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2 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
In the Roman Code of Jusitinian, there were provisions for partnerships that resemble current American
partnership law. The Romans also developed the rules of agency, which serve as the basis for much
partnership law. Under Roman law, the essence of a partnership was the choosing of partners.
As with other commercial law, English partnership law developed form the law merchant, according to the
realities of how merchants did business. In 1353, the Statute of the Staple provided that law was to be
administered in the Court Staple (the law merchant courts) from fiday to day and hour to hour,” which meant
quickly. Eventually, the English equity courts began to hear partnership cases, and by the time of the
American Revolution, partnership law was being administered in the law courts.
In civil law countries, partnership law is similar to partnership law in common law countries, because in
civil law countries, partnership law also developed from the customs of the merchants.
CHAPTER OUTLINE
I. Basic Partnership Concepts
The Uniform Partnership Act (UPA), as adopted by the states, governs the operation of partnerships in
the absence of an express agreement among the partners to the contrary.
C. DEFINITION OF A PARTNERSHIP
Under the UPA, a partnership is fian association of two or more persons to carry on as co-owners a busi-
• A sharing of profits or losses.
• A joint ownership of the business.
• An equal right in the management of the business.
• Rent to a landlord.
• An annuity to a surviving spouse or representative of a deceased partner.
CHAPTER 2: PARTNERSHIPS AND LIMITED LIABIITY PARTNERSHIPS 3
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
• A sale of the goodwill of a business or property.
2. Joint Property Ownership
Joint ownership of property does not alone create a partnership. The parties’ intentions are key.
ENHANCING YOUR LECTURE—
DOING BUSINESS WITH FOREIGN PARTNERS
Businesspersons from the United states who wish to operate a partnership in another country should
always check to see whether that country requires local participation. Such a requirement means that
nationals of the host U.S. must own a specific share of the business. In other words, the American
businesspersons would need to admit to the partnership a partner or partners who live in the host country.
Sometimes, U.S. businesspersons are reluctant to establish partnerships in a country that requires local
participation. They fear that if the partnership breaks up, the technology and expertise developed by the
partnership business may end up in the hands of a future competitor. In that event, the U.S. parties may have
little recourse under the host country’s law against their former partners’ use of the intellectual property.
FOR CRITICAL ANALYSIS
Do local participation rules benefit countries in the long run?
E. ENTITY VERSUS AGGREGATE
A partnership is sometimes called a firm or a company, terms that connote an entity separate and apart
from its aggregate members. Generally, the law treats a partnership as an independent entity.
partnership statement may (or may not) be filed with the appropriate state office.
A. DURATION OF THE PARTNERSHIP
A partnership for a term ends on a specific date or the completion of a particular project. Dissolution
without consent of all partners before the end of the term is a breach of the agreement. If there is no
liable to any third person who acts in good faith reliance.
4 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
2. Nonpartner Agents
When a partner represents that a nonpartner is a member of the firm, the nonpartner is regarded as
an agent of the firm.
C. RIGHTS OF PARTNERS
1. Management Rights
All partners have equal rights in management [UPA 401(f)].
• Alter the essential nature of the firm’s business or capital structure.
• Admit new partners or enter a new business.
• Assign property into a trust for the benefit of creditors.
• Dispose of the firm’s goodwill.
partner’s capital contribution [UPA 401(b)].
3. Compensation
Conducting partnership business is a partner’s duty and generally not compensable.
An accounting can be called for voluntarily or compelled by a court. Formal accounting occurs by
right in connection with dissolution, but a partner also has the right to an accounting in other
circumstances, listed in the text, and in UPA 405(b).
6. Property Rights
Every act of a partner concerning partnership business and every contract signed in the partnership
name bind the firm [UPA 301(1)].
CHAPTER 2: PARTNERSHIPS AND LIMITED LIABIITY PARTNERSHIPS 5
1. Fiduciary Duties
A partner owes the firm and its partners duties of care and loyalty [UPA 404].
• Duty of care—a partner must refrain from figrossly negligent or reckless conduct, intentional
misconduct, or a knowing violation of law” [UPA 404(c)].
• Duty of loyalty—a partner must account to the firm for fiany property, profit, or benefit” in the
whole or in part.
