Partnership: Can be created by contract of inadvertently. Ownership and responsibilities, along with profits and losses, are shared by two or more.

Partnership

Partnership: Can be created by contract of inadvertently. Ownership and responsibilities, along with

profits and losses, are shared by two or more.

Unlimited Liability. Partners carry on a continuing business

together with the intention of making profit. Not a separate legal entity.

Definition

General: Unlimited Liability Partners are vicariously liable for the conduct of

their general partners and employees Partners are held responsible for the breach of

trust of their partners

Limited: Limited Liability Can lose their limited status Must have at least one general partner

Two Kinds of Partnership

Case

A partner may not

negotiate a

contract on behalf

of the partnership

in an amount

greater that

$10,000 without

the approval of

the two other

partners.

Partnership

Agreement

Partnership

And we get to see your partnership agreement too

We will provide you

this loan, but we decide how you spend it

OK…

What do you mean

you and your partners

have financial

difficulties and can’t

pay me back?!!

See you all in court!

Who should be liable for Foster’s loss?A. CummingsB. Anderson and BurtonC. Dilbert and EvansD. Anderson, Burton and CummingsE. Anderson, Burton, Cummings, Dilbert and

BurtonF. Nobody is liable for Foster’s loss, since Foster is

unaware of the limitation on Cummings’ authority

Question

Signs a contract exceed the amount of his authority stated in the partnership agreement.

Cummings is liable for the defaults in payment to Foster.

Cummings (C)

Unfortunately are liable for the payment With partners, however, they are liable not only

for their wrongful acts but also for the conduct of their partners.

Anderson (A) and Burton (B)

A. If Dilbert and Evans interfere in Anderson, Burton and Cummings’ agreement and management decision, then Dilbert and Evans are considered as partners of Anderson, Burton and Cummings

B. If Dilbert and Evans just view Anderson, Burton and Cummings’ agreement without interfering, then Dilbert and Evans do not belong to this partnership

PS: Dilbert and Evans have control over how their contributed capital be used, and this is not considered as participation in the management decisions, thus it will not make them join the partnership

Dilbert (D) and Evans (E)

Laws of agency apply to partnership◦ Liability still applies to Anderson and Burton

If Dilbert and Evans are not identified as general partners...

If Dilbert and Evans are identified as general partners...

What can Anderson and Burton do to recover the loss?

What we conclude from above:

Unanimous consent protection Less costly to form and operate

Advantagesof Partnership

Insurance coverage Limited Liability Partnerships

◦ Only professionals belonging to professional organizations

◦ Minimum amount of professional liability insurance coverage required

◦ Must include “LLP”, or “L.L.P.” or “Limited Liability Partnership” (or the French equivalent) in their name

◦ Must be registered as LLP

How to overcome unlimited liability?