Deck 30: Creation and Operation of a Partnership

Question 1

Under the Uniform Partnership Act, what constitutes prima facie evidence of a partnership?

Answer 1

Partnership
Partnership refers to arrangement pertaining to which two or more person share liabilities and profit earned by a venture. All the partners to the firm share the profits and liabilities in share of their proportion and they are personally liable for the loss or liabilities of the firm which means their personal assets are also attached to set off the liabilities of firm.
In many cases the destruction of records or death of witnesses makes it impossible to have evidence of what has actually happened. Thus keeping in mind this fact universal partnership act stated that the person that has received the share in the earnings or profits of the company should be considered as the partnership's prima facie proof or evidence. Therefore, in case of absence of any valid evidence, share in the profit will be considered as the proof of partnership existence. However, share in profit to be considered as evidence can be overcome as the share in earning can be represented as interest on loan, payment of debt, rent which makes it difficult to evidence the existence of partnership.

Question 2

As a general construction contractor, WDF Inc. contracted to renovate schools in New York City. WDF subcontracted with JLG Architectural Products, LLC to supply windows for the renovation. Under the subcontract, a company called East Coast Window Installers Inc. was designated to install the windows for the project. The subcontract provided that JLG Architectural Products and East Coast Window Installers would perform and complete the subcontract work together. The subcontract also specifically acknowledged that JLG Architectural Products proposed the work in partnership with East Coast Window Installers. After completion of the project, a dispute over payment and the quality of workmanship arose between the parties. WDF claimed that JLG Architectural Products and East Coast Window Installers should be jointly and severally liable for any liability found against either party, because the two were partners in the window installation project. Was WDF correct?

Answer 2

Partnership:
It is a business contract in which the two or more partners come together to perform certain business operations. A partnership can be cancelled at any point of time with the mutual consent of both the partners and when one of the partners dies.
The contract to renovate school was assigned to WDF which subcontract with JLG for supply of windows. There was another subcontract among EC and JLG. IN partnership, the WDF claim that JLG and EC are liable for any dispute over payment and quality.
The claim by WDF that JLG and EC are jointly liable for any liability found against parties is correct because both EC and JLG came together to work for the contract. They worked together for the subcontract and even had an agreement which states they entered into a partnership agreement for completing the project.
Since, in a partnership firm both the partners will have the same responsibility and liability and they both are equally liable for the mistakes in the project, thus WDF is correct in claiming that both the parties are jointly and severally liable for the mistakes in the project.

Question 3

Why must a partner keep diligent records of transactions related to the partnership?

Answer 3

Partnership:
In partnerships, the partners are all owners and managers for the firm. Each partner shares in financial loss and profit according to the partner's investment in the firm. Each general partner's liability is unlimited, and all partners share joint and several liability. The life of the partnership is limited unless the agreement provides for contingencies.
Elements of a partnership are as follows:
1. properties are owned in a partnership according to investment or agreement,
2. there is an agreement to share in profits and losses, and;
3. all partners have management rights unless otherwise stated.Additionally, acquisition of capital is limited to what the partners can raise. Interest in assets and management cannot be transferred without consent of partners and general partners who are active in the management of the firm unless a manager has been chosen specifically for that task.
Taxation is allocated among partners equal to their investments and reported on individual tax returns. Dissolution of the partnership is required when a partner leaves or dies unless the agreement's terms are stated differently.
Uniform Partnership Act (UPA):
This Act provides rules for partnership creation, fiduciary responsibilities and the ownership of partnership assets. It has been adopted by every state except for Louisiana.Legal Reasoning:
A partner must keep diligent records of transactions related to the partnership because there may be no business secrets among partners. Each partner has a right to an accounting of the business partnership books. A partner has no right to withdraw any part of the original investment without express consent of the remaining partners.

Question 4

Shirley Lach and Lynwood Wiseman formed Man O' War Limited Partnership. Robert Miller and Wiseman were the general partners, and Lach was one of the limited partners. Miller discovered he was terminally ill. He asked Lach to agree to Wiseman, Jeffery Mullens, (brother-in-law of Robert Miller), and Jonathan Miller (son of Robert Miller) as the new general partners. Under the partnership agreement, new general partners could not be added without the consent of all partners. Lach objected as the proposal would permit the Miller family, which owned less than Lach's individual interest, to manage and control the business. Miller and Wiseman restructured the business form of the partnership to eliminate the necessity of acquiring Lach's consent to the proposed management change. By forming Man O' War Limited Liability Company and transferring the partnership's interests and assets in the proportions of their previous partnership ownership, they set up an entity run by a majority vote of the owners. The initial managers were Wiseman, Jonathan Miller, and Mullens. They dissolved the partnership. Unless a partner signed the documents validating the restructuring, that partner would have no voting rights in the LLC. Lach refused to sign. Records of the partnership's attorney showed the restructuring was to avoid requiring Lach's consent to the management changes. Lach sued, alleging the general partners had breached their fiduciary duty to her and the partnership. Had they?

Question 5

How is each partner's right to participate in the management of partnership business an advantage to partners? How is this a disadvantage?

Question 6

Warren Cole was a partner and employee of MAK West 55th Street Associates (MAK West), a limited partnership. The Partnership Agreement specified that upon Cole's termination of employment from MAK West, Cole would sell his partnership interest to Henry Macklowe within 90 days of Cole's termination. Some time later, Cole was terminated from the company, but the sale transaction of his interest in the partnership never occurred. The remaining partners later sold the partnership's sole asset and excluded Cole from any distribution from the asset sale. Cole sued, alleging that he still owned an interest in the partnership and was entitled to a portion of the proceeds from the sale. Was he?

