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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

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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.

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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

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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

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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.
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45

Management Rights

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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

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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.
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45

Duties, Rights, & Liabilities of Partners


DUTIES

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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

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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.

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Limited Liability Partnership

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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

All partners accord ing


to their partnership
agreement or the UPA
or RUPA.

General partners
according to their
partnership agreement
or the UPA or RUPA.

Li mite d Liability
Partnership (LLP)

Limited partners
excluded.

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Limited partners: no
liability beyond loss of
investment.

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