Liquidating losses

Each partner also has a duty of loyalty to the partnership.

Unless copartners consent, a partner's duty of loyalty restricts the partner from using partnership property for personal benefit and restricts the partner from competing with the partnership, engaging in self-dealing, or usurping partnership opportunities. When a partner has the apparent or actual authority and acts on behalf of the business, the partner binds the partnership and each of the partners for the resulting obligations.

Every state has adopted some form of the UPA as its partnership statute; some states, however, have made revisions to the UPA or have adopted the Revised Uniform Partnership Act (RUPA), which legal scholars issued in 1994. 6; although a community of interest necessarily exists between them and the surviving partners, until the affairs of the partnership are wound up.

The authors of the initial UPA debated whether in theory a partnership should be treated as an aggregate of individual partners or as a corporate-like entity separate from its partners.

Accordingly, some partner-ships may contain individuals as well as large corporations.

Family members may also form and operate a partnership, but courts generally look closely at the structure of a family business before recognizing it as a partnership for the benefit of the firm's creditors.

If, however, a person receives a share of profits as repayment of a debt, wages, rent, or an Annuity, such transactions are considered "protected relationships" and do not lead to a legal inference that a partnership exists.

Each partner has a right to share in the profits of the partnership.

As a practical matter, therefore, the present-day partnership has both aggregate and entity attributes.

An association of two or more persons engaged in a business enterprise in which the profits and losses are shared proportionally.

The legal definition of a partnership is generally stated as "an association of two or more persons to carry on as co-owners a business for profit" (Revised Uniform Partnership Act § 101 [1994]).

Some courts took a technical approach to the aggregate theory and did not allow a partnership to sue on its own behalf.

In addition, some courts would not allow a suit to go forward against a partnership unless the claimant named each partner in the complaint or added each partner as an "indispensable party." The RUPA generally adopted the entity approach, which treats the partnership as a separate legal entity that may own property and sue on its own behalf.

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