1PARTNERSHIPS

A. Partnerships Generally1. DE is partnership friendly; freedom of contract is important2. Governing Law: In DE, partnerships are governed by common law, and default rules/principles

are provided by DEs Partnership Statute (DRUPA), unless otherwise stated in the partnershipagreement [so look to the K first, then common law and default rules of statutes]a. Note: Limited partnerships dont exist at common law, so you just look at the limited

partnership agreement first, and to the extent that you need gap filling, you look to DEsLimited Partnership Statute

3. **D: Partnership: association of two or more persons (1) to carry on a business as co-owners for profit (even if they do not intend to form a partnership) OR (2) to carry on anot-for-profit where the parties intend to form a partnershipa. Intent to share profits prima facie evidence of a partnershipb. A partnership is a separate legal entity unless partnership agreement provides otherwise

i. A partnership can acquire property, can enter into Ks, etc.c. **Joint Ventures are partnerships that are formed to accomplish a single/particular type of

transactiond. Remember: The DE statutes (DRUPA and DRULPA) are just meant to be gap-fillers

B. Types of Partnerships1. General Partnership (GP)

a. All partners are severally and jointly liable for the acts of the other partnersb. All partners can participate in the running / management of the partnership

2. Limited Liability Partnership (LLP)a. No personal liability for any of the individual partners; only the partnership can be liableb. All partners manage the LLP

3. Limited Partnership (LP)a. Has 2 classes of partners: General Partners and Limited Partnersb. To be a LP, you must have at least 1 general partner and at least 1 limited partner.c. If you are a Limited Partner, then you are only liable to the extent that you contributed to the

partnership (e.g. if you contributed $10K, thats as high as you can be liable). BUT youcannot participate in the management of the entity if you are a Limited Partner.

d. A General Partner in the LP is jointly and severally liable for the acts of the other partners, butGeneral Partners can participate in the management of the LP.

4. Limited Liability Limited Partnership (LLLP)a. Nobody is vulnerable to liability (i.e. not the Limited Partners or the General Partners)b. GPs manage the LLLP

C. ** How Are Partnerships Created? [Formation]1. ** Does DE Law Control? DE law controls if partnership agreement says DE law controls and

the partnership files a statement of partnership existence or a statement of qualification withsecretary of state

2. Capacity to be a Partner: anyone with capacity to contract can be a partnera. IF no capacity, no liability

3. Formalities Needed to Create a Partnership? Typically, very fewa. Generally none, but must meet definition of partnershipb. Statute of Frauds DOES NOT APPLY to partnership agreementsc. Docs to File in DE:

i. File Certificate of Formation (permissive)ii. File Certificate of Fictitious name (permissive BUT mandatory for LP)iii. Statement of Partnership Existence (permissive) [name, address, agent for process]

24. Amending Partnership Agreement: requires unanimous approval of all the partners5. ** Legality of purpose: can only form for legal purpose6. ** Consent: No one can become a partner unless all other partners agree7. ** Statement of Partnership Existence a permissive filing (so nothing happens if you dont

do it)D. ** How do you determine if a partnership exists? [proof of partnership existence]

1. Rulesa. Look to the general definition of partnership, which must be metb. Can point to title to property held by partnership (as evidence)c. Sharing of gross returns (only evidence)d. **Sharing profits is prima facie evidence that a partnership exists

i. EXCEPTION: Sharing in profits is NOT evidence if the partner received the profits inpayment of a debt, as wages as an employee or for services as an independent contractor,as rent, or as interest on a loan.

e. Sharing of lossesi. Note: The absence of loss sharing agreement is prima facie evidence that the parties did

not intend to create a partnershipE. Partnership by Estoppel (equitable remedy)

1. Equitable remedy used by court if TP reasonably believed that a partnership existed, so peoplecan be held liable to TPs as if they were partners (BUT not to each other)

2. This would be determined on a transaction-by-transaction basis3. Test: Third Party reasonable reliance

II. Property of PartnershipA. Can be pretty much anything or nothing. (Note: the partnership contribution can be cash, property,

services, or nothing.).B. ** Rule: Any property acquired by the partnership belongs solely to the partnership, not its

individual members (unless otherwise stated in partnership agreement). [so a creditor cannot executeon partnership property if the creditor is going against any of the individual partnerships]1. The only thing that the partners get is an economic interest in the partnership.

a. ** Partners can assign or transfer their economic interest in the partnership to others and stillremain being partners.

