1. Chapter 15 Partnerships and Limited Liability Companies
PowerPoint Slides to accompany The Legal Environment of Business and Online Commerce 4E, by Henry R. Cheeseman
Chapter 15
Partnerships and
Limited Liability Companies
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2. Forms of Conducting Domestic Business
Sole proprietorship
General partnership
Limited partnership
Limited liability partnership (LLP)
Limited liability company (LLC)
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3. Definition of a General Partnership
A voluntary association of two or more persons created for carrying on a business as co-owners for profit
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4. Formation of General Partnerships
Express partnership
General partnership created by words, either verbal or written
Implied partnership
General partnership implied from the conduct of the parties
Certificate of partnership
A document that a partnership must file with the appropriate state government agency in some states to acknowledge that the partnership exists
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5. Duration of Partnership
Partnership for a term
A partnership with a fixed duration
Partnership at will
A partnership with no fixed duration
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6. Property Rights of the Partnership and the Partners
Partnership property
Property that is originally brought into the partnership on account of the partnership and property that is subsequently acquired by purchase or otherwise on account of the partnership or with partnership funds
Right of survivorship
A deceased partner’s right in specific partnership property vests with the remaining partners upon his or her death
Partner’s interest
A partner’s share of profits and surplus of the partnership
Charging order
A document that the court issues against the debtor-partner’s partnership interest in order to satisfy a debt
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7. Partnership Agreements
A written partnership agreement should contain:
The firm name
The names and addresses of the partners
The principal office of the partnership
The nature and scope of the partnership business
The duration of the partnership
The capital contributions of each partner
The division of profits and losses among the partners
The salaries, if any, to be paid to the partners
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8. Partnership Agreements
A written partnership agreement should contain:
The duties of the partners regarding management of the partnership
Limitations, if any, on the authority of partners to bind the partnership
Provision for admission and withdrawal of partners from the firm
Provisions for continuing partnership upon withdrawal of a partner, death of a partner, or other dissolution of the partnership
Any other provisions deemed relevant by the partners
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9. Rights of Partners Right to participate in management
Right to share in profits
Right to an accounting
Right to compensation
Right to indemnification
Right to return of advance
Right to return of capital
Right to information
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10. Duties of Partners Duty of loyalty Duty of obedience Duty of care
Duty to inform
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11. Tort Liability to Third Parties
The partnership is liable if the tortious act of a partner, or employee, or agent of the partnership is committed while the person is acting within the ordinary course of partnership business or with the authority of his or her copartners
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12. Contract Liability to Third Parties
A partnership acts through its agents, i.e., partners
If partners have express, implied, or apparent authority, contracts are binding
Partners are jointly liable for contracts and debts of the partnership
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13. Liability of Incoming Partners
A new partner who is admitted to the partnership is liable for the existing debts and obligations of the partnership only to the extent of his or her capital contribution
The new partner is personally liable for debts and obligations incurred by the partnership after becoming a partner
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14. Termination of the Partnership by Acts of the Partners
Termination of a stated time or purpose
Withdrawal of a partner
Expulsion of a partner
Admission of a partner
Mutual agreement of the partners
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15. Termination of a Partnership by Operation of Law
Death of any partner
Bankruptcy of any partner or the partnership
Illegality
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16. Termination of a Partnership by Judicial Decree
Partner is adjudicated insane
Partner is incapable of performing duties
Partner is guilty of improper conduct
Partnership can only be carried on at a loss
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17. Winding-Up
The process of liquidating the partnership’s assets and distributing the proceeds to satisfy claims against the partnership
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18. Distribution of Assets
After the winding-up of a dissolved partnership, the assets of the partnership are distributed in the following order
Creditors (except partners who are creditors)
Creditor-partners
Capital contributions
Profits
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19. Limited Partnership
A type of partnership that has two types of partners
General partners
Limited partners
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20. Personal liability for partnership’s
Limited Partnership
Debt or
obligation owed
Limited
partnership
Third
party
Capital investment
Limited
partner
General partner
Personal liability for partnership’s
debts and obligations
Liability limited
to capital
contribution
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21. Liability of Limited Partners
General rule
Limited partners are not individually liable for the obligations or conduct of the partnership beyond the amount of their capital contributions
Exceptions
Defective formation
Participation in management
Personal guarantee
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22. Dissolution of a Limited Partnership
End of the life of the partnership as specified in the certificate of limited partnership
Written consent of all general and
limited partners
Withdrawal of a general partner
Entry of a decree of judicial dissolution
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23. Permissible Activities of Limited Partners
Being an agent, employee, or contractor of the limited partnership or a general partner
Being a consultant or advisor to a general partner regarding the limited partnership
Acting as a surety for the limited partnership
Approving or disapproving an amendment to the limited partnership agreement
Voting on certain partnership matters
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24. Rights of Limited Partners
Share of profits and losses
Right to information
Voting rights
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25. Limited Liability Partnership (LLP)
A limited liability partnership is a special form of partnership where all partners are limited partners and there are no general partners
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26. Limited Liability Partnership (LLP)
Debt or
obligation owed
Limited liability
partnership
(LLP)
Third
party
Capital Investment
Limited
partner
Limited
partner
Limited
partner
Liability limited to capital contribution
No personal liability for
partnership’s debts and obligations
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27. Limited Liability Company (LLC)
An unincorporated business that combines the most favorable attributes of general partnerships, limited partnerships,
and corporations
An LLC is a separate legal entity—an artificial person—that can own property, sue and be sued, enter into and enforce contracts, etc.
Members are liable for the LLC’s debts, obligations, and liabilities only to the extent of their capital contributions
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28. Limited Liability Company (LLC)
Debt or
obligation owed
Limited liability
company
(LLC)
Third
party
Capital investment
Member
Member
Member
Liability limited to capital contribution
No personal liability for
Company’s debts and obligations
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29. Articles of Organization of an LLC
Articles of organization must set forth:
The name of the LLC
The address of the LLC’s initial office
The name and address of the initial agent for service
of process
The name of each organizer
Whether the LLC is a term LLC, and if so, the term specified
Whether the LLC is to be manager-managed
Whether one or more of the members of the LLC are to be personally liable for the LLC’s debts and obligations
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30. Three Kinds of LLCs Domestic Foreign Alien
An LLC in the state in which it is organized
Foreign
An LLC in any other state other than the one in which it is organized
Alien
An LLC that is organized in another country
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31. Liability of an LLC
An LLC is liable for any loss or injury caused to anyone as a result of a wrongful act or omission by a member, manager, agent, or employee of the LLC who commits the wrongful act while acting within the ordinary course of business of the LLC or with authority of the LLC
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32. Member Lawsuits Direct lawsuit Derivative action
A lawsuit that a member can bring against an LLC to enforce his or her personal rights as a member
Derivative action
A lawsuit that a member may bring against an offending third party on behalf of his or her LLC when the LLC fails to bring the lawsuit or when a request of the LLC to do so is excused
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33. Fiduciary Duties Owed to an LLC
Duty of loyalty
Limited duty of care
Duty of good faith and fair dealing
No fiduciary duty owed by a nonmanager-member
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34. Dissolution of an LLC
An LLC is dissolved upon the occurrence of any of the following
An event specified in the operating agreement
The occurrence of an event that makes it unlawful for all or substantially all of the business of the LLC to be continued
A member applies to a court to have the LLC dissolved by judicial decree
The secretary of state commences a proceeding to dissolve an LLC administratively
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