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Definition from Revised Uniform Partnership Act (RUPA)± an association of two or more persons to carry on as co-owners a business for profit i. Person ± can be a trust, individual, corporation, partnership, association, joint venture ii. Limited partnerships are not a partnership under RUPA b. Partnership is a legal entity i. May take title to land ii. May sue or be sued in the partnership¶s name or in the names of the individual partners or BOTH c. Governing Law i. RUPA provides default rules, but partners are free to agree through a partnership agreement and abide by different rules and RUPA will govern only those not provided for in the agreement ii. Unwaivable provisions from RUPA 1. A partner¶s rights to access to books and records 2. A partner¶s duties of loyalty and care 3. The power to disassociate a partner 4. The power of court to expel a partner 5. Requirement that partnership business be wound up in the event of either illegality of business or by certain judicial determinations 6. Rights of 3rd parties 7. Duty of good faith and fair dealing Formation of partnership a. How a partnership is formed i. Only requirement is that two people intend to run a business as co-owners ii. No formal agreement is required 1. Be careful statute of frauds provision for contracts over one year to be in writing iii. Capacity ± same as agency principal anyone capable of entering into a binding contract 1. Liability where no capacity ± partner is NOT personally liable, but is bound to extent of his contribution of capital to the partnership iv. Consent ± no one can be a partner without express or implied consent of ALL PARTNERS v. Statement of partnership authority ± partnership may (but is not required to) file a statement with secretary of state giving constructive knowledge to the extent of a partner¶s authority to enter into contracts on behalf of the partnership b. Proof of partnership existence i. Courts generally look to intent of the parties 1. Factors where intent is uncertain a. Sharing of profits is PRESUMED partnership unless the profits where received in payment i. Of a debt ii. For services iii. Of rent
iv. Of an annuity or retirement benefit v. Of interest on a loan vi. Sale of goodwill 2. Evidence indicative of partnership, but are not CONCLUSIVE a. Title to property ± JTs and common tenancy do not auto raise presumption b. Designation of entity by parties as a partnership c. Extensiveness of activity d. Sharing of gross returns 3. Failure to share losses evidence of intent NOT to form partnership ii. Purported partners 1. Partnership by estoppel 2. Liability of person who is held out as a partner unless did not actually consent Property of a partnership a. Classifications of property i. Partnership capital ± property or money contributed by each of the partners for the purpose of carrying on the partner¶s business ii. Partnership property ± everything the partnership owns consisting of both capital contributed by the members and properties purchased in partnership transaction b. Includable in partnership property i. Titled property ± if it is titled in partnership¶s name or in one of the partners and the instrument transferring title notes the titleholder¶s capacity as a partner or the existence of the partnership 1. Property is rebuttable presumed if purchased with partnership funds 2. Property not fitting under purchase by partnership funds, in partnership¶s name or transferring title does not note existence of partnership is rebuttable presumption of separate property even if used for partnership purposes ii. Untitled property (fall back to common law criteria in cases not governed by RUPA) 1. Factors that property is intended to be partnership property a. Bought with partnership funds b. Use of property by partnership c. Entry of property on partnership books d. A close relationship between property and business e. Improvement or maintenance of the property with partnership funds c. Creditors cannot reach partnership property to satisfy the personal obligations of a partner Partner¶s interest in the partnership a. Transferable interest in personal property i. Each partner can transfer his share of profits and losses and the right to receive distributions. ii. Each partner is entitled to an equal share of partnership profits and must contribute toward the partnership losses in proportion to his share of profits. b. Assignment of transferable interest i. Because a partner¶s transferable interest is assignable it may be assigned at any time and such a conveyance does not dissolve the partnership ii. Assignee¶s rights
1. Assignee CANNOT interfere in the management or administration of the partnership business or affairs, require any information or account of the partnership transactions, or inspect the books 2. Assignee merely has right to receive distributions iii. Dissolution and assignee¶s rights 1. Assignee is entitled to receive his assignor¶s net amount distributable and may require an accounting from the date of the last accounting agreed to by all the partners. Relations between partners a. Right to participate in management ± absent an agreement to the contrary all partners have equal rights in the management of the partnership. b. Decisions in the normal course of partnership business may be controlled by majority vote. Outside the normal course require consent by ALL PARTNERS. c. Fiduciary duties i. Duty of loyalty 1. To account for profits, property, opportunities, or other benefits derived by the partner in conjunction with partnership business 2. To refrain from dealing with the partnership as or on behalf of a party having an adverse interest 3. Refrain from competing with the partnership ii. Duty of care 1. Limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct or knowing violation of the law d. Indemnification and other repayment i. Partnership must indemnify partners for payments reasonably made and obligations reasonably incurred by a partner carrying on the partnership¶s business. ii. If a partner makes any payment or advance on behalf of the partnership beyond the amount the partner