C. How can you tell if its partnership property?1. If its partnership capital / contribution(s) partnership property2. If it was acquired with partnership funds3. Look at to whom its titled4. If its listed as an asset in partnership books5. Who pays for maintenance expenses6. Controlling factor: partners intent to devote the property to partnership purposes

D. Rights of partners re: property of partnership?1. UNLESS otherwise stated in partnership agreement, partner is NOT a co-owner of partnership

property and has no interest in specific partnership propertya. Partner only has an economic interest, which is transferable personal property (e.g. the

interest to receive distributions from the partnership, etc.)2. Transfer of partners economic interests

a. Default: Permissible and does not, by itself, cause dissociation or dissolution, and does notentitle transferee to participate in mgmt of partnership, require access to information orinspect or copy books and recordsi. The partner that transfers his economic interests is still allowed to participate in the

management of the partnership.b. Transferee rights:

3i. Receive distributions to which transferor was otherwise entitledii. Receive, upon the partnerships dissolution and winding up, the net amount otherwise

distributable to transferor Entitled to an account of partnership transactions only from the date of the latest

account agreed to by all of the partnersiii. Seek a judicial determination to wind up the partnership business where equitableiv. Transferee has NO LIABILITY for anything (unless becomes partner)

c. Transferor rights after transfer:i. Transferor retains rights and duties of a partner other than economic interest transferred

d. Partnerships rightsi. May NOT deny the right to transfer altogether but may limit it.ii. Can refuse to give effect to transferees rights until notice of the transfer is given

3. ** Charge of interesta. The ONLY way that a creditor can go after a partners economic interest is by going to the

Court of Chancery to get a lien (called charge of interest)i. Remember: The creditor canNOT go after partnership property.

III. Relationship Between the PartnersA. ALWAYS Start with the Partnership Agreement So in essay answer, you write: Subject to any

agreement otherwise, And then these are the Default Rules:1. Each partner gets an equal share in the profits and losses;2. ** Equal right to management and conduct of the partnership business3. Partnership must indemnify the partners for expenses and liabilities in the ordinary course of

business;4. NO entitlement to remuneration for acting in partnership business EXCEPT surviving partner

entitled to reasonable compensation for services in winding up partnership affairs5. ** No person can become a partner w/o the consent of all the partners6. ** Decisions dealing with the ordinary course of business differences of opinion resolved by

majority vote7. ** Decisions outside of ordinary course of business act only with unanimous consent (e.g. if

someone wants to change the purpose of the partnership)8. Partner may use or possess partnership property only on behalf of partnership9. Partner has power and authority to delegate his power and authority to others

B. ** Fiduciary duties of Partners **1. Duties owed to partnership AND the other partners:

a. Duty of loyaltyi. No self-dealingii. No competing before dissolution; andiii. Must account to the partnership for any property, profit, or benefit derived in conducting

or winding up partnership business or using partnership propertyb. Duty of care

i. Winding up: no gross negligenceii. Good faith and fair dealing CANNOT be abrogated by agreement

2. Safe Harborsa. A partnership agreement can include safe harbors that limit liability amongst themselves, such

that sometimes, in the partnership agreement, they agree to waive something that would havenormally been a breach of duty of care or duty of loyalty

C. ** Access to Books and Information1. General Rule: each partner and partnership must provide partners, former partners, and legal

representative of deceased partner access to books and records of partnership and other

4information re: the partnerships business and affairs upon reasonable demand, for any purposereasonably related to partners interest as partner in partnershipa. Access MAY BE restricted by prior agreement

2. If a partner wants access to books or information, must make a demand in writing and statepurpose of the demand

3. If after making the demand, partnership refuses to provide w/in 5 days of demand, theEXCLUSIVE REMEDY is for partner to go to the Court of Chancery and ask for an order tocompel disclosure.

