What are the principal’s remedies PART III: DUTIES AGENTS OWE TO THE PRINCIPAL
for breach of the DoL? A. Duty to exercise reasonable care
QUESTIONS B. Duty to obey reasonable instructions
C. Duty of Loyalty
1. Self-dealing: agent cannot receive a benefit to the detriment of the principal
2. Usurping the principal’s opportunity
2
CA Bar 2009: Agency and Partnership
3. Secret profits that otherwise could’ve gone to the principal
D. Remedies for the principal if agent has breached:
What formalities are required of 1. Principal may recover losses caused by the breach and
gen partnerships? 2. Principal may disgorge profits (unearn those profits made by the breaching agent)
PARTNERSHIP LAW
What is the def of a gen
partnership? -tracks the Revised Uniform Partnership Act
-may have to compare/contrast diff biz arrangements
What is ‘sharing of profits?’
PART I: GENERAL PARTNERSHIP FORMATION
A. Formalities: no formalities to becoming a general partnership, no filing, no writing etc.
B. Def: an association of 2+ persons, who are carrying on as co-owners of a business for
What rules govern partnership profit
liability? 1. Tip: bar q will give you a close call question where you can’t easily the nature of
the arrangement. You will know what it is based on sharing of the profits.
What are gen partners liable for? C. “Sharing of profits”-the contribution of capital (ie money or services) in return for a
share of profits, if any, which creates a presumption that a gen partnership exists
What are the liability rules for
incoming partners? For outgoing PART II: LIABILITIES OF PARTNERS TO THIRD-PARTIES
partners? A. Agency principles apply in context of partner liability b/c partners are just agents of the
partnership.
What is the liability rule on 1. Partners are agents of the partnership for carryon the usual partnership business
partnerships and estoppels? 2. Partnership is bound by torts committed by partners in scope of partnership
business
3. Partnership is bound by contracts entered by partners w/ authority
B. General partners: are personally liable for debts/obligations of the partnership.
1. Tip:
a. Incoming partners are generally not liable for prior debts but money paid into
How to form a limited partnership? the partnership by the new partner can be used by the partnership to satisfy
those pre-existing debts.
What’s the obligation of the gen b. Outgoing partners (dissociating partners) retain liability on future debts until
partners? Of the limited partners? actual notice of their dissociation is given to creditors or until 90 days after
filing notice of dissociation w/ the state.
How to form an RLLP? C. General partnership liability by estoppels: one who represents to a third party that a
general partnership exists will be liable to the third party as if they were part of the
What is the liability of partners in general partnership. (This is likely to appear in June!)
an RLLP? D. Related biz form: Limited Partnership
1. Def: a partnership w/ at least 1 general partner and at least 1 limited partner
Why were LLC’s created?
2. Formation: must form a limited partnership by filing a limited partnership
How to form? certificate w/ state that includes: names of all general partners
3. Liability and control among gen partners: are still gen partners and this general
What is the liability of the owners? partners are liable for all limited partnership obligations/debts, but they have the
right to manage the business
What are the state law 4. Liability and control among limited partners: are not liable for the obligations of
characteristics? the partnership but they may not manage the business w/o forfeiting their limited
liability status
Summarize the LLC E. Related biz form: Registered Limited Liability Partnership: (RLLP)
characteristics? 1. Formation: register by filing a statement of qualification + annual reports
2. Liability: no partner is liable for the obligations of this partnership
F. Related biz form: Limited Liability Companies
1. Originally, idea was to give to the owners (ie members) the same limited liability
of shareholders in a corporation + the benefits of partnership (ie tax status:
partnership tax: good; corporate tax: bad).
2. Formation:
a. File articles of organization
b. Adopt an operating agreement
c. But you do not file any articles of incorporation.
3. Liability of owners:
a. Owners (members) are not liable for obligations of the company itself
b. By state law, must abide by 2 of the 3:
3
CA Bar 2009: Agency and Partnership
1) Owners have the right to manage (though this can be delegated to a team
What do gen partnerships owe to of managers, thus the last 2 characteristics are taken on)
each other? 2) Membership interest in the LLC is illiquid to some extent
3) Life of LLC is limited
What can they not do, per the 4. Summary of traits of the LLC:
DoL? a. Limited liability
b. Limited liquidity
What’s the remedy for breach by c. Limited life
gen partners? d. Limited tax
What are the partnership property PART III: RIGHTS AND LIABILITIES B/T PARTNERS
rights? A. General partners are fiduciaries of each other and the partnership
1. They owe each other and the partnership the DoL
What are some types of specific 2. Thus they cannot:
partnership assets? a. Engage in self-dealing
b. Usurp partnership opportunities
What is the share of profits and c. No secret profits at partnership expense
surplus?
3. Remedy for breaches: action for accounting
What is the share in management? a. In the action for accounting, the partnership may recover losses caused by the
breach and also may disgorge profits made by the breaching partner
Why is the partnership form B. Partnership property rights:
illiquid? 1. Specific partnership assets
a. Ie land, leases or equipment owned only by the partnership
How do you tell if an asset belongs b. Thus, no individual partner may transfer these assets w/o partnership
to the partnership or is personal authority
property? 2. Share of profits and surplus
a. Share of profits = personal property, owned by individual partners
What is the default management b. Thus, individual partners may transfer their share of profits to some 3rd party
rule? 3. Share in management
a. Gen partners have right to share in partnership management
How do you get around it? b. Management = an asset owned only by the partnership itself
c. Thus, no individual partner may transfer their share in management to some
What is the default rule on salary? 3rd party.
4. Conflict b/t specific partnership assets and personal property: A general
When can salary be given to a partnership is relatively illiquid b/c only 1/3 of the assets are liquid and
partner? transferable personal property
a. Tip: how do you know if it’s personal property or something else?
What are the profit/loss sharing b. Test: whose money was used to buy the property?
default rules? c. If partner money is used to buy asset of the partnership.
What are the profit/loss sharing d. If personal money used to buy personal property
perms? C. Management
1. Default rule: absent an agreement on management, each partner gets equal
control/vote
2. If partnership agreement has unequal pay in and profit sharing, absent an
agreement on management, it’s still 1 person, 1 vote.
D. Salary
1. Default rule: absent an agreement, partners get no salary (they are not employees)
even if they work unequal hours
2. Exception: for helping to wind up the business, partners get a salary for that time
E. Partner’s share of profits and losses
1. Profit Rule: w/o an agreement on profits, they are shared equally
2. Losses Rule: w/o an agreement on losses are shared like profits
3. Hypos:
a. If agreement is silent on profit loss and sharing w/o agreement on profits,
they are shared equally; w/o an agreement on losses, losses are shared like
What’s the default rule on profits, thus shared equally here
dissociation?
b. If agreement says profits are shared 60/40 w/o agreement on losses, losses
What is termination? are shard 60/40
c. If agreement says losses are shared 60/40 w/o an agreement on profits,
profits are shared equally
4
CA Bar 2009: Agency and Partnership
What is winding up? d. A puts up all of the money. B does all of the work. C gives the partnership its
name. D does nothing. How to share profits? W/o an agreement, share
What are the liability rules during profits equally.
winding up for old business?