agreed to contribute, the partnership must repay the partner. e. Partnership books must be kept subject to agreement at the partnerships chief executive office, and every partner has a right to inspect them. i. Each partner upon demand must provide complete and accurate information about the partnership f. Legal actions by and against partners i. Partnerships may be sued ± can¶t get partners assets without adding him to suit with partnership ii. Actions by partnership against partners ± can bring action against partner for breach of duty or the partnership agreement iii. Actions by partner against partnership ± a partner may bring an action against the partnership or other partners for legal or equitable relief to enforce any right: 1. Created by RUPA 2. Created by the partnership agreement 3. Otherwise belonging to the partner including rights arising independently of the partnership (e.g. partner may sue the partnership for negligently inflicting injuries or on contracts where the partner stands in position of customer to the partnership)
4. All of these actions are subject to an accounting Relations of partners to 3rd parties a. Follow agency apparent and actual authority rules i. Apparent authority 1. Change RUPA for apparent authority uses subjective knowledge ± what 3rd party actually knew not should have known 2. A limitation of authority does not serve as constructive knowledge of the limitation 3. Under RUPA, notification of limitation is effective when comes to other party¶s attention or is duly delivered 4. Transfers of partnership property a. Where partnership interest is indicated ± partnership can recover unless BFP b. Where partnership interest is not indicated ± BFP takes if gave value without notice of partnership interest c. Where person holds all partner¶s interest ± all partnership property vests in that person ii. Actual authority 1. A partner has whatever actual authority the partners grant him by vote a. General rule ± majority vote is sufficient unless outside ordinary course of business then unanimous vote is required iii. Expanding and limiting authority 1. General rule ± partnership may expand or curtail authority to enter into transactions on behalf of partnership by filing statement of authority with secretary of state 2. Transfers of real property a. Person deemed to have knowledge if statement is filed with secretary of state and local county recording office. iv. Notice 1. Under RUPA a partner has notice of fact when the partner has actual knowledge, is notified of the fact or has reason to know a. Notification is effective when comes to partner¶s attention or is delivered to a place of business held out by the partner as place for receiving communications v. Liability of partners 1. Civil liability a. Partners are liable on contracts made by a partner in the scope of the partnership business and on other contracts expressly authorized by the partners b. Partners are liable for torts committed by a partner or employee of the partnership in the ordinary course of the partnership business or with authority of the partnership. c. Nature of partner liability i. All partners are jointly and severally liable for all obligations of the partnership whether they arise in K or torts
ii. A judgment creditor may not levy or execute against a partner¶s individual assets to satisfy a judgment arising from the partnership obligation unless 1. The judgment based on the same claim has been obtained against the partnership and a writ of execution of judgment has been returned unsatisfied 2. Partnership is a debtor in bankruptcy 3. Partner agreed that the creditor need not exhaust partnership assets 4. A court grants creditor permission to proceed against individual partner assets 5. Partner is independently liable in law or contract d. Change of partnership membership as affects partner¶s liability i. Liability of incoming 1. Not liable if before person¶s admission, but any property or capital the incoming partner contributes is at risk ii. Liability of outgoing (disassociated) partner 1. Remains liable on all obligations incurred by partnership while he was a member unless there has been payment, release, or novation, or creditor agreed to a material alteration in the obligation without the partner¶s consent 2. Criminal liability ± mutual agency is not sufficient to make others criminally responsible unless they participated in the commission of crime Dissociation and dissolution of a partnership a. Dissociation i. Change in the relationship of the partners caused by a partner ceasing to be associated in the carrying on of the business, does not necessarily cause dissolution or winding up of the partnership ii. Events where a partner is dissociated 1. Notice which need not be in writing unless stated in partnership agreement of partner¶s express will to withdraw as partner 2. Happening of an event agreed to in partnership agreement (partner reaches age 65) 3. Expulsion of the partner pursuant to terms of the partnership agreement or by unanimous vote of the remaining partners if it is unlawful to carry on business with that partner 4. Expulsion by judicial decree because the partner engaged in wrongful conduct. 5. Partner¶s become bankrupt 6. Death of the partner 7. Decision by court that partner is incapable of performing partner¶s duties 8. Termination of a partner that is a business entity iii. Wrongful dissociation 1. If dissociation is in breach of express term partnership agreement 2. Also, if partnership is for definite time and partner withdraws, is expelled, or becomes bankrupt before time or completion
