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Business Law for a New Century
34
Quote of the Day
“He who has a partner
has a master.”
Italian proverb,
quoted in “The Count of Monte Cristo”
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Business Law for a New Century
Partners and Outsiders
 Each partner is an agent of the partner-
ship for the purpose of its business.
• Actual Authority – a partnership is liable for
any authorized act of a partner.
• Implied Authority – a partnership is liable for
any act of a partner that is reasonably
necessary to carry out an authorized act.
• Apparent Authority– a partnership is liable
for any unauthorized act of a partner, if the
partner appears to be carrying on
partnership business.
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Other Issues
 Ratification
• If the partnership accepts the benefit of the
unauthorized transaction or fails to repudiate
it, the partnership has ratified it.
 Information
• Whatever one partner knows, the partnership
is deemed to know.
 Tort Liability
• A partnership is responsible for the intentional
and negligent torts of a partner in the ordinary
course of the partnership’s business or with
the actual authority of the partners.
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Paying the Debts of the
Partnership
 All partners are personally liable for all
debts of the partnership.
 Partners have joint and several liability
for partnership obligations.
• Also note that, even if creditors have a
judgment against an individual partner, they
cannot go after that partner’s assets until all
the partnership’s assets are exhausted.
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Liability for Previous Debts
 The RUPA provides that a partner is
personally liable only for obligations the
partnership incurred while he was a
partner.
 His liability for debts incurred before he
became a partner is limited to his
investment in the partnership.
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Business Law for a New Century
Financial Rights
 Partners share profits equally, unless
they agree otherwise.
 Partners share losses according to their
share of profits, unless they agree
otherwise.
 Any agreement among partners to
share losses is binding only on them,
not on outsiders.
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Financial Rights (cont’d)
 Partners are not entitled to any
payment beyond their share of profits,
unless they agree otherwise.
 All partnership property belongs to the
partnership as a whole, not to the
individual partners.
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Business Law for a New Century
Right to Transfer Interest
 Without the approval of the other
partners, a partner cannot sell her
share; she can only transfer her right to
receive profits and losses.
 A new partner can only be admitted to a
partnership by unanimous consent of
the other partners.
 Creditors can attach partnership profits
through a changing order issued from
the courts.
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Management Rights
 Each and every partner has equal rights
in the management and conduct of the
business, unless the partners agree
otherwise.
 Large partnerships usually designate
managing partners (sometimes called
members of the executive committee).
 Sometimes, managing is done almost
dictatorially by the partner who brings in
the most business (the “rainmaker.”)
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Other Rights
 Right to Vote
• Unless the partners agree otherwise, all
partners have an equal vote, regardless of
their contributions to the partnership.
 Right to Know
• Partners have the right to examine all
partnership books and records for any
reason.
• Partners have the duty to volunteer any
information which may be relevant to the
other partners.
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Duty of Care
 Partners are liable for:
• gross negligence,
• reckless conduct,
• intentional misconduct, or
• a knowing violation of the law.
 Partners are not liable for ordinary
negligence.
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Business Law for a New Century
Duty of Loyalty
 Partners have a fiduciary duty to their
partnership.
 Some actions which may violate this
fiduciary duty include:
• Competing with the partnership
• Taking a business opportunity away from
the partnership
• Using partnership property for private profit
• Conflicts of interest
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“A partnership is as complex a
form of organization as
humans have ever invented.
It has all the intensity and
subtlety of a marriage, but
often with more participants.”
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Business Law for a New Century
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Business Law for a New Century
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