Section 27.2

The Partnership The Partnership Section 27.2Section 27.2

Understanding Business and Personal Law


Sole Proprietorship and Partnership

• TODAY’S AGENDA

BELLWORK: Take Bus Quiz• Discuss types of Business• What are the advantages and disadvantages of each?

– List ones you are already aware of– Divide the business up amongst the class. Find all

advantages & disadvantages– Share with the class

Survey: Are you ready to be an entrepreneur




• Come up with a business idea

• Name the business

• Write goals & objectives for your company– What do you want to achieve?




• SOLE PROP• YOU ARE THE BOSS (total control)• Disadvantages –you lose all of the money• PARTNERSHIP• 2 MINDS-• Dis – fights or diff• CORPORATION• Board of directors• Dis- gov regulations




SOLE PROPRIETORADVANTAGES

• You are the boss

• Easily formed

• Retention of profits

• Freedom from government control

• One time taxation

DISADVANTAGES

• Most potential to loose

• Limited capital

• Unlimited liability

• Limited human resources

• Limited lifetime

• ZONING ORDINANCES




ADVANTAGES

• SELLING SHARES

• A LEGAL ENTITY, OR LEGAL PERSON, CREATED BY THE STATE

• CONTINUITY OF EXISTENCE

DISADVANTAGES

• INCOME MAY BE TAXED MORE THAN ONCE

• ORIGINAL FOUNDERS CAN LOSE NOT ONLY THE CONTROL, BUT ALSO THE ACTUAL OWNERSHIP OF THE CORPORRATION.

2. Practice Timing 2. Practice Timing Create Timers





• HOMEWOR: FINISH FTC ASSIGNMENT – due THURSDAY (No Exceptions)

• GET OUT PAPER FOR NOTES

• Notes over partnerships ch27 pg588

• Draft an articles of partnership as a class

• HOMEWORK: FINISH BUSINESS PLAN. DUE TOMORROW. Late work will not be accepted.

• Read pg 588 when would a partnership agreement need to be in writing?

• What is the most important part of a partnership? Explain your answer in detail




Pre-Learning Question Pre-Learning Question

What is a partnership?




““two or more persons that carry on a two or more persons that carry on a business for profit.”business for profit.”

The Nature of Partnership The Nature of Partnership




More capital and More capital and credit available.credit available.Burden of work Burden of work is shared.is shared.Responsibility for Responsibility for losses shared.losses shared.

AdvantagesAdvantages Disadvantages Disadvantagesshare the liabilities.share the liabilities.responsible for the responsible for the others’ actions.others’ actions.share profits.share profits.DisagreementsDisagreementsDeath of a partner Death of a partner dissolves the dissolves the partnership. partnership.




3 ways to form a partnership3 ways to form a partnership

Forming a General Partnership Forming a General Partnership

1.1. By agreementBy agreement2.2. By proof of existenceBy proof of existence3.3. By estoppelBy estoppel




• Come up with an example of how to start a partnership in each of the following ways

1.1. By agreementBy agreement2.2. By proof of By proof of

existenceexistence3.3. By estoppelBy estoppel




27.227.2

Partnership FormationPartnership Formation

Partnership by

contract

Partnership by

proof of

existence Partnership by

estoppel

Articles of partnership

Formed because of method of doing business.

Sharing of profits is prima facie evidence

Third party led to believe a partnership exists

No true partnership created




•Valid assentValid assent•Express and Express and may be written or oralmay be written or oral..

•If over a 1yr or buy sell or leaseIf over a 1yr or buy sell or leasePut in WritingPut in Writing

By Agreement By Agreement Articles of PartnershipArticles of Partnership




PartiesPartiesSpecific natureSpecific natureScopeScopeLimits of the Limits of the businessbusinessPlanned durationPlanned duration

Important Points Covered Important Points Covered in an Agreement in an Agreement

Amount of Amount of investmentsinvestments

SalariesSalariesProfitsProfitsWithdraw of fundsWithdraw of fundsWithdraw as partnerWithdraw as partner




v

• Make a list of items you would want to put in your partnership agreement based on the suggested items on the previous slide.




• CREATE AN ARTICLE OF PARTNERSHIP

• TYPE OF BUSINESS

• PARTNERS

• ETC..

• Divide class up. Each student should come up and type their clause on the screen.





• TURN IN FTC ASSIGNMENT – due NOW NO EXCEPTIONS. http://ianscatering.yolasite.com/

• GET OUT PAPER FOR NOTES

• Notes over partnerships ch27 pg588

• Draft an articles of partnership as a class

• HOMEWORK: FINISH BUSINESS PLAN. DUE TOMORROW. Late work will not be accepted.






• TODAY’S AGENDA• Turn in business plan

• I am not accepting any FTC projects today.

• Review types of partnerships

• Learn about types of partners.