3. A partner wrongfully dissociated is liable to the partnership for any damages caused by the dissociation iv. Consequence of dissociation 1. Purchase dissociated partners interest based on the greater of the partnership¶s liquidation value or value of the partnership business as going concern without the dissociated partner 2. Indemnify dissociated partner except for liabilities incurred by his acts 3. Dissociated partner liability to other parties a. Obligations before dissociation i. Usually still liable unless creditor upon learning of dissociation materially alters nature or time of payment of an obligation without consent of the DP the DP is then released from liablity b. Obligations after i. May be liable for obligations arising within 2 years after dissociation if the other party to the transaction reasonably believed when entering the transaction that the DP was still a partner and did not have notice of the dissociation. 1. The other party is considered to have notice within90 days of filing with secretary of state of the dissociation b. Dissolution i. Events for winding up 1. Notification by a partner in a partnership at will of an intent to withdraw 2. In a partnership for a definite time or particular undertaking a. Within 90 days after a partner¶s death, bankruptcy or wrongful dissociation, the express will of at least1/2 of remaining partners to wind up b. Express consent of ALL partners to wind up c. Expiration of the term or completion of project 3. Happening of event agreed to in partnership agreement 4. Happening of event that makes it unlawful for partnership to continue 5. Issuance of judicial decree on application by partner that a. Economic purpose of partnership is frustrated b. Partner has engaged in conduct making it not reasonably practicable to carry on the business c. Business cannot be carried on in conformity with the partnership agreement 6. Issuance of judicial decree on application by transferee of partner¶s transferable interest that it is equitable to wind up the partnership after the expiration of the term or completion if there was a definite time or at any time if partnership at will ii. Partner¶s power to bind partnership after dissolution 1. Bound by acts appropriate to winding up 2. Bound by post-dissolution acts where party did not have notice of the dissolution 3. Same 90 day period as dissociation for constructive notice iii. Partnership continues until dissolution is complete then partnership is terminated iv. Who may wind up
1. All partners 2. Remaining partners 3. Surviving partners 4. Executor 5. Partner wrongfully dissolving partnership ± CANNOT WIND UP v. Partners may waive dissolution and continue business if done before winding up c. Distribution of assets ± final accounting i. Where solvent partnership is dissolved its assets are reduced to cash is used to pay partnership¶s liabilities in this order 1. Creditors ± includes partners who are creditors 2. Partners Limited liability Partnerships (LLP) a. In OK must carry 500000 in liability insurance to satisfy claims against the LLP or the partners arising out of partnership business or segregate at least 500000 in funds specifically designated to satisfy claims. b. Major advantage is partners are not personally liable for LLP obligations. c. Formation i. Voting 1. Terms and conditions to which a partnership becomes an LLP must be approved by whatever is necessary to amend the partnership agreement or the vote necessary to amend the contribution obligations of partners. 2. If partnership agreement is silent as to how it may be amended app partners must approve terms and conditions of partnership becoming an LLP ii. Filing 1. To become an LLP must file a statement of qualification with secretary of state. 2. The statement must be executed by at least two partners and contain a. Name and address of partnership b. Statement that partnership elects to be an LLP and c. A deferred effective date if any d. An LLP must file an annual report to update information required in the statement of qualification iii. Name partnership name must end with words ³Registered Limited Liability Partnership´ or RLLP, LLP, or R.L.L.P, L.L.P. iv. A partner of an L.L.P. is not personally liable for obligations of the partnership in either K, tort or otherwise Limited partnerships (governed by RULPA where it doesn¶t provide go to RUPA) a. One or more general partners and one or more limited partners. It differs from a general partnership in two ways i. It is unknown to common law and is created under specific statutory authority and ii. The liability of a limited partner for partnership debts is generally limited to the capital that she contributes to the partnership b. Formation i. Certificate must be filed with secretary of state and must set forth 1. Partnerships name 2. Name and address of agent for service of process
3. Name and business address of each GENERAL PARTNER 4. Latest date upon which the limited partnership is to dissolve 5. Certificate must be signed by all general partners Records office 1. A limited partnership must maintain in the state of organization office records such as the certificate of limited partnership, any partnership agreements, limited partnership tax returns for last 3 years, names and addresses of both general and limited partners 2. Either the partnership agreement or some other record must contain a. Amount and description of each partner¶s contribution b. Times or events that trigger additional contributions c. Special rights of the partners regarding distributions d. Description of the events that will trigger dissolution Name of partnership may not contain the name of limited partner unless it¶s the same as the general partner or the partnership business had been carried on under that name before the admission of the limited partner. 1. Can¶t be same or similar to other limited partnerships or corporations Nature of partner¶s contribution 1. Can be cash, property, or services 2. Unless partnership agreement provides otherwise, a partner is obligated to perform any promise to contribute even if unable to perform because of death disability or other reason if they don¶t¶ partnership may hold the partner liable for the cash equivalent of the promised contribution. a. A promise by a limited partner is not enforceable unless in writing and signed by the limited partner 3. Can compromise liability by consent of all partners, but previous creditor may enforce original obligation 4. Liability to return contribution a. If properly receives return she remains liable to partnership for one year thereafter, but only to extent necessary to discharge the partnership¶s liability to creditors who extended credit during the period the contribution was held by partnership b. Improper return under partnership agreement or RULPA, partner remains liable for 6 years for the entire amount of the contribution returned Liability of partners 1. General partner ± subject to all liabilities of partner in regular partnership thus liable for the limited partnerships obligations. 2. Limited partner ± General rule not liable for partnership obligation beyond contribution. a. Exceptions i. Also a general partner ii. Participates in control of business and other party reasonably believes is a general partner iii. Permits name to be used in partnership is liable to creditors who are without actual knowledge of status
