Textbook Notes (363,140)
Canada (158,217)
RSM225H1 (13)
Dan Shear (7)
Chapter 3

Ch3 GPPs and LLPs and LPs.doc

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University of Toronto St. George
Rotman Commerce
Dan Shear

CH. 3: BUSINESS ORGANIZATIONS: PARTNERSHIPS (GPPs, LLPs AND LPs) General Partnerships (“GPP”) - Creation: (1) Partnership Act (“PP Act”): GPP arises automatically if 4 requirements met: (1) 2 or more legal entities (e.g. individuals, corporations) (2) carrying on a business  typically ongoing business, not just isolated transaction(s)  activecommercialenterprise(e.g.manufacturing,accountingpractice), notpassiveinvestment/co-ownership  passive investment/co-ownership: co-owning securities or property for investment income ≠ “carrying on a business” (3) jointly operating the same business together  distinguished from co-marketing/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 (4) to make and share profits  sharing revenues and sharing costs (since profit = revenues minus costs)  sharing only revenues or costs does not qualify to create GPP (2) Indicators of GPP: PP Act Rules:  Daniel R. Shear 2000 – 2011 All rights reserved. 2  PP Act Rules may be helpful where not clear whether requirement (2) or (3) above is met  sharing profit is considered strong indication of GPP  sharing profit + managing the business is even stronger indication of GPP  but sharing profit for the following reasons is no indication for or against existence of GPP:  to repay debt (i.e. debt paid only from profits)  remuneration of employee/agent  part of purchase price for business (3) Relevance of Parties Agreeing Whether They are Partners:  what parties call themselves or agree upon re: being partners (or not partners) is irrelevant to whether or not they are partners (4) Apparent Partner/Partner by Estoppel:  if X represents him/herself to be Y’s partner, or allows him/herself to be represented as Y’s partner:  does not make X and Y partners, but  if someone lends money or gives credit to Y in reliance on the representation that X is Y’s partner, then X will be jointly and severally liable with Y for repaying the loan/credit if Y can’t repay (5) If Not GPP – then Co-ownership:  generally considered to be co-ownership of property/assets  each co-owner owns an interest in the property/assets  a co-owner is not automatically 100% personally liable for debts relating to co-owned property/assets (unlike GPP – see below)  co-owner does not automatically have fiduciary duties to other co-owner (unlike GPP – see below)  no automatic implied terms (unlike GPP – see below)  Daniel R. Shear 2000 – 2011 All rights reserved. 3  no automatic right of a co-owner to bind co-ownership (unlike GPP where each partner can bind GPP – see below) General Partnerships (“GPP”) - Consequences: (1) Personal Liability:  each partner “jointly and severally” liable for ALL debts of GPP incurred (to extent GPP cannot pay)  applies during the time he/she was a partner  includes debts arising under contracts  includes debts resulting from torts committed by partners or employees in course of carrying on the GPP business (e.g. theft of client funds, negligence)  remain liable for those debts even after cease to be a partner (2) “Fiduciary Duties” of Partners to Each Other:  information: 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: 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:  Daniel R. Shear 2000 – 2011 All rights reserved. 4  not carry on a business that competes with the business of the GPP without the consent of the other partners  turn over to the GPP any benefits you receive from carrying on a competing business without the consent of the other partners (3) Implied Terms:  every GPP has a “partnership agreement” because PP Act sets out basic terms (“implied terms”) that applies to all GPPs  each of the implied terms can be changed by the partners if they agree to something else
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