– Create a chart to display their differences

• REVIEW – PARTNERSHIP RACES






• Finish Articles of Partnership






partnership by proof of existence.partnership by proof of existence.

Forms regardless of the Forms regardless of the •labellabel•intentintent

By Proof of Existence By Proof of Existence




A beliefA belief

How do you prove existence?Prima Facie Evidence

Evidence that is sufficient to raise a presumption of fact or to establish the fact in question unless rebutted.

• Proof like..– SHARING PROFITS




Partnership by estoppelPartnership by estoppel..

Doing or saying Doing or saying something that leads something that leads the court to believe a partnership the court to believe a partnership exists.exists.

By Estoppel By Estoppel




not a real partnershipnot a real partnership

Then why are we learning about it?Then why are we learning about it?a way for the court to a way for the court to prevent injusticeprevent injustice because someone has relied on the because someone has relied on the words or actions of another party and words or actions of another party and has acted accordingly.has acted accordingly.

By Estoppel By Estoppel




• Create a chart of the types of partners & their participation, relationship, & liability. Pg 591– Use Visuals instead of words to help you

remember.– Learn about Partnership property & MGMT




There are five types of partners: There are five types of partners:

Types of Partners Types of Partners

1.1. GeneralGeneral2.2. SecretSecret3.3. SilentSilent4.4. DormantDormant5.5. LimitedLimited




27.227.2

Types of Partners Types of Partners

Type of Partner Participation in the Business

Relationship to the Public

Degree of Liability

General Active Known Unlimited

Secret Active Unknown Unlimited

Silent Not active Known Unlimited

Dormant Not active Unknown Unlimited

Limited Not active Known Limited




• Complete Partnership Races





• Finish Bus. Org Cases & turn in

• People who were here on Friday, complete cases 18-23 pg 602 (HW for the others)

• Absent on Friday= Notes over ch27-2

• Open note quiz today over ch 27-2

• REVIEW – bingo over ch 27

• HOMEWORK: study for ch 27 test.




Which of the following are partnership property?

• A Truck that you own, used for business purposes, that has been repeatedly fixed by the business

• A bulldozer that you let the company use, that they list on their account books

• A laptop that the company uses on a daily basis & fixes regularly.

• A camera that you let your partner use to take pictures of a job site.




Does this laptop belong to me or the Does this laptop belong to me or the company?company?

Find out now! But how?Find out now! But how?Has the partnership:Has the partnership:• Consistently used propertyConsistently used property• Listed on account booksListed on account books• Paid expenses forPaid expenses for• Repaired itRepaired it• Paid taxes on itPaid taxes on it

Partnership PropertyPartnership Property




Property Rights of the Partners Property Rights of the Partners The right to use the propertyThe right to use the property

Co-OwnersCo-Owners: tenancy in partnership: tenancy in partnership

The right to manage the firmThe right to manage the firmEqual voice Equal voice (unless otherwise stated)(unless otherwise stated)

The right to share in the profits The right to share in the profits Share Equally Share Equally regardless of time regardless of time

or money invested.or money invested.




• Tenancy in partnership– What happens with the property if one partner

dies?




The right to manage the firmThe right to manage the firm– Equal voice (unless otherwise stated)Equal voice (unless otherwise stated)

What if there is a disagreement?What if there is a disagreement?

--majoritymajority decision WINS! decision WINS!

-if there is an even # -no decision is made-if there is an even # -no decision is made

Unanimous Vote on (pg594)Unanimous Vote on (pg594)

-changes in articles-changes in articles

-nature of business-nature of business

-disposal of partnership-disposal of partnership




• John invests more time & money in the firm. John invests more time & money in the firm. What does this mean in regards to his salary?What does this mean in regards to his salary?– Share Equally regardless of time or money Share Equally regardless of time or money

invested.invested.




1.1. act in act in good faith good faith & in the & in the best interestsbest interests of the firm.of the firm.

2.2. use their best use their best skill and judgment skill and judgment in in looking after the firm’s affairs.looking after the firm’s affairs.

3.3. To be To be loyalloyal to the firm and put the firm’s to the firm and put the firm’s interests first.interests first.

Duties to the Partners Duties to the Partners




• PARTNER LIABILITY

• A partner loses control of a delivery truck and severely injured Sam Patterson.

• Can Sam can sue all of the partners even though they were not involved in the accident?




Unlimited Liability of debts incurredUnlimited Liability of debts incurred

Even to the extent of their personal Even to the extent of their personal assets.assets.

Liability of the Partners Liability of the Partners




Share LossesShare LossesJointly liableJointly liable

• all the partners must be sued together. all the partners must be sued together.

Liability of the Partners Liability of the Partners





How do partnerships come to an end?




A A dissolutiondissolution - legal detachment. - legal detachment.

a change in the relationship any a change in the relationship any

-partner stops being associated with the -partner stops being associated with the business.business.-DOES NOT HAVE TO BRING AN END -DOES NOT HAVE TO BRING AN END TO BUS.TO BUS.

