Chapter 37 – Introduction to Forms of Business and Formation of Partnerships
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2) who paid for the property;
3) whether title was taken in the name of the partnership;
4) whether title was transferred to a partner acting as a partner;
5) who pays taxes;
6) who pays insurance premiums; and
7) who maintains and repairs the property.
Go through these indicia individually and explain that partners’ intent is conclusive,
that purchasing the property with partnership funds is presumptive, that holding title
is presumptive, and that the other factors can overcome the presumptions of
ownership.
b. Stress the importance of making a distinction between partnership property and
partners’ property. The examples on page 1004 in the text may be used and
Points for Discussion: Ask your students which RUPA section led the court to
presume that the cattle belonged to Clark? The court applied RUPA section 204(d),
Additional Points for Discussion: Why, then, did Joan contest ownership of the
cattle? Because she believed there was evidence of the partners’ agreement that the
Ask whether your students think the court was being evasive. We know that listing
an asset on the partnership books is evidence of the asset belonging to the
Final Point for Discussion: This is a good case to point out what well planned
Additional Example: Frank, Susan, and Ryan create a partnership. Frank and Susan
each contribute $50,000 in cash. Ryan makes no cash contribution, but he lets the
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partnership use his land and building, which are worth $50,000. Ryan retains title to
the land and building. The partnership pays no rent to Ryan. Ryan insures the land
writing who owns this property to avoid disputes.
2. Partners’ Rights in Partnership Property.
Note that the RUPA gives partners no ownership rights in partnership property. Partners
merely have the right to use partnership property for partnership purposes.
a. Transfer of a Partner’s Transferable Interest
1) Voluntary by partner.
its books and records.
4) Transferring partner remains a partner with all the rights he had before the
transferred.
will.
6) Nontransferring partners may agree unanimously to expel the transferring partner
b. Charging Order against Transferable Interest
order to partner’s creditor.
books and records.
4) Partner who suffers a charging order remains a partner with all the rights he had
distributions.
5) Creditor with a charging order may foreclose on the charging order and obtain
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6) Partners who have not suffered charging orders may agree unanimously to expel
dissociation.
charging order.
order be able to obtain the same rights as a transferee.
Example: Problem Case #12.
Additional Examples:
1) Betty transfers her transferable interest to Henry. Henry tells Betty’s partners that
2) Betty’s partners refuse to allow her to participate in the management of the
IV. RECOMMENDED REFERENCES:
A. Gregory, Hornbook on the Law of Agency and Partnership (3rd ed. 2001).
B. Henn, Agency-Partnership and Other Unincorporated Business Enterprises (1972).
Liberally supplied with actual case excerpts and additional examples.
C. Hynes & Loewenstein, Agency, Partnership, and the LLC in a Nutshell (4th ed. 2008).
D. Jamison, Kulsrud, Curry, & Stephenson, 2015 Multistate Tax Guide to Pass-Through Entities
(2015). A new edition is published every year.
E. Kleinberger, Examples & Explanations: Agency, Partnerships, and LLCs (4th ed. 2011).
F. Rothenberg & Melnikova, Comparative Forms of Doing Business in Russia and New York
State—Proprietorships, Partnerships, and Limited Partnerships, 40 AM. BUS. L J. 563
(2003).
G. Shade, Business Organizations in a Nutshell (3rd ed. 2009).
H. Sullivan & Callison, Partnership Law and Practice: General and Limited Partnerships
(2014-2015). A regularly updated treatise.
V. ANSWERS TO PROBLEM CASES:
1. The LLC and the LLLP would be better than the limited partnership, unless the only general
partner of the limited partnership was a corporation or LLC, thereby giving all human
investors limited liability, just as the LLC and LLLP do. Because the business will generate
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2. The LLLP or LLC will work well. Both forms may elect to be taxed like a partnership,
allowing the investors to deduct the businesses losses on their individual federal income tax
to the business. As for a reason you may not like the default rules of the LLP, you want each
of you to be motivated to work hard; therefore, sharing profits equally may overcompensate a
b. The LLLP will not work, because no one wants to be a limited partner, as all of you want
to manage the business.
4. Yes. The court pointed out two important factors proving a joint venture or partnership: a
joint effort and a sharing of profits. There was joint effort because the women helped Yurko
account used by the business did not change its name and that Tammy was not responsible
for taxes, expenses, or losses of the business. Cypress Ins. Co. v. Duncan, 636 S.E.2d 159
(Ga. Ct. App. 2006).
6. Yes. Their actions met the definition of partnership. They associated to carry on a business
and they each contributed property to the business. As a result, RIBA owed no fiduciary duty
to SEM or its successor, Southex. The court was not persuaded to find them partners by the
casual use of the term “partner” in an agreement that was not titled “Partnership Agreement.”
There was also testimony by SEM’s president that SEM merely produced the show for RIBA
may not have been willing to be a partner of SEM unless SEM undertook all the share of
liability for losses. The court never explored that important line of inquiry.
SEM made most of the management decisions for the venture, proving to the court that the
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court found telling that Southex made contracts for the venture in Southex’s own name, not
the name of the putative partnership. While probative evidence by itself, that pattern of
filed. The court also noted that the agreement had a fixed term. The court didn’t explain why
it thought this fact was important, and it would be hard pressed to do so, as partnerships often
have terms, even short terms.
Ultimately, the court found ambiguity in the relationship of SEM and RIBA, which could
released Claydon, the person primarily liable, she released automatically the person who was
liable derivatively, Lawler. Note that Lawler and Claydon were not partners in fact, because
Lawler and Claydon never shared clients, never shared revenues, and most importantly never
shared profits of the practice of law. Note that no inference of partnership is drawn from the
practice as partners. Their stationery and telephone directory listing created the same
impression. Claydon introduced Lawler to Palmer as his partner, which is binding on Lawler
if Lawler failed to object to the representation in the presence of Palmer. Finally, Lawler
himself identified himself as Claydon’s partner. Palmer may have won the case had she not
released Claydon. Palmer v. Claydon, 1999 Conn. Super. LEXIS 2661 (Conn. Super. Ct.
1999).
9. There is a risk that you or your firm is a purported partner of iBrain LLP, because your
presence at iBrain’s headquarters building may lead those contracting with iBrain to believe
you are a partner or working for a partner.
not answer in the name of iBrain. Your office door should clearly identify you as an
employee of your firm, not iBrain.
10. There should be an agreement regarding who owns the investment analysis software, as well
as who will pay for upgrades. This agreement will prevent future disputes regarding
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also disclose that Allen currently owns the software and indicate whether, for what amount,
and when he will be compensated for its use by the LLP, including any license fee (if Allen is
using his software.
consequences of their activities. While poor record keeping and questionable tax treatment
can achieve some business goals, it creates uncertainty regarding ownership of partnership
property and may be tax fraud. What should the partners have done? They should have put
in writing who owned the ranch at the time nominal title was transferred to Mike, leaving no
room for a future dispute. Holmes v. Holmes, 849 P.2d 1140 (Ore. Ct. App. 1993).
12. Yes. The court concluded that Yan and Fu were partners or joint venturers by agreeing to
share ownership, the construction expenses, and the proceeds from the sale of the condo.