Question 7

What can personal creditors of one partner do to try to collect the partner's debt from the partnership?

Question 8

Gerald and Gary Carlson were brothers who formed a farming and ranching partnership. Land used for partnership business was held and titled individually by each brother. The purpose of the partnership was to pay expenses associated with the individually held land, such as mortgage payments, insurance, and taxes. The partnership also paid many personal and household expenses for each partner's family. After the partnership began to experience financial difficulty, the partners expressly agreed to limit expenses to mortgage payments, real estate taxes, utilities, life insurance premiums, vehicle payments, and property and vehicle insurance premiums. Two years later, Gerald Carlson, as managing partner, stopped paying the premiums for Gary Carlson's life insurance policy but continued to pay for his own policy with partnership funds. Gerald told his brother that he was still making payments for the policy. Gary Carlson's life insurance policy was terminated for failure to pay the premiums. Gary Carlson sued for breach of fiduciary duty. Should Gerald Carlson be liable?

Question 9

What must a partner do if personal interest or advantage conflicts with the advantage of the partnership?

Question 10

Warren Cole was a partner and employee of MAK West 55th Street Associates (MAK West), a limited partnership. The Partnership Agreement specified that upon Cole's termination of employment from MAK West, Cole would sell his partnership interest to Henry Macklowe within 90 days of Cole's termination. Some time later, Cole was terminated from the company, but the sale transaction of his interest in the partnership never occurred. The remaining partners later sold the partnership's sole asset and excluded Cole from any distribution from the asset sale. Cole sued, alleging that he still owned an interest in the partnership and was entitled to a portion of the proceeds from the sale. Was he?

Question 11

How is each partner's right to participate in the management of partnership business an advantage to partners? How is this a disadvantage?

Question 12

James Carpenter contracted with Austin Estates LP to buy property in Travis County. Unable to raise the funds, he contacted Sandra McBeth and her husband, James Reynolds. Carpenter told them disputes had arisen with the city regarding water and wastewater services but misrepresented the status of discussions as well as the city's willingness to negotiate. McBeth, Reynolds, and Carpenter executed a written agreement stating that McBeth and Reynolds would supply the earnest money to hold the property purchase option, try to obtain a loan, and enter into a limited partnership with Carpenter to buy the property. They formed a limited partnership, StoneLake Ranch, L.P., with Carpenter as president of the general partner. McBeth and Reynolds deposited $300,000 in escrow for the land purchase and an additional $500,000 in $100,000 increments to obtain extensions on the purchase deadline. Unable to complete the sale, and without notifying McBeth or Reynolds, Carpenter had the money in escrow disbursed to Austin Estates. Subsequently, he secured other investors, and they purchased the property through an entity with which Carpenter was affiliated. The property was sold for a profit of $140,000. In the ensuing lawsuit, Carpenter argued that he had no duty to disclose information to McBeth and Reynolds. Did he?

Question 13

To what extent is a general partner liable for enforceable debts against the partnership?

Question 14

Under what circumstances will the law prevent individuals who are not actually partners from denying a partnership exists?

Question 15

How will partnership profits and losses be shared if the partnership agreement does not fix the ratio?

Question 16

Travis Murrell signed an agreement with 1401 New York Avenue Inc. to lease office space for his law practice. Prior to signing the lease, Murrell and Brown practiced law together, referring to their firm as "Murrell and Brown" in paperwork filed in federal court. In one filing, Brown also attached a copy of his resume, which listed his title as a partner for Murrell and Brown. Their firm had stationary with Murrell and Brown letterhead, had a joint checking account from which both Murrell and Brown could issue checks, and had an office sign with the name Murrell and Brown. Moreover, Murrell signed the lease in Brown's presence as "Travis A. Murrell, Partner." There was no evidence that Murrell and Brown shared income or profits generated by the firm, but their accountant filed partnership tax returns on their behalf. When a dispute over the lease arose, 1401 New York Avenue filed suit against Brown, alleging that he was liable as a partner of Murrell and Brown. Brown denied that he and Murrell had formed a partnership at the time Murrell signed the lease and refused liability associated with the lease agreement. Should the court hold Brown liable?

Question 17

Is it possible for two or more people to create a partnership unintentionally?

Question 18

Kenneth Badon and Drew Ranier had a law partnership, Badon Ranier. While sharing office space with the partnership for fourteen years, Michael Garber maintained a separate law practice and his own letterhead and phone line. He did not have a written agreement with the firm, but his name appeared on its letterhead, as did the names of other attorneys associated with the firm at various times. The partnership paid Gerber an hourly rate based on invoices he submitted showing an hourly billing, or one-half if there was a flat fee. He sometimes received bonuses. When the partnership declined a case, Garber sometimes undertook it and collected the entire fee. He corresponded with such clients on his and the partnership's letterheads. He did not share fees from his practice with Badon and Ranier. Garber sued them and the firm, alleging that he was a special partner entitled to an accounting and fee participation in the firm's law suits, particularly the tobacco litigation, oil and gas royalties, Medicaid recovery, and asbestos remediation suits. Garber alleged that he left half his billable hours and half the flat fees earned on their cases with the partnership as his contribution to the firm for office expenses and costs. Should Garber recover?