LEB 320F 1st Edition Lecture 25 Outline of Last Lecture II Agent s liability III Principal s liability for Independent Contractor s Torts IV Test for Employee Status a TAMU v Bishop V Torts VI Employee s negligence and intentional torts VII Business Entities VIII Sole Proprietorship a Formation b Advantages c Disadvantages IX Partnership a Creation Outline of Current Lecture X Partner to partner and 3rds XI Partners rights XII Partners duties a Advantages b Disadvantages c Management and control d Partnership agreement e Termination XIII Limited partnership a Duties b Advantages c Disadvantages d LP agreement e Dissolution and winding up XIV Corporations XV Definitions Current Lecture Partner to partner and 3rds o Partners owe fiduciary duties to each other and the partnership o Partners also have express implied authority What has to be filed with state to create a general partnership Nothing Partners rights o Right to possess partnership property for partnership purposes o Right to view books and records o Right to equal share in profits o Right to participate in management no matter the percentage o Right to request a wind up Partner s duties o Pay losses o Work without pay o Bow to the will of the majority o Provide information o Fiduciary duties Duty of loyalty present deals before you take them as an individual Duty of care not too high o Joint and several liability Moren v Jax Restaurant Son of partner injured Advantages o Management depth o Management participation o Minimal formalities o Minimal reporting o Low bureaucracy o Flow through taxation o More capital Disadvantages o Management issues o Fragile business If Jack and Jill leave so do customers and employees o Transfer of interests is troublesome o Hard to raise debt and equity o Taxed on income even though it is not distributed o UNLIMITED LIABILITY FOR STUFF YOUR PARTNER DOES New incoming partners Distributions made Only from Partnership assets Management and control o Each partner has the right to manage Non optimal o Appoint a managing partner or committee o Or each partner run a different phase of the business Drawbacks o Majority rules ordinary circumstances o Unanimity required for extraordinary circumstances Partnership agreement o Absolute must decide on During End After end o Initial contribution o Additional contributions o Scope of the business o Management o Distributions o Duties o New partners o Kicking out partners buy out price o Sale of partnership interest o Arbitration o Loans o Dissolution Termination o When a partner leaves for any reason Distribution of assets on termination o Who gets what o 1 3rd party creditors o 2 Partners requiring expense reimbursement Limited partnership o A partnership with one or more general partners and one or more limited partners o Creation of state law o Must file a certificate with the secretary of state Unlike a general partnership o Not a separate entity for tax purposes o Is a separate entity for other purposes suit ownership of property o Normally used for special purposes real estate ventures o ULPA and RULPA Duties of a LP o LPs have few rights and duties like an investor o GPs owe LPs fiduciary duties Advantages of an LP o Limited LP liability o LP interest easier to assign that a GP interest but still a time share o LP dies partnership does not o Capital raising Disadvantages of an LP o LP must sit on the sideline o Unlimited liability if an LP butts in Consulting ok voting ok LP agreement o Just as crucial o Probably even more from LP s view o Define what happens when GP leaves She may have the power but not the right o What happens when a LP leaves is not so important LPs not in the game for fun of it o LPs mostly mean and nasty Want return on investment yesterday o GPs better not approve a distribution if 3rd party creditors aren t paid timely o All partners owe taxes even if there s no distribution make sure provision is in the agreement o Derivative action Must make a demand on the GP and be refused Brought on behalf of the limited partnership Dissolution and winding up o When GP bows out mostly Consider Corporations o Liability no o Taxation low o Ownership no o Control yes Corporations o History o Accumulate large amounts of capital o Separate and distinct entities o Shareholders own it managers manage it Shareholders come and go competitors customers plaintiffs o Creature of state law Which state and why State giveth and taketh Bullington v Palangio Not in book Builder s corp character revoked for failure to pay taxes o A grant from the collective by statue o Double taxation o A corporation is a person for more legal purposes o Liable for torts and crimes o Formed by articles of incorporation Constitution o Bylaws Statutes o The thing may do the owner s bidding o Ultra vines Now corps are formed for all lawful purposes Preprinted Definitions o Domestic State of incorporation o Foreign Another US state o Alien Outside the US o Certificate to do business in a state Registered agent Paying taxes What if you do not you are not a corp