and Burton

    • Dilbert and Evans

    • Anderson, Burton and Cummings

    • Anderson, Burton, Cummings, Dilbert and Burton

    • Nobody is liable for Foster’s loss, since Foster is unaware of the limitation on Cummings’ authority


Cummings c

Cummings (C)

  • Signs a contract exceed the amount of his authority stated in the partnership agreement.

  • Cummings is liablefor the defaults in payment to Foster.


Anderson a and burton b

Anderson (A) and Burton (B)

  • Unfortunately are liable for the payment

    • With partners, however, they are liable not only for their wrongful acts but also for the conduct of their partners.


Dilbert d and evans e

Dilbert (D) and Evans (E)

  • If Dilbert and Evans interfere in Anderson, Burton and Cummings’ agreement and management decision, then Dilbert and Evans are considered as partners of Anderson, Burton and Cummings

  • If Dilbert and Evans just view Anderson, Burton and Cummings’ agreement without interfering, then Dilbert and Evans do not belong to this partnership

    PS: Dilbert and Evans have control over how their contributed capital be used, and this is not considered as participation in the management decisions, thus it will not make them join the partnership


What we conclude from above

What we conclude from above:

  • Laws of agency apply to partnership

    • Liability still applies to Anderson and Burton

  • If Dilbert and Evans are not identified as general partners...

  • If Dilbert and Evans are identified as general partners...

  • What can Anderson and Burton do to recover the loss?


Advantagesof partnership

Advantagesof Partnership

  • Unanimous consent protection

  • Less costly to form and operate


How to overcome unlimited liability

How to overcome unlimited liability?

  • Insurance coverage

  • Limited Liability Partnerships

    • Only professionals belonging to professional organizations

    • Minimum amount of professional liability insurance coverage required

    • Must include “LLP”, or “L.L.P.” or “Limited Liability Partnership” (or the French equivalent) in their name

    • Must be registered as LLP


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