How to Ace FYLSE/Partnership Outline
Absent an agreement to the contrary, all partners have equal rights in the management of the partnership business. Decisions regarding matters within the ordinary course of business of the partnership are majority vote, but matters outside of the ordinary course of business require the consent of all partners. A partnership at will is dissolved and its business must be wound up when there is notification by a partner of an intent to withdraw. A partnership will be bound by a partner’s act after dissolution if the act is appropriate for winding up the partnership. All partners are jointly and severally liable for all obligations of the partnership, whether the obligation arises in contract or tort.
1. (Partners A, B, C) May A, B, and C each be held personally liable for the economic loss to A’s client caused by the disclosure of confidential client information?
2. (Partners A, B, C and non-Partner D) May A, B, and C each be held personally liable for D’s malpractice?
A partnership is an association of persons to carry on a business as co-owners for profit. Generally, the partners are jointly and severally liable for the debts of the partnership, both in contract and in tort.
General Partnerships or GPs are formed by two or more persons carrying on a business for profit and there are no filing requirements for forming a GP. GPs can be made up of general partners and limited partners.
Able, Baker, and Charlie are successful attorneys who set up a law firm under the name “ABC Legal Services LLP” (“ABC LLP”). They agreed to share profits and losses equally.—Feb10Q2
Alfred, Beth, and Charles orally agreed to start ABC Computers (“ABC”), a business to manufacture and sell computer.—J10Q4
In a general partnership, all partnerships share equally in liability and are personally liable for the debts of the other partners and the partnership. Each partner is a fiduciary and agent to the general partnership and general partners.Absent an agreement, the default rules of partnership state that each general partner has an equal right to manage the partnership and act as agents for the partnership in the usual course of business. The general partners have authority to enter into contracts that bind the partnership as long as the contracts are in the regular course of business of the partnership. The other partners do not need to assent to know about the agreement, but will become liable on any agreement that is validly entered into by one of the other partners in the course of business.
Alfred, Beth, and Charles orally agreed to start ABC Computers (“ABC”), a business to manufacture and sell computer. Alfred contributed $100,000 to ABC, stating to Beth and Charles that he wanted to limit his liability to that amount. Beth, who had technical expertise, contributed $50,000 to ABC. Charles contributed no money to ABC but agreed to act as salesperson. Alfred, Beth, and Charles agreed that Beth would be responsible for designing the computers, and that Charles alone would handle all computer sales.—J10Q4
Dissolution of General Partnership
Upon dissolution of a general partnership, there is a specific order in which assets must be distributed. First, creditors must be paid and general partners who loaned money to the partnership. Second, In line to be paid are general partners who made capital contributions. Lastly, any surplus or profits will go to the general partners or the general partners may be personally liable for existing debt of a dissolved corporation. Partners who contributed capital contributions and made loans to the company should receive their money back if it is possible upon dissolution.
Limited Liability Partnership
The main benefit of an LLP is that the partners have limited liability - meaning that they are not personally liable for the debts and obligations of the partnership. To be properly formed, the LLP papers must be filed with the Secretary of State. As an LLP, the partners are liable for their own torts incurred in furtherance of the partnership but not for the torts of the other partners or the partnership.
Able, Baker, and Charlie are successful attorneys who set up a law firm under the name “ABC Legal Services LLP” (“ABC LLP”). They agreed to share profits and losses equally. Able prepared the documents required to register the firm as a limited liability partnership and instructed his assistant to file them with the Secretary of State. inadvertently and unbeknownst to Able, Baker, and Charlie, Able’s assistant never filed the appropriate documents.—Feb10Q2