vi. Rights of partners 1. Rights of both general and limited partners a. Right to share of profits and losses b. Right to assign partnership interest i. Assignee could become limited partner only to the extent that the assignor 1. Had authority in partnership agreement to convey that right or 2. All other partners consent c. Right to transact partnership business d. Right to withdraw i. General 1. Can withdraw at any time providing written notice to the other partners, but if withdrawal is in violation of agreement will be liable to partnership for damages caused by breach ii. Limited 1. May withdraw in accordance to partnership agreement provisions. 2. If no provision must give 6 months prior written notice of withdrawal to each general partner iii. Distributions 1. Right to receive any distribution to which she is entitled under the partnership agreement. 2. Also to receive the fair value of his interest as of the date of withdrawal based on his right to share in partnership distributions. e. Right to dissolve 2. Rights specific to limited partners ± same rights as those of regular partnership including right to manage 3. Rights specific to general partners a. Right to vote, but cannot control the business b. Right to information c. Right to bring derivative action vii. One who erroneously believes himself to be a limited partner 1. General rule ± not bound as a general partner if upon realizing the mistake he a. Files appropriate certificate of limited partnership or certificate of amendment with secretary of state or b. Withdraws from future equity participation in the enterprise by filing with secretary of state a certificate declaring withdrawal 2. Exceptions a. Estoppel by party believing if done before previously two stated actions viii. Dissolution 1. Occurrence of the time stated in the certificate of limited partnership 2. Occurrence of time stated in partnership agreement
3. Written consent of all partners 4. Entry of a decree of judicial dissolution 5. Withdrawal of general partner unless a. At the time there is at least one other general partner and the partnership agreement allows the partnership to carry on b. Within 90 days after withdrawal all parties agree to continue the limited partnership and to the appointment of any necessary or desired general partner ix. Distribution of assets 1. Creditors ± including partner creditors 2. To general, limited, former partners in satisfaction of liabilities for interim distributions and to former partners to satisfy distributions owing upon the partner¶s withdrawal 3. General and limited for contribution return then profits Limited liability companies (LLC) a. A tax driven form of business organization in that it allows many of the characteristics of a corporation, but are taxed like a partnership for federal tax purposes unless it elects to be taxed as a corporation b. Formation i. Filing 1. One or more people may file with broad person definition ii. Contents of articles is similar to corporations without purpose statement iii. Converting general partnership to LLC 1. All partners must approve plan of conversion, then file certificate with secretary of state. c. Characteristics i. Powers are similar to powers of a corporation ii. Duration may be perpetual as in the case of a corporation iii. The members of an LLC are not personally liable for the torts or K of the LLC. iv. Management 1. Unless article of organization reserve the power to member, managers run the LLC. a. Managers not personally liable b. Voting i. Members vote in proportion to their capital contributions. A majority is needed for member action. Most amendments to articles of organization or an operating agreement may be made by a majority vote unless otherwise provided ii. However extraordinary amendments, such as those shortening the company¶s duration or reducing the vote needed to approve amendments, must receive unanimous approval 1. There is no APPRAISAL remedy in the case of LLC v. No automatic dissolution on change of membership vi. Transferability of ownership
f. g. h.
1. LLC are not freely transferable. However, a provision may be inserted in an operating agreement to allow the interests to be freely transferable. A membership interest is assignable. 2. Such assignment does not dissolve the LLC or entitle the assignee to exercise any rights or powers of a member. 3. The assignee is merely entitled, to the extent assigned, to any distribution to which the assignor would have been entitled 4. Assignees become members only if so provided in the operating agreement or the members so vote Ownership interests i. There is freedom to create different types of interests in an LLC through the articles of organization. Payment for interests in an LLC may be by cash, property, services rendered, promissory notes, or other binding obligations to contribute property or to perform services Splitting of profits and losses i. Are divided according to the operating agreement. ii. If no provision is made for profits and losses, they will be divided according to the percentage of capital contribution. Merger i. An LLC may merge or consolidate with other LLCs or other business entities Foreign LLCs may be domesticated in Oklahoma Derivative actions i. A member may bring on behalf of an LLC with restrictions similar to those that apply to shareholder in a corporation. An LLC is not subject to OK corporate franchise tax
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