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Click your mouse anywhere on the screen to advance the text in each slide. After the starburst appears, click a blue triangle to move to the next slide or previous slide . CHAPTER 34. Partnership In Operation. Quote of the Day. “He who has a partner has a master.”

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Click your mouse anywhere on the screen to advance the text in each slide. After the starburst appears, click a blue triangle to move to the next slide or previous slide.



In Operation

Quote of the day
Quote of the Day

“He who has a partner has a master.”

Italian proverb, quoted in “The Count of Monte Cristo”

Partners and outsiders
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
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
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
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
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
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
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
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
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
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
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.”