ANSWER TO fiWHAT IF THE FACTS WERE DIFFERENT?”
QUESTION IN CASE 2.1
Suppose that Salmon had disclosed Gerry’s proposal to Meinhard, who had said that he was not
interested. Would the result in this case have been different? Explain. Yes, because telling Meinhard
about the offer would have met Salmon’s fiduciary duty of loyalty to his partner. Without a breach of the duty,
there would not have been the same ground on which to award Meinhard fithe value of half of the entire
lease.”
ADDITIONAL CASES ADDRESSING THIS ISSUE —
Other cases considering the rights and liabilities of a partnership include the following:
• Peter v. GC Services L.P., 310 F.3d 344 (5th Cir. 2002) (a collection agency’s general partners were
jointly and severally liable for the agency’s violations of law in attempting to collect a student loan debt).
• In re Tsurukawa, 287 Bankr. 515 (9th Cir. BAP 2002) (a business partnership existed between a debtor
and her husband, in connection with a company that the debtor formed and to which the husband channeled
most of his corporate employer’s repair work at prices exceeding those of vendors to which the work was
farmed out, and thus, it was appropriate to impute the husband’s fraud to the debtor).
• Action Mechanical, Inc. v. Deadwood Historic Preservation Commission, 2002 SD 121, 652 N.W.2d 742
(2002) (in a plumbing subcontractor’s suit to foreclose a mechanic’s lien and for unjust enrichment, seeking
recovery for work performed on a hotel and casino for a lessee that lost possession of the hotel and casino to
the lessor, the lessor’s partners were jointly and severally liable for the debts of their partnership).
2. Breach and Waiver of Fiduciary Duties
These duties cannot be waived and partners must comply with the obligations of good faith and fair
dealing, but a partner may pursue his or her own interests without automatically violating these
duties [UPA 103(b). 404(d)].
A partnership may limit a partner’s capacity to act as the firm’s agent by filing a fistatement of
partnership authority” in a designated state office—though this is normally effective only with
respect to third parties who know of it.
b. The Scope of Implied Powers
whole or in part.
10 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
2 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
In the Roman Code of Jusitinian, there were provisions for partnerships that resemble current American
partnership law. The Romans also developed the rules of agency, which serve as the basis for much
partnership law. Under Roman law, the essence of a partnership was the choosing of partners.
As with other commercial law, English partnership law developed form the law merchant, according to the
realities of how merchants did business. In 1353, the Statute of the Staple provided that law was to be
administered in the Court Staple (the law merchant courts) from fiday to day and hour to hour,” which meant
quickly. Eventually, the English equity courts began to hear partnership cases, and by the time of the
American Revolution, partnership law was being administered in the law courts.
In civil law countries, partnership law is similar to partnership law in common law countries, because in
civil law countries, partnership law also developed from the customs of the merchants.
CHAPTER OUTLINE
I. Basic Partnership Concepts
The Uniform Partnership Act (UPA), as adopted by the states, governs the operation of partnerships in
the absence of an express agreement among the partners to the contrary.
C. DEFINITION OF A PARTNERSHIP
Under the UPA, a partnership is fian association of two or more persons to carry on as co-owners a busi-
• A sharing of profits or losses.
• A joint ownership of the business.
• An equal right in the management of the business.
• Rent to a landlord.
• An annuity to a surviving spouse or representative of a deceased partner.
CHAPTER 2: PARTNERSHIPS AND LIMITED LIABIITY PARTNERSHIPS 3
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
• A sale of the goodwill of a business or property.
2. Joint Property Ownership
Joint ownership of property does not alone create a partnership. The parties’ intentions are key.
ENHANCING YOUR LECTURE—
DOING BUSINESS WITH FOREIGN PARTNERS
Businesspersons from the United states who wish to operate a partnership in another country should
always check to see whether that country requires local participation. Such a requirement means that
nationals of the host U.S. must own a specific share of the business. In other words, the American
businesspersons would need to admit to the partnership a partner or partners who live in the host country.
Sometimes, U.S. businesspersons are reluctant to establish partnerships in a country that requires local
participation. They fear that if the partnership breaks up, the technology and expertise developed by the
partnership business may end up in the hands of a future competitor. In that event, the U.S. parties may have
little recourse under the host country’s law against their former partners’ use of the intellectual property.