D. *** Legal Actions That Can Be Brought ***:

Actions by and againstthe Partnership

Actions by Partners Derivative Actions Partner Can BringAgainst a TP (to Enforce Rights of

Partnership) Partnership can sue

partners for breach ofthe partnershipagreement

Can sue partners forbreach of theirfiduciary duties

- Partnership may sue andbe sued in the partnershipname

Partners: can sue other partners or thepartnership to:

Enforce rights under thepartnership agreement

Enforce rights to information Can sue for breach of

fiduciary duty To compel dissolution To protect interests or enforce

any other rights

Rule: To bring the derivative action,Partner must be partner at time ofbringing action AND at time oftransaction of which partnercomplains

The Partner must state WITHPARTICULARITY the efforts ofthe partner to get the partnership toinitiate the action and why thepartnership has not taken such action

Judgments Against a Partnership or a Partner: Judgments against the partnership are NOT judgments against the partners (i.e. cannot be satisfied

against assets of partner unless the judgment was also against the partner) Judgments against the partner are NOT judgments against the partnership

I. Partners Relationship with Third Parties (TPs)A. Partners are Agents of the Partnership: Every partner is an agent of the partnership

1. So acts of every partner can bind partnership and other partnersa. Actual Authority:

i. Action authorized by partnership agreement, orii. Often, to protect itself, the partnership will file, with Secretary of State, the list of its

partners and the extent to which each has authorityiii. If acting partner not specifically authorized by partnership agreement to do the particular

act, then: If act is in ordinary course of business majority vote of partners required If act is not in the ordinary course unanimous vote of partners required

b. Apparent Authority: Partner lacked actual authority but can still bind partnership b/c of TPsreasonable believe in Partners apparent authority

B. Knowledge of Partner Imputed: Partnership held to know as long as Partner knew or should haveknown something

II. ** Liability of Partners

51. Joint and Several Liability of Partners: All partners are jointly and severally liable for all

obligations of the partnership, unless otherwise agreed [**Note: Remember, though, that thisdepends on the type of partnership **]a. Safe Harbor: If the Partner was acting in good faith reliance on the partnership agreement

or statements from another partner No liability for the Partner2. Incoming Partners: only personally liable for obligations that were incurred after they become a

partner; no liability for obligation incurred before that3. In a Limited liability partnership (LLP) NONE of the partners are personally liable; only

the partnership can be liable4. Partner's Negligence and Willful Misconduct:

a. Rule: A partner remains liable for his own negligence or willful misconduct.b. Rule: The partnership will be liable if the partners wrongful act of a partner acting in the

ordinary course of business of the partnership.5. Partners Criminal Liability:

a. Generally, only the partner is liable unless the other partners participated in the crime eitheras principals or accessories.

III.Dissociation (i.e. leaving the Partnership without dissolving the Partnership)A. Generally, if a partner dissociates, the partnership is not dissolved (i.e. partnership continues to exist).