Dissolving a Partnership Dissolving a Partnership




If so, If so,

Effects of Dissolution Effects of Dissolution

New financial arrangements New financial arrangements Create new agreementCreate new agreementPublic notice given to relieve retiring Public notice given to relieve retiring partners of new debt.partners of new debt.Determine how assets will be Determine how assets will be distributed.distributed.




Liabilities are paid in this order:Liabilities are paid in this order:Distribution of Assets Distribution of Assets

1.1. creditorscreditors2.2. $ lent by partners.$ lent by partners.3.3. original $ paid into the partnership original $ paid into the partnership

by each partner.by each partner.4.4. The surplus, (what is left over)The surplus, (what is left over)




• You had a $100,000. You each paid $20,000 into the business. Your partner loaned the business an additional $10,000 to bail you out this year. You owe the bank $30,000.

• What position will this put each partner in after dissolving the partnership?




If the business is insolvent:If the business is insolvent:

Distribution of Assets Distribution of Assets

Assets are sold to pay the creditors.Assets are sold to pay the creditors.Partners are individually liable for Partners are individually liable for any unpaid balance that the sale of any unpaid balance that the sale of the assets will not cover.the assets will not cover.




When Jess and Joe’s Café closed, they had $38,000 and owed $25,000 to creditors. Neither Jess nor Joe had any outstanding loans to the business, but each had paid $5,000 into the business to start it.




Will Jess and Joe get their money back? Will there be any additional money left over?




ANSWERANSWER

Yes, Jess and Joe will get their money back. There will $3,000 left over. $38,000 – 25,000 = 13,000 –10,000 = $3,000.





What is the Revised Uniform Partnership Act?




Since the UPA was written in 1914, it Since the UPA was written in 1914, it has undergone extensive revision. has undergone extensive revision. This new variation of the act is This new variation of the act is referred to as the Revised Uniform referred to as the Revised Uniform Partnership Act (RUPA).Partnership Act (RUPA).

The Revised The Revised Uniform Partnership Act Uniform Partnership Act





What is a registered limited liability partnership?




A A registered limited liability registered limited liability partnership (RLLP) partnership (RLLP) is a new type of is a new type of partnership designed to eliminate a partnership designed to eliminate a major disadvantage of the general major disadvantage of the general partnership—joint and several liability.partnership—joint and several liability.

Registered Limited Registered Limited Liability Partnerships Liability Partnerships




Partners of an RLLP can escape joint Partners of an RLLP can escape joint and several liability for the torts, and several liability for the torts, wrongful acts, negligence, or wrongful acts, negligence, or misconduct of other partners by misconduct of other partners by registering with the appropriate state registering with the appropriate state office.office.

Registered Limited Registered Limited Liability Partnerships Liability Partnerships





What is a limited partnership?




According to RUPA, a According to RUPA, a limited limited partnershippartnership is “a partnership formed is “a partnership formed by two or more persons. . . having one by two or more persons. . . having one or more general partners and one or or more general partners and one or more limited partners.”more limited partners.”

Limited Partnership Limited Partnership




Limited partnerships are often used in Limited partnerships are often used in real estate ventures and tax shelter real estate ventures and tax shelter investments.investments.

Limited Partnership Limited Partnership




Reviewing What You Learned

1. What is a general partnership?

Section 27.2 Assessment





An association of two or more persons to carry on a business for profit.


Answer





2. How can a partnership be created?






By agreement, by proof of existence, and by estoppel.


Answer





3. What are the partner’s rights in relation to property?






The right to use partnership property, the right to manage the firm, and the right to share profits.


Answer





4. What are the effects of the dissolution of a partnership?






Dissolution need not end a partnership. Other partners may wish to continue the business.


Answer





New financial arrangements must be made in regard to the new firm. A new agreement must be drawn up regarding the conduct of the new firm.


Answer





Public notice must usually be given in order to relieve the retiring partners from liability for any new debts created by the new firm.


Answer





Critical Thinking ActivityLimited Liability Partnership Why did some state legislatures decide to create registered limited liability partnerships?





Critical Thinking Activity AnswerLimited Liability Partnership To eliminate the problems associated with joint and several liability.





Legal Skills in ActionPartnership Liability Clay, who is a general partner in Harrington Enterprises, believes he will not be liable for a tort committed by Ian, another partner in the firm.





Legal Skills in ActionPartnership Liability Write a letter to Clay explaining whether he will be liable for Ian’s tort.





Legal Skills in Action AnswerPartnership Liability Letters will vary, but should include that Clay needs to be told that, because he and Ian are partners, they are jointly and severally (separately) liable for torts committed by each other within the scope of the firm’s business.

The Partnership The Partnership End of Section 27.2End of Section 27.2

Section 27.2

Documents

Transcript of Section 27.2