FOR CRITICAL ANALYSIS
Do local participation rules benefit countries in the long run?
E. ENTITY VERSUS AGGREGATE
A partnership is sometimes called a firm or a company, terms that connote an entity separate and apart
from its aggregate members. Generally, the law treats a partnership as an independent entity.
partnership statement may (or may not) be filed with the appropriate state office.
A. DURATION OF THE PARTNERSHIP
A partnership for a term ends on a specific date or the completion of a particular project. Dissolution
without consent of all partners before the end of the term is a breach of the agreement. If there is no
liable to any third person who acts in good faith reliance.
4 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
2. Nonpartner Agents
When a partner represents that a nonpartner is a member of the firm, the nonpartner is regarded as
an agent of the firm.
C. RIGHTS OF PARTNERS
1. Management Rights
All partners have equal rights in management [UPA 401(f)].
• Alter the essential nature of the firm’s business or capital structure.
• Admit new partners or enter a new business.
• Assign property into a trust for the benefit of creditors.
• Dispose of the firm’s goodwill.
partner’s capital contribution [UPA 401(b)].
3. Compensation
Conducting partnership business is a partner’s duty and generally not compensable.
An accounting can be called for voluntarily or compelled by a court. Formal accounting occurs by
right in connection with dissolution, but a partner also has the right to an accounting in other
circumstances, listed in the text, and in UPA 405(b).
6. Property Rights
Every act of a partner concerning partnership business and every contract signed in the partnership
name bind the firm [UPA 301(1)].
CHAPTER 2: PARTNERSHIPS AND LIMITED LIABIITY PARTNERSHIPS 5
1. Fiduciary Duties
A partner owes the firm and its partners duties of care and loyalty [UPA 404].
• Duty of care—a partner must refrain from figrossly negligent or reckless conduct, intentional
misconduct, or a knowing violation of law” [UPA 404(c)].
• Duty of loyalty—a partner must account to the firm for fiany property, profit, or benefit” in the
whole or in part.
ANSWER TO fiWHAT IF THE FACTS WERE DIFFERENT?”
QUESTION IN CASE 2.1
Suppose that Salmon had disclosed Gerry’s proposal to Meinhard, who had said that he was not
interested. Would the result in this case have been different? Explain. Yes, because telling Meinhard
about the offer would have met Salmon’s fiduciary duty of loyalty to his partner. Without a breach of the duty,
there would not have been the same ground on which to award Meinhard fithe value of half of the entire
lease.”
ADDITIONAL CASES ADDRESSING THIS ISSUE —
Other cases considering the rights and liabilities of a partnership include the following:
• Peter v. GC Services L.P., 310 F.3d 344 (5th Cir. 2002) (a collection agency’s general partners were
jointly and severally liable for the agency’s violations of law in attempting to collect a student loan debt).
• In re Tsurukawa, 287 Bankr. 515 (9th Cir. BAP 2002) (a business partnership existed between a debtor
and her husband, in connection with a company that the debtor formed and to which the husband channeled
most of his corporate employer’s repair work at prices exceeding those of vendors to which the work was
farmed out, and thus, it was appropriate to impute the husband’s fraud to the debtor).
• Action Mechanical, Inc. v. Deadwood Historic Preservation Commission, 2002 SD 121, 652 N.W.2d 742
(2002) (in a plumbing subcontractor’s suit to foreclose a mechanic’s lien and for unjust enrichment, seeking
recovery for work performed on a hotel and casino for a lessee that lost possession of the hotel and casino to
the lessor, the lessor’s partners were jointly and severally liable for the debts of their partnership).
2. Breach and Waiver of Fiduciary Duties
These duties cannot be waived and partners must comply with the obligations of good faith and fair
dealing, but a partner may pursue his or her own interests without automatically violating these
duties [UPA 103(b). 404(d)].
A partnership may limit a partner’s capacity to act as the firm’s agent by filing a fistatement of
partnership authority” in a designated state office—though this is normally effective only with
respect to third parties who know of it.
b. The Scope of Implied Powers
whole or in part.
10 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