1. Events Causing a Partners Dissociation:a. After giving notice to the partnership, a partner may dissociate from the partnershipb. Dissociation when agreed-upon eventc. Dissociation by expulsion (1) according to partnership agreement; (2) by unanimous consent;

or (3) by Chancery court order (b/c of adverse conduct, B/FD, etc.)d. Automatic dissociation if partner files for Bankruptcye. Dissociation if partner assigns his benefit to creditorf. Dissociation if partner dies

2. Partners Power to Dissociatea. Rule: A partner has the right to dissociate at any time, rightfully or wrongfully, after

providing notice to the partnership. If its a wrongful dissociation, the partner is liable to thepartnership and the other partners for damages caused by the dissociation.

b. Wrongful dissociation occurs if:i. Partners dissociation is in breach of provision of partnership agreementii. Partner withdraws before partnership specific terms expirationiii. Partner expelled by judicial determinationiv. Partner dissociated due to financial insolvency

3. Effect of Dissociation:a. Partner cant participate in mgmt anymoreb. Duty of loyalty ceases (so can now compete)c. Duty of loyalty and duty of care continue only w/ re: to matters arising and event occurring

before the partners dissociationB. Partners Dissociation Where Partnership Business Not Wound Up

1. Partner buyout (purchase of dissociated partners share)a. Buyout right: Partnership shall buy fair value of dissociated partners economic interest,

minus any damages offset from wrongful dissociation)2. Action by dissociated partner against partnership

a. May bring action in Chancery to determine buyout priceb. Must be commenced w/in 120 days after partnership tendered payment or offer to pay OR

w/in 1 year after written demand if no payment/ offer to pay3. Dissociated partners lingering authority / power to bind partnership (1 yr)

6a. For one year after partner dissociates, partnership bound by act of dissociated partner IF 3rd

party reasonably believed that dissociated partner was then a partner and reasonably relied onthat belief

b. Partnership can protect itself from this by filing a Statement of DissociationIV. Winding Up / Dissolving the Partnership

A. When a partnership is dissolved, must be wound upB. Causes of Wind Up:

1. Express will of a partner after notice to the partnership2. For term -- at end of an express term3. At end of an express term if all the partners elect to wind up (etc.)

C. Partnership continues after dissolution only for the purpose of winding up its business. Thepartnership is terminated when the winding up is completed.

D. Any partner (except one who wrongfully dissociated) may wind up the businessE. Payment Priority Scheme:

1. Creditors first2. Distribution to Partners from whatever is left3. If debt left over, partners must provide addl funds (i.e. personally liable); if a partner fails to

contribute, other partners must cover his share.

NOTE: Next Topics (Conversion; Merger / Consolidation; etc.) Also Apply to LLCs but are in outline here.V. Conversion (i.e. other entities convert to a partnership)

A. Another Entity Partnership1. Another entity can convert to a partnership if:

a. Must be approved by document governing other entity or by applicable lawb. Filings required to effect the conversion:

i. Must file with secretary of state: Certificate of conversion to partnership Statement of partnershp existence

ii. IF converting to LLP, also must file: Statement of qualification

2. Effective upon filing certificate of conversion or, if statement of partnership existence filed onlater date, on that date

3. Since considered same entity as the previous entity, any liability of the previous entity followsit! (so they cant escape liability by converting!)

B. Partnership Another Entity1. Must be approved

a. As specified in partnership agreementb. If not specified, in manner required to authorize merger or consolidation; orc. By unanimous vote of partners

C. Note: Partnerships can leave DE (look to a foreign, non-US jurisdiction to transfer to); no domesticdual-existence allowed

VI. Merger or Consolidation

Merger ConsolidationTwo or more organizations come togetherand one survives++ 1 survives

Two or more organizations come togetherand a new entity emerges++ New Entity

A. Steps to Merge or Consolidate:

71. Approval: unanimous (default)2. Must File: (Mandatory)

a. Certificate of Merger; orb. Certificate of Consolidation

3. Consideration: can be nearly any formVII. Domestication of Non-US Entity

A. DE allows dual-existence of partnership so long as in non-US nationB. Steps: A non-US entity may domesticate as a DE partnership by filing w/ Secy of State:

1. A certificate of partnership domestication and2. A statement of partnership existence

VIII. Limited Liability Partnership (LLP) [statutory creations under DRUPA]** Remember: None of the partners are personally liable; only the partnership is liableA. Special Features of LLP:

