1. The Partnership Section 27.2

2. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership What You’ll Learn How to define general partnership (p. 588) How to identify the ways that a partnership can be created (p. 588)

3. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership What You’ll Learn How to identify partnership rights in relation to property (p. 593) How to explain the effects of the dissolution of a partnership (p. 597)

4. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Why It’s Important Understanding the nature of a partnership will help you decide when to form that type of business association.

5. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Legal Terms general partnership (p. 588) articles of partnership (p. 588) partnership by proof of existence (p. 590) partnership by estoppel (p. 591) tenancy in partnership (p. 593)

6. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Legal Terms joint liability (p. 596) dissolution (p. 597) registered limited liability partnership (RLLP)(p. 598) limited partnership (p. 599)

7. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership The Nature of Partnership Forming a General Partnership Types of Partners Partnership Property Property Rights of Partners Duties of the Partners Liability of the Partners Section Outline

8. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Dissolving a Partnership Effects of Dissolution Distribution of Assets Section Outline

9. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership The Revised Uniform Partnership Act Registered Limited Liability Partnerships Limited Partnerships Section Outline

10. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Pre-Learning Question What is a partnership?

11. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Partnership law is largely found in the Uniform Partnership Act (UPA). The UPA defines partnership as “an association of two or more persons to carry on a business for profit.” The Nature of Partnership

12. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership more capital and credit available burden of work is shared responsibility for losses shared Advantages of Partnerships

13. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership partners share in the liabilities each partner is responsible for the others’ actions must share profits disagreements among partners death of a partner dissolves the partnership Disadvantages of Partnerships

14. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership When two or more competent parties combine their money, labor, and skills for the purpose of carrying on a lawful business, they create a general partnership. Forming a General Partnership

15. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership General partnerships can be formed in one of three ways: Forming a General Partnership 1.by agreement 2.by proof of existence 3.by estoppel

16. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership 27.2 Partnership Formation Partnership by contract Partnership by proof of existence Partnership by estoppel Express agreement drawn up by partners Articles of partnership Individuals form partnership because of their method of doing business Sharing of profits is prima facie evidence Third party led to believe a partnership exists No true partnership created

17. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Forming a general partnership by agreement requires the valid assent of all parties. Such an agreement is usually express and may be written or oral. By Agreement

18. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Under the Statue of Frauds, if a partnership is to last more than a year or if the partnership is formed to sell, buy, or lease real property, it must be evidenced in writing. By Agreement

19. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership The partnership agreement is known as the articles of partnership, or as the articles of copartnership. By Agreement

20. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership parties to the agreement specific nature, scope, and limits of the business planned duration of the business Important Points Covered in an Agreement

21. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership amount of each partner’s original investment and procedure for future investments provisions regarding salaries, withdrawal of funds, and the division of profits Important Points Covered in an Agreement

22. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership terms under which a partner may withdraw from the partnership Important Points Covered in an Agreement

23. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Sometimes a partnership can be formed because of the way that two or more people conduct their business together. By Proof of Existence

24. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Such a partnership, which forms regardless of the label given to the enterprise or the intent of the parties involved, is termed a partnership by proof of existence. By Proof of Existence

25. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership If someone does or says something that leads a third party to believe that a partnership exists, then a court may treat the arrangement as a partnership by estoppel. By Estoppel

26. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership This type of partnership is not a real partnership. It is a way for the court to prevent injustice because someone has relied on the words or actions of another party and has acted accordingly. By Estoppel

27. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership There are five types of partners: Types of Partners 1.general 2.secret 3.silent 4.dormant 5.limited

28. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Each of these partners is a co-owner of the business and has some liability for the debts of the firm. Types of Partners

29. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership 27.2 Types of Partners Type of PartnerParticipation in the Business Relationship to the Public Degree of Liability GeneralActiveKnownUnlimited SecretActiveUnknownUnlimited SilentNot activeKnownUnlimited DormantNot activeUnknownUnlimited LimitedNot activeKnownLimited

30. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership It is important to distinguish between property that belongs to the partnership and property that belongs to individual partners. Partnership Property

31. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership is property contributed directly to the partnership when the partnership is created is property that is bought with partnership funds Partnership Property

32. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership In addition, the court may ask certain questions to determine whether or not certain property belongs to the partnership. Partnership Property

33. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Certain rights arise regarding property that belongs to the partnership. These include Property Rights of the Partners the right to use the property the right to manage the firm the right to share in the profits

34. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Partners are co-owners of all the real and personal property included in the partnership. This co-ownership is called tenancy in partnership by the UPA. Right to Use Property

35. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership As a result, the partners can use the property for partnership business; however, there are limitations. For example, a partner cannot, on his or her own, transfer ownership of the property. Right to Use Property

36. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Unless a partner’s rights are limited in the partnership agreement, each partner has an equal voice in managing the partnership’s business. Right to Manage the Firm

37. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Unless there is an agreement to the contrary, partners share equally in the profits, regardless of their initial capital contribution or the time devoted by each partner to the business. Right to Share in the Profits

38. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Partners must trust one another. Each partner is an agent of the other partner and has duties comparable to those of an agent. Duties to the Partners

39. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership 1.To always act in good faith and in the best interests of the firm. Duties to the Partners

40. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership 2.To always use their best skill and judgment in looking after the firm’s affairs. Duties to the Partners

41. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership 3.To be loyal to the firm and put the firm’s interests first. Duties to the Partners

42. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Partners have unlimited liability for all of the debts of the partnership incurred while they are partners, even to the extent of their personal assets. Liability of the Partners

43. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Partners are liable to other members of the firm for their share of the firm’s debts. Partners share losses in the same proportion that they share profits. Liability of the Partners

44. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Partners are jointly liable with their partners on contracts entered into by any member of the firm acting within the actual or apparent scope of the firm’s business. Liability of the Partners

45. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Joint liability means that in the event of a lawsuit, all the partners must be sued together. Partners are jointly and severally (separately) liable for torts committed within the scope of the firm’s business. Liability of the Partners

46. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Pre-Learning Question How do partnerships come to an end?

47. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership A dissolution is a legal detachment. The dissolution of a partnership is a change in the relationship of the partners that occurs when any partner stops being associated with the business. Dissolving a Partnership

48. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Dissolution does not necessarily bring the business to an end. Other partners may want to continue in business together. Effects of Dissolution

49. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership If so, Effects of Dissolution new financial arrangements need to be made. a new agreement must be drawn up.

50. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership public notice is usually given to relieve retiring partners from liability for any new debts. Effects of Dissolution

51. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Upon dissolution, an accounting of the firm’s financial affairs is necessary to determine how the firm’s assets will be distributed or divided. Distribution of Assets

52. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Liabilities are paid in this order. Distribution of Assets 1.Money owed to creditors other than partners 2.Money lent by partners to the firm

53. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership 3.The original money paid into the partnership by each partner 4.The surplus, if any, owed to the partners Distribution of Assets

54. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership If the business is insolvent: Distribution of Assets Assets are sold to pay the creditors. Partners are individually liable for any unpaid balance that the sale of the assets will not cover.

55. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership When Jess and Joe’s Café closed, they had $38,000 and owed $25,000 to creditors. Neither Jess nor Joe had any outstanding loans to the business, but each had paid $5,000 into the business to start it.

56. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Will Jess and Joe get their money back? Will there be any additional money leftover?

57. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership ANSWER Yes, Jess and Joe will get their money back. There will $3,000 leftover. $38,000 – 25,000 = 13,000 –10,000 = $3,000.

58. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Pre-Learning Question What is the Revised Uniform Partnership Act?

59. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Since the UPA was written in 1914, it has undergone extensive revision. This new variation of the act is referred to as the Revised Uniform Partnership Act (RUPA). The Revised Uniform Partnership Act

60. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Pre-Learning Question What is a registered limited liability partnership?

61. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership A registered limited liability partnership (RLLP) is a new type of partnership designed to eliminate a major disadvantage of the general partnership—joint and several liability. Registered Limited Liability Partnerships

62. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Partners of an RLLP can escape joint and several liability for the torts, wrongful acts, negligence, or misconduct of other partners by registering with the appropriate state office. Registered Limited Liability Partnerships

63. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Pre-Learning Question What is a limited partnership?

64. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership According to RUPA, a limited partnership is “a partnership formed by two or more persons... having one or more general partners and one or more limited partners.” Limited Partnership

65. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Limited partnerships are often used in real estate ventures and tax shelter investments. Limited Partnership

66. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Reviewing What You Learned 1. 1.What is a general partnership? Section 27.2 Assessment

67. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Reviewing What You Learned When two or more competent parties combine their money, labor, and skills for the purpose of carrying on a lawful business. Section 27.2 Assessment Answer

68. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Reviewing What You Learned 2. 2.How can a partnership be created? Section 27.2 Assessment

69. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Reviewing What You Learned By agreement, by proof of existence, and by estoppel. Section 27.2 Assessment Answer

70. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Reviewing What You Learned 3. 3.What are the partner’s rights in relation to property? Section 27.2 Assessment

71. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Reviewing What You Learned Include the right to use partnership property, the right to manage the firm, and the right to share profits. Section 27.2 Assessment Answer

72. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Reviewing What You Learned 4. 4.What are the effects of the dissolution of a partnership? Section 27.2 Assessment

73. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Reviewing What You Learned Dissolution need not end a partnership. Other partners may wish to continue the business. Section 27.2 Assessment Answer

74. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Reviewing What You Learned New financial arrangements must be made in regard to the new firm. A new agreement must be drawn up regarding the conduct of the new firm. Section 27.2 Assessment Answer

75. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Reviewing What You Learned Public notice must usually be given in order to relieve the retiring partners from liability for any new debts created by the new firm. Section 27.2 Assessment Answer

76. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Section 27.2 Assessment Critical Thinking Activity Limited Liability Partnership Why did some state legislatures decide to create registered limited liability partnerships?

77. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Section 27.2 Assessment Critical Thinking Activity Answer Limited Liability Partnership To eliminate the problems associated with joint and several liability.

78. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Section 27.2 Assessment Legal Skills in Action Partnership Liability Clay, who is a general partner in Harrington Enterprises, believes he will not be liable for a tort committed by Ian, another partner in the firm.

79. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Section 27.2 Assessment Legal Skills in Action Partnership Liability Write a letter to Clay explaining whether he will be liable for Ian’s tort.

80. Understanding Business and Personal Law The Partnership Section 27.2 Sole Proprietorship and Partnership Section 27.2 Assessment Legal Skills in Action Answer Partnership Liability Letters will vary but should include, that Clay needs to be told that because he and Ian are partners, they are jointly and severally (separately) liable for torts committed by each other within the scope of the firm’s business.

81. The Partnership End of Section 27.2