1

PARTNERSHIPS
A. Partnerships Generally
1. DE is partnership friendly; freedom of contract is important
2. 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 partnership
agreement [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 DEs
Limited 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 a
not-for-profit where the parties intend to form a partnership
a. Intent to share profits prima facie evidence of a partnership
b. 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
transaction
d. Remember: The DE statutes (DRUPA and DRULPA) are just meant to be gap-fillers
B. Types of Partnerships
1. General Partnership (GP)
a. All partners are severally and jointly liable for the acts of the other partners
b. 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 liable
b. All partners manage the LLP
3. Limited Partnership (LP)
a. Has 2 classes of partners: General Partners and Limited Partners
b. 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 you
cannot 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, but
General 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 with
secretary of state
2. Capacity to be a Partner: anyone with capacity to contract can be a partner
a. IF no capacity, no liability
3. Formalities Needed to Create a Partnership? Typically, very few
a. Generally none, but must meet definition of partnership
b. Statute of Frauds DOES NOT APPLY to partnership agreements
c. 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]
2
4. Amending Partnership Agreement: requires unanimous approval of all the partners
5. ** Legality of purpose: can only form for legal purpose
6. ** Consent: No one can become a partner unless all other partners agree
7. ** 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. Rules
a. Look to the general definition of partnership, which must be met
b. 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 in
payment 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 losses
i. Note: The absence of loss sharing agreement is prima facie evidence that the parties did
not intend to create a partnership
E. Partnership by Estoppel (equitable remedy)
1. Equitable remedy used by court if TP reasonably believed that a partnership existed, so people
can 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 basis
3. Test: Third Party reasonable reliance
II. Property of Partnership
A. 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 execute
on 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 still
remain being partners.
C. How can you tell if its partnership property?
1. If its partnership capital / contribution(s) partnership property
2. If it was acquired with partnership funds
3. Look at to whom its titled
4. If its listed as an asset in partnership books
5. Who pays for maintenance expenses
6. 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 property
a. 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 not
entitle transferee to participate in mgmt of partnership, require access to information or
inspect or copy books and records
i. The partner that transfers his economic interests is still allowed to participate in the
management of the partnership.
b. Transferee rights:
3
i. Receive distributions to which transferor was otherwise entitled
ii. 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 partners
iii. Seek a judicial determination to wind up the partnership business where equitable
iv. 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 rights
i. 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 interest
a. 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 Partners
A. 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 business
3. 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 affairs
5. ** No person can become a partner w/o the consent of all the partners
6. ** Decisions dealing with the ordinary course of business differences of opinion resolved by
majority vote
7. ** 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 partnership
9. 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 loyalty
i. No self-dealing
ii. No competing before dissolution; and
iii. Must account to the partnership for any property, profit, or benefit derived in conducting
or winding up partnership business or using partnership property
b. Duty of care
i. Winding up: no gross negligence
ii. Good faith and fair dealing CANNOT be abrogated by agreement
2. Safe Harbors
a. 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 have
normally been a breach of duty of care or duty of loyalty
C. ** Access to Books and Information
1. 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
4
information re: the partnerships business and affairs upon reasonable demand, for any purpose
reasonably related to partners interest as partner in partnership
a. Access MAY BE restricted by prior agreement
2. If a partner wants access to books or information, must make a demand in writing and state
purpose of the demand
3. If after making the demand, partnership refuses to provide w/in 5 days of demand, the
EXCLUSIVE REMEDY is for partner to go to the Court of Chancery and ask for an order to
compel disclosure.
D. *** Legal Actions That Can Be Brought ***:
Actions by and against
the Partnership
Actions by Partners Derivative Actions Partner Can Bring
Against a TP (to Enforce Rights of
Partnership)
Partnership can sue
partners for breach of
the partnership
agreement
Can sue partners for
breach of their
fiduciary duties
- Partnership may sue and
be sued in the partnership
name
Partners: can sue other partners or the
partnership to:
Enforce rights under the
partnership 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 of
bringing action AND at time of
transaction of which partner
complains
The Partner must state WITH
PARTICULARITY the efforts of
the partner to get the partnership to
initiate the action and why the
partnership 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 partners
a. Actual Authority:
i. Action authorized by partnership agreement, or
ii. Often, to protect itself, the partnership will file, with Secretary of State, the list of its
partners and the extent to which each has authority
iii. 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 TPs
reasonable believe in Partners apparent authority
B. Knowledge of Partner Imputed: Partnership held to know as long as Partner knew or should have
known something
II. ** Liability of Partners
5
1. 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 this
depends 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 Partner
2. Incoming Partners: only personally liable for obligations that were incurred after they become a
partner; no liability for obligation incurred before that
3. In a Limited liability partnership (LLP) NONE of the partners are personally liable; only
the partnership can be liable
4. 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 either
as 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 partnership
b. Dissociation when agreed-upon event
c. 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 Bankruptcy
e. Dissociation if partner assigns his benefit to creditor
f. Dissociation if partner dies
2. Partners Power to Dissociate
a. 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 the
partnership 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 agreement
ii. Partner withdraws before partnership specific terms expiration
iii. Partner expelled by judicial determination
iv. Partner dissociated due to financial insolvency
3. Effect of Dissociation:
a. Partner cant participate in mgmt anymore
b. 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 dissociation
B. 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 price
b. 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 pay
3. Dissociated partners lingering authority / power to bind partnership (1 yr)
6
a. For one year after partner dissociates, partnership bound by act of dissociated partner IF 3
rd
party reasonably believed that dissociated partner was then a partner and reasonably relied on
that belief
b. Partnership can protect itself from this by filing a Statement of Dissociation
IV. Winding Up / Dissolving the Partnership
A. When a partnership is dissolved, must be wound up
B. Causes of Wind Up:
1. Express will of a partner after notice to the partnership
2. For term -- at end of an express term
3. 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. The
partnership is terminated when the winding up is completed.