1. No personal liability of any of the partners (full shield); only the partnership can be liable2. Partners will not get any distributions if that would cause the partnerships value to go below the

amount of its outstanding debtsB. Creating a Registered LLP:

1. Must apply to the state to get its permission to become an LLPa. Partnership certificate must state that it is an LLP

2. Must file Statement of Qualification with secretary of state stating election to be LLPsubstantial compliance standarda. Name of partnershipMUST contain LLP in the nameb. Address (for service of process)c. Agent for processd. Number of partnerse. Future effective date if not date filed

3. Must file Annual Reporta. Note: Secy revokes Statement of Qualification if dont file! (then not LLP!)

C. Note on LLLPs: Can have the full liability shield for partners added to a Limited Partnership bycreating a registered limited liability limited partnership (LLLP)

IX. Limited Partnerships [statutory creations under DRULPA]* To resolve issues, look to (in order of priority): (1) the Partnership Agreement; (2) DRULPA; (3)DRUPA; and then (4) common law

A. Limited Partnership, Generally1. D: Limited Partnership: A partnership formed by two + persons under the laws of DE and

having at least 1 general partner and at least 1 limited partner (i.e. there must be 2 classes ofpartners: General and limited partners)a. If there are no longer 2 classes of partners the LP is converted to a Partnership (i.e. general

partnership)b. Limited partners do not get to participate in management (if creep in become GPs).c. Liability of limited partner is generally limited to the capital he contributed to the partnership

2. Governed by DRULPA (DE Revised Uniform Limited Partnership Act)a. Max effect to freedom of contract principles

B. How to Form a Limited Partnership [LP Formation] [cannot be for banking purposes]1. Partnership Agreement (mandatory)

a. May be oral or written or implied

8b. Not subject to SoFc. Need not be signedd. Any amendments must be unanimous by GPs

2. Certificate of Limited Partnership must be filed with Sec. of Statei. Name: must include LP and be uniqueii. Address/Physical Agent in state (for service)iii. The name and business, residence, or mailing address of each general partner ANDiv. Initial certificate must be signed by all GPs

b. May carry on any lawful business, purpose, or activity w/ exception of banking3. Amendment of Certificate of LP:

a. Must be amended if you add a new GP or withdrawal of GP; orb. Must be amended if any GP discovers false statement in certificatec. Permissive: any time for any reason

4. Certificate of Cancellation: must be signed by All GPs!5. Other Certificates: signed by GPs and new GPs

a. Merger / Consolidationb. Transfer

6. Must maintain Agent for service in state7. LP is person for purposes of DPC of 14th Amd.

C. Limited Partners Rights:1. Generally not liable to 3rd parties for partnership obligations unless

a. Also GPb. Participates in control

2. Admission:a. Formation: at formation of partnership or addition to partnership records (later thereof)b. Later: all GPs consent/in writing in partnership records (not assignee)

3. Voting: generally no right to vote (to extent of agreement, safe harbors)4. Distributions:

a. Agreement!b. Knowingly improperly received payment: pay back to partnership!

5. Assignable Interest (in whole/part)assignee gets only what LP had (default); unless becomingLP no right to access books

6. Access to Info: agreement can set reasonable terms (no statutory right)a. LPs dont have same rightslesser right to info: on written demand, entitled to

i. Valuation of Economic Interestii. List of GPs (but not of other LPs)iii. Tax records

b. Confidentiality shield still applies, and the partnership can assert itc. Chancery order to compelfutility demand is higher for LPs

7. Derivative Claim: even higher burden for LPs to bring derivative actionsa. Plead with particularity: effort to get GP to bring claim; or reasons for not doing so

8. Withdrawal as a Limited Partner:a. Look to the Agreement; otherwise b. Theyre stuck until Winding Up/Dissolution!c. If allowed to leave, the LPs are entitled to the value of their economic interest, IN CASH

9. Removal of GPsDRULPA silent as to LP power to do so, so look to agreement

9D. GP Rights

1. Basically treated the same as partners in a General Partnership (e.g. Joint and SeveralLiability), EXCEPT GPs in an LP have a duty of good faith and fair dealing with respect tothe Limited Partners.

