Comprehensive Volume, 18th Edition Chapter 45: Partnerships, Limited Partnerships and Limited Liability Companies Authority Chapter 45 A partners authority to act for the firm is similar to that of an agent to act for a principal. When there are more than two partners in a firm, the decisions of the majority prevail on ordinary matters relating to the firms business unless the decisions are contrary to the partnership agreement. Types of Authority Chapter
45 A partner may have express authority to act as set forth in the partnership agreement or as agreed to by a sufficient number of partners. A partner has the customary or implied power to make contracts, to sell goods in the regular course of business, to make purchases within the scope of the business, and to borrow money for firm purposes. Further, a partner may purchase insurance, hire employees, and adjust claims for and against the firm. Customary Authority of Partners Make contracts. Adjust claims for or against the partnership. Sell goods in the regular course of business. Chapter
45 Execute commercial paper in the name of the firm. An individual partner can: Buy insurance. Purchase items needed by the business. Hire employees. Borrow money for the firms purposes. Limits on Authority
Chapter 45 A partner may not bind the firm by a contract that makes it impossible for the firm to conduct its business. In the absence of express authority from the firm, an individual partner cannot enter into a suretyship contract or an agreement to submit a partnership dispute to arbitration. Nor can a partner confess judgment against the firm, make an assignment of the firms assets, or discharge personal obligations of the partner by paying them with obligations of the firm. Limitations on Authority of Partner to Bind Partnership Law of Agency Individual partners, acting in an apparently proper way, have authority to bind the firm. Individual Partner
Chapter 45 Business Transactions Prohibited Transactions Cessation of business, suretyship, agreement to arbitrate, confession of judgement, assignment for creditors. Third Person Duties of a Partner A partners duties are the same as those of an agent. These duties include loyalty and good faith, obedience, reasonable care, the provision of full information on all matters affecting the firm, and the keeping of proper and correct records. Chapter
45 Management Rights Chapter 45 If there is no contrary agreement, each partner in a general partnership has the right to take an equal part in the management of the business, to inspect the books, to share in the profits, and, after payment of all of the firms debts and the return of capital, to share in the firms property or surplus upon dissolution. Liability of Partners Chapter 45 Partners have unlimited personal
liability for partnership liabilities. Partners are jointly liable on all firm contracts. They are jointly and severally liable for all torts committed by one of the partners or by a firm employee within the scope of the partnerships business. Other Liability Issues A partner remains liable after dissolution unless expressly released by creditors. An incoming partner is not liable for the existing debts of the partnership unless the new partner expressly assumes those debts. Chapter 45 Duties, Rights, & Liabilities of Partners DUTIES Chapter
45 RIGHTS LIABILITIES Loyalty and Good Faith Management Firm Contracts Obedience Share of Profits Torts of Employees Partners Within Scope of Business Reasonable Care Repayment of Loans Breach of Duties Information
Payment of Interest Partners Remain Liable After Dissolution Accounting Contribution and Indemnity New Partner Not Personally Liable for Participation in Distribution Existing Debts of Capital Inspection of Books Limited Partnerships Chapter 45 A limited partnership consists of one or more limited partners, and one or more general partners. Limited partners contribute assets or services
with no liability for loss beyond their investment, but do not manage the business General partners manage the business and have unlimited personal liability. A certificate must be properly executed and filed when a limited partnership is formed. Limited Liability Company A limited liability company is a hybrid form of business organization that combines the tax advantages of a partnership with the limited liability feature of the corporation. Chapter 45 Limited Liability Partnership Chapter 45 A limited liability partnership is a new
form of business organization that allows existing partnerships to convert to this new form without major renegotiation of the underlying partnership agreement. Innocent partners in a limited liability partnership are not personally liable for the torts of other partners beyond their investment in the firm. Comparison of Business Forms General Partne rship Limite d Partne rship No formality required. Filing a certificate of limited partnership wit h appropriate state office. Filing articles of organization with
secretary of state. Registrat ion of LLP filed with state government. Unlimited liability of each partner for fir m debts. General partners: unlimited liability for firm debts. All members are liable for LLC debts to the extent of their capital contr ibut ions and equity in firm. No personal liability beyond such. No liability for partners beyond t heir contributions and
equity in firm, except unlimited personal liability for their own wrongful acts and those of persons whom they supervise. By members of fir m, who may delegate authority to managers. All partners according to partnership agreement or the UPA. As set forth in LLC statute or art icles of organization. As set forth in partnership agreement or the UPA or RUPA.
Creation Liability Management Limited partners: no liability beyond loss of investment. All partners accord ing to their partnership agreement or the UPA or RUPA. Li mite d Liability Partnership (LLP) Limited partners excluded. Chapter 45
General partners according to their partnership agreement or the UPA or RUPA. Limited Liability Company (LLC) Dissolution As set forth in the partnership agreement or the UPA or RUPA As set forth in the partnership agreement or the ULPA or RULPA
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