Class Notes (838,403)
Canada (510,881)
Rotman Commerce (1,103)
RSM225H1 (70)
Dan Shear (32)

Chapter 24

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Rotman Commerce
Dan Shear

CH. 3: BUSINESS ORGANIZATIONS: PARTNERSHIPS (GPPs, LLPs AND LPs) Overview: Three kinds of partnerships: • General partnership (“GPP”) • Limited liability partnership (“LLP”) • Limited partnership (“LP”) General Partnerships (“GPP”): (1) Description Two or more legal entities (individuals, corporations) owning and operating a business together for profit (2) Formation a) Requirements: Partnerships Act (“PAct”) says GPP arises automatically if 4 requirements met: (i) 2 or more legal entities  Two or more individuals, corporations (iicarrying on an active commercial business  “active” means ongoing business, not just isolated transaction(s)  commercialenterprise(e.g.manufacturing,accounting practice),not justinvestment/co-ownership  Daniel R. Shear 2000 – 2012 All rights reserved. 2  jointly owning securities or property for investment income ≠ “active commercial business” (iijointly owning and operating the same business together  distinguished from cross-marketing or promotion between separate businesses (e.g. Shopper’s Drug Mart and Swiss Chalet each offering discount coupons for the other’s products)  distinguished from merely sharing premises or assets  e.g. several accountants sharing same office premises and photocopier/fax to reduce overhead cost  distinguished from employer/employee relationship (ivto make and share profits  business must have profit motive  must be sharing revenues and sharing costs (since profit = revenues minus costs)  does not have to be equal sharing, or same ratio of sharing of revenues and expenses  sharing only revenues or costs does not qualify to create GPP b) Partnership vs. corporation: o If the above 4 requirements are met but the business has been incorporated as a corporation, then the business is not a partnership c) Rules under the Partnerships Act (“PAct”):  Daniel R. Shear 2000 – 2012 All rights reserved. 3 o PAct says that sharing of profits is a strong indicator that there is a GPP  This can be helpful where it is not clear whether there is an active commercial business (requirement 2 above)  However, if they are only using profits: • as a way of calculating the amount of debt repayments, or • as part of the total price payable for the purchase of a business, or • as a way of calculating the amount of compensation an employee or agent will be paid, that doesn’t count unless both parties are also jointly owning and operating that business together (requirement #3 above) d) Can the parties avoid being a GPP by agreeing they are not a GPP? o No - what parties call themselves or agree upon re: being partners (or not partners) is irrelevant to whether or not they are partners in a GPP o Only test for GPP is whether the 4 requirements above are met e) If not GPP, then what is it? o If not a GPP (above requirements not all met), then joint owners of the property/assets o Joint owners are not automatically personally liable for the debts relating to the jointly owned property/assets (unlike partners of GPP – see below)  Daniel R. Shear 2000 – 2012 All rights reserved. 4 o Joint owners do not automatically have fiduciary duties to each other (unlike GPP – see below) o There are no “implied terms” applicable to joint owners (unlike GPP – see below) o Joint owners do not automatically have the ability to bind each other to contracts relating to the jointly owned property/assets (unlike GPP – see below) f) Apparent partner (also called “partner by estoppel”): o This is a special situation where someone can become liable for certain loan debts of a GPP as if they were a partner in the GPP  They do not become a partner, but they can become personally liable for repaying a loan debt o Arises if you say you are someone else’s partner (or you allow them to say you are their partner) and a bank or other lender lends money to them believing you are their partner  You and they are each 100% personally liable for repayment of that debt (3) Registration: a) Formation of GPP: • Registration is not required to create a SPP b) Business name: • Registration of the business name of the GPP is required if other than the actual name of the individual owner  Daniel R. Shear 2000 – 2012 All rights reserved. 5 • Registration includes name and address of the GPP, and names and addresses of the partners • If don’t register when required to do so, still have GPP  Business Names Act says that if don’t register when required to do so, business cannot bring lawsuit or defend lawsuit until register  can also be fined up to $2,000 c) HST: • Registration required if total revenues exceed $30,000 (4) Personal Liability: Each GPP partner is: • “jointly and severally” personally liable • for the debts of the GPP o including debts under contracts, and debts arising out of negligence or misconduct of other partners or employees of the GPP • where the debts arose while that person was a partner of that GPP • to the extent GPP cannot pay off those debts GPP partners remain liable for those debts even after cease to be a partner of the GPP (5) “Fiduciary Duties” of Partners to Each Other:  Daniel R. Shear 2000 – 2012 All rights reserved. 6 Each GPP partner has certain legal duties to the other partners • these duties are called “fiduciary duties” The fiduciary duties are:  information: must make available to the other partners any information you have or learn, in your capacity as partner, that is relevant to the GPP’s business  personal benefits: must turn over to the GPP any benefits you receive, without the consent of the other partners, from:  using GPP property, name or business connections for your own purposes, or  taking personal advantage of a business opportunity offered to the GPP  competing:  must not carry on a business that competes with the business of the GPP without the consent of the other partners  must turn over to the GPP any benefits you receive from carrying on a competing business without the consent of the other partners (6) Implied Terms: The Partnership Act (“PAct”) sets out terms that apply to every GPP unless the partners agree to something different These “implied” terms are:  profits/losses ♦shared equally among partners  capital contribution ♦same amount required from each partner  Daniel R. Shear 2000 – 2012 All rights reserved. 7  mgmt of GPP business ♦each partner can participate  disagreements ♦settled by majority vote of partners  change in GPP business♦all partners must consent  admitting new partner ♦all partners must consent  GPP books/records ♦each partner can see and copy  assigning partner’s share in the GPP ♦recipient only gets your share of profits ♦no right to manage GPP or inspect GPP books  termination of GPP ♦if duration of GPP is “indefinite” (no fixed end date), any partner can terminate GPP at any time upon written notice to the other partners ♦GPP terminates automatically on death, bankruptcy or insolvency of any partner (7) Authority of Partners to Bind GPP: Each partner of a GPP automatically has the legal ability to bind the GPP to contracts, purchases, loans, etc.  Partners cannot avoid this by agreeing to something different  Only time this does not apply is if the following two conditions are both met:  Daniel R. Shear 2000 – 2012 All rights reserved. 8 (i) partner has no actual authority to bind GPP (e.g. partners all agree that no one partner may bind GPP to such contracts), and rd (i
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