2. Admissioneither at formation or, if after, then by unanimous written consent (default)3. Withdrawal of a GP:

a. Dissociation (rightful or wrongful)i. Note: LP Agreement can say that GP cant leave, so if they do leave, then considered

wrongful dissociation and liable for damages thenb. Transfer of economic interests to Transferee (UNIQUE)

i. Agreement can prohibit until dissolution/winding upc. Deathd. Removed per LP agreemente. Assignment to creditors/bankruptcy

4. Rights/Powers: same as GP, JSLa. Can contract to indemnify another GP

5. Duties: good faith/fair dealing6. Fiduciary Duties (of good faith, loyalty, and fairness): to both GPs/LPs

a. Note: LPs do not have FDs to GPsE. Creditors Access to GP Assets: for claim against partnership, only where

1. Judgment v GP; and2. Judgmentunsatisfiedagainst partnership3. LP in bankruptcy4. GP agrees not to require exhaustion5. Court orders b/c no assets or burdensome

F. Dissolution:1. LP is dissolved if cant meet the LP definition (of having 2 classes GP and LP)

a. DRUPLA allows 90 days to replace2. All GPs written consent required to dissolve3. By agreement (event, etc)4. By judicial decree (Chancery)

G. Winding Up:1. Anyone can do (safe harbor: even though traditionally management)2. Payout Scheme for Distribution of Assets:

a. Creditorsb. GPsc. LPs

H. Merger or Consolidation:1. Note: There are a lot more mandatory filings with respect to Limited Partnerships for merger /

consolidation / transfer.2. Agreement cant prohibit the LP from merging or consolidating3. Vote: all GPs + all LPS owning > 50% LP interest in profits4. DE Mandatory Filings

a. Certif of Merger or Consolidation

10b. Surviving Partnership amend LP Certif

5. Mergereffect on LPsa. DRULPA: GPs must protect LPs interests

i. Duty of Loyaltyii. Duty of care (No gross neg)

I. Transfer: can transfer only to foreign, non-US jurisdictionJ. Conversion

1. Conversion to LPapproval done however needed by what entity currently is2. Mandatory filings:

a. Must file Certif of Conversion to LPb. Must file Certif of LP

3. Conversion of LP another business formationa. Vote:

i. Per Agreement;ii. Per Merger/Consolidation; oriii. Default

ALL GPs; and ALL LPS owning > 50% of LPs by interest in profits

K. Annual fee ($200) to do business in DE! (must be paid by Limited Partnerships!)

X. Limited Liability Limited PartnershipsA. Statutory:

1. Has GPs and LPs2. Liability: No personal liability for any partners (neither GPs nor LPs); only partnership liable

B. Formation1. Limited partnership can be formed or convert to LLLP2. Approval: consent of all GPs and 50% of LPs by interest in profits3. Must file:

a. Statement of qualificationb. Annual Report and

4. LLLP must be in name

EXAM TIPS

- Do 1 3 MPTs, under time pressure, the way that its tested b/c timing is the biggest issue; the MPT is aclosed universe assignment; for most people, the problem is the timing; so practice it and know the parts of it

- MPT and Essays together are 60% of gradeMPT is 1/3 of that grade, so make sure you do well on it!!!- On the essays, stick to CIRAC!!! Conclusion - Issue rule application conclusion

- DE essays are subject-specific, so quickly look through them, figure out what subject theyre testing, andyou dont have to answer them in the order theyre given;

- If youre stuck on something and you just dont know, just stick to reasonableness, fairness / equity, etc.and you might get some points

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