D. Any partner (except one who wrongfully dissociated) may wind up the business
E. Payment Priority Scheme:
1. Creditors first
2. Distribution to Partners from whatever is left
3. 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 Partnership
1. Another entity can convert to a partnership if:
a. Must be approved by document governing other entity or by applicable law
b. 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 on
later date, on that date
3. Since considered same entity as the previous entity, any liability of the previous entity follows
it! (so they cant escape liability by converting!)
B. Partnership Another Entity
1. Must be approved
a. As specified in partnership agreement
b. If not specified, in manner required to authorize merger or consolidation; or
c. By unanimous vote of partners
C. Note: Partnerships can leave DE (look to a foreign, non-US jurisdiction to transfer to); no domestic
dual-existence allowed
VI. Merger or Consolidation
Merger Consolidation
Two or more organizations come together
and one survives
++ 1 survives
Two or more organizations come together
and a new entity emerges
++ New Entity
A. Steps to Merge or Consolidate:
7
1. Approval: unanimous (default)
2. Must File: (Mandatory)
a. Certificate of Merger; or
b. Certificate of Consolidation
3. Consideration: can be nearly any form
VII. Domestication of Non-US Entity
A. DE allows dual-existence of partnership so long as in non-US nation
B. Steps: A non-US entity may domesticate as a DE partnership by filing w/ Secy of State:
1. A certificate of partnership domestication and
2. 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 liable
A. Special Features of LLP:
1. No personal liability of any of the partners (full shield); only the partnership can be liable
2. Partners will not get any distributions if that would cause the partnerships value to go below the
amount of its outstanding debts
B. Creating a Registered LLP:
1. Must apply to the state to get its permission to become an LLP
a. Partnership certificate must state that it is an LLP
2. Must file Statement of Qualification with secretary of state stating election to be LLP
substantial compliance standard
a. Name of partnership MUST contain LLP in the name
b. Address (for service of process)
c. Agent for process
d. Number of partners
e. Future effective date if not date filed
3. Must file Annual Report
a. 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 by
creating 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, Generally
1. 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 of
partners: 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
8
b. Not subject to SoF
c. Need not be signed
d. Any amendments must be unanimous by GPs
2. Certificate of Limited Partnership must be filed with Sec. of State
i. Name: must include LP and be unique
ii. Address/Physical Agent in state (for service)
iii. The name and business, residence, or mailing address of each general partner AND
iv. Initial certificate must be signed by all GPs
b. May carry on any lawful business, purpose, or activity w/ exception of banking
3. Amendment of Certificate of LP:
a. Must be amended if you add a new GP or withdrawal of GP; or
b. Must be amended if any GP discovers false statement in certificate
c. 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 / Consolidation
b. Transfer
6. Must maintain Agent for service in state
7. LP is person for purposes of DPC of 14
th
Amd.
C. Limited Partners Rights:
1. Generally not liable to 3rd parties for partnership obligations unless
a. Also GP
b. 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 becoming
LP 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 Interest
ii. List of GPs (but not of other LPs)
iii. Tax records
b. Confidentiality shield still applies, and the partnership can assert it
c. Chancery order to compelfutility demand is higher for LPs
7. Derivative Claim: even higher burden for LPs to bring derivative actions
a. 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
9
D. GP Rights
1. Basically treated the same as partners in a General Partnership (e.g. Joint and Several
Liability), EXCEPT GPs in an LP have a duty of good faith and fair dealing with respect to
the 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 then
b. Transfer of economic interests to Transferee (UNIQUE)
i. Agreement can prohibit until dissolution/winding up
c. Death
d. Removed per LP agreement
e. Assignment to creditors/bankruptcy
4. Rights/Powers: same as GP, JSL
a. Can contract to indemnify another GP
5. Duties: good faith/fair dealing
6. Fiduciary Duties (of good faith, loyalty, and fairness): to both GPs/LPs
a. Note: LPs do not have FDs to GPs
E. Creditors Access to GP Assets: for claim against partnership, only where
1. Judgment v GP; and
2. Judgmentunsatisfiedagainst partnership
3. LP in bankruptcy
4. GP agrees not to require exhaustion
5. 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 replace
2. All GPs written consent required to dissolve
3. 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. Creditors
b. GPs
c. 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 consolidating
3. Vote: all GPs + all LPS owning > 50% LP interest in profits
4. DE Mandatory Filings
a. Certif of Merger or Consolidation
10
b. Surviving Partnership amend LP Certif
5. Mergereffect on LPs
a. DRULPA: GPs must protect LPs interests
i. Duty of Loyalty
ii. Duty of care (No gross neg)
I. Transfer: can transfer only to foreign, non-US jurisdiction
J. Conversion
1. Conversion to LPapproval done however needed by what entity currently is
2. Mandatory filings:
a. Must file Certif of Conversion to LP
b. Must file Certif of LP
3. Conversion of LP another business formation
a. Vote:
i. Per Agreement;
ii. Per Merger/Consolidation; or
iii. 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 Partnerships
A. Statutory:
1. Has GPs and LPs
2. Liability: No personal liability for any partners (neither GPs nor LPs); only partnership liable
B. Formation
1. Limited partnership can be formed or convert to LLLP
2. Approval: consent of all GPs and 50% of LPs by interest in profits
3. Must file:
a. Statement of qualification
b. 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 a
closed 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 grade MPT 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, and
you 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
11