Question

Summarize the general characteristics of a general partnership

1. Summarize the general characteristics of a limited partnership

2. Bowen and Campbell are partners in operating a store. Without consulting Bowen, Campbell enters into a contract for the purchase of merchandise for the store. Bowen contends that he did not authorize the order and refuses to take delivery. The vendor sues the partners for the contract price of the merchandise. Will the partnership have to pay? Why? Does your answer differ if Bowen and Campbell are partners in a public accounting firm?

Answer 1

General characteristics of a general partnership

A general partnership must consist of two or more individuals or entities, including another partnership or corporation. Thus, it is possible that two very large corporations could form a partnership between the two entities, though in the modern business world, when large entities agree to form a new business entity between them, they most often form some kind of limited liability entity. To form a general partnership, the business must be unincorporated and intended to make a profit. The “unincorporated” requirement is obvious; an entity that has complied with the formalities to form a corporation cannot be a partnership. Partnership law is limited to entities organized to make a profit since partnership law is a subcategory of commercial law. Other business entities, such as corporations, do not need to be formed to seek a profit. Agreeing to share a profit creates a rebuttable presumption under the RUPA that a partnership exists.

Generally, each partner in a partnership has something to offer the business, including labor, ideas, money, and/or property. Each of the partners in a general partnership co-owns the business and has a right to manage the business with other partners. This right, however, can be modified by the agreement of the partners. Similarly, partners have a general right to share profits and contribute to pay for losses, though either of these can be modified by agreement of the parties.

General characteristics of a limited partnership

A limited liability partnership (LLP) is a type of partnership where all partners have limited liability. All partners can also partake in management activities. This is unlike a limited partnership, where at least one general partner must have unlimited liability and limited partners cannot be part of management.

LLPs are often used for structuring professional services companies, such as law and accounting firms. However, LLP partners are not responsible for the misconduct or negligence of other partners.

Partners have unlimited personal liability for partnership liabilities. Partners are jointly liable on all firm contracts. They are jointly and severally liable for all torts committed by one of the partners or by a firm employee within the scope of the partnership's business. Here in this case partnership have to pay the vendor, because all partners are liable for all torts committed by one of the partners.

Not all suits brought to a partner are from a direct client. Third parties can also sue a partner for fraud, in which case a contract (privity) is necessary. For a third party to prevail in a case, there are several things they must prove. First, the third party must prove that the partner had a duty to exercise due care. Second, the third party must prove that the partner breached that duty knowingly. Third, the third party must prove that the partner's breach was the direct reason for the loss. Finally, the third party must prove that they suffered an actual loss. Here in this case also partners are liable to pay the vendor.