Electronic Signature Lawfulness for Assignment of Partnership Interest in Canada

How to eSign a document: electronic signature lawfulness for Assignment of Partnership Interest in Canada

module two partnerships one was a master of analytics while the other had an unrivaled business foresight together Apple co-founder Steve Wozniak and Steve Jobs formed one of the most successful business partnerships in the history of the United States by choosing to form their business as a partnership Wozniak and Jobs followed the path of millions of entrepreneurs before them partnerships are a popular choice for aspiring business owners and in this module we'll discuss the laws affecting partnerships the three different types of partnerships there features formation termination partners as roles and the duties partners o to one another laws governing partnerships states regulate partnership creation organization and dissolution model acts such as the Uniform Partnership Act and the revised Uniform Partnership Act have helped States draft partnership laws state laws based on these model acts are the default rules if there is no partnership agreement and an agreement can circumvent the default the UPA written in 1914 was the first modeled act providing guidance on partnerships and by the late 1980s nearly all states had adopted it unless a partnership agreement provides otherwise the UPA requires unanimous agreement among the partners for extraordinary changes to the partnership assigning partnership property to creditors disposing of goodwill any act that would make it impossible for the partnership to carry on business and adding a new partner additionally UPA states presumed that partners will share equally in business profits have the right to receive repayment of contributions will be indemnified for payments made for the partnership and that they will share equally in the partnerships management the revised UPA written in 1997 has a gradually supplanted UPA across the country the revised Act is more detailed than the original UPA but the acts share many similarities the revised UPA however rewrites the rules on partnership breakups and gives more stability to partnerships under the original UPA if one partner died or left the partnership the partnership dissolved under the revised UPA if a partner dies or leaves the partnership can terminate or the other partners can buy out the dissociating partners interest and continue operating the partnership the general partnership there are three types of partnerships the general partnership limited partnership and limited liability partnership when two or more people work with one another to co-own a business for profit unless they specify otherwise they form and general partnership the only formal documentation necessary to create a general partnership is the partnership agreement the agreement provides each partnerships name purpose place of business each partners is authority and each partners as responsibilities the agreement can also document how profits will be shared how ownership interest is shared partners has authority to bind the partnership and make decisions on its behalf how decisions will be made in case disagreements or deadlocks arrives how to determine a purchase price when one partner withdraws from the partnership and how and when will a withdrawing partner be paid it isn't difficult for entrepreneurs to draft a partnership agreement template agreement forms are readily available and attorney assistance isn't always necessary not taking the time to draft a partnership agreement and specify these key provisions with an agreement causes the states default rules to apply first when there is no partnership agreement all partners will have joint title to property equal sharing of profit and losses and equal control and management for example Brad and Kelsey form a general partnership to operate a food truck but they forego drafting a partnership agreement to start the business Brad contributes $5,000 while Kelsey contributes $1,000 is it fair for Brad and Kelsey to equally share the food trucks profits when Kelsey invested 1/5 of Brad's to start the business additionally based on her capital contribution is it fair to Kelsey to be equally liable for the partnership's debts and losses if the food truck business flounders because the default rule may cause this incongruous result the partners would be well advised to adopt a partnership agreement second without a clearly written partnership agreement disputes can easily arise regarding partner responsibilities for specific aspects of the business the partnership agreement will explain how the partners can resolve their differences if it agreement arises when there is no provision for dispute resolution the partners could pay thousands of dollars in legal fees as they go to court to resolve an issue forming a general partnership has an important consequence flow through or pass through taxation a partnership does not pay its own federal income tax instead the partnerships income losses deductions and credits passed through to each individual partner who reports these amounts and pays taxes on them as part of his own individual personal income tax return the partnership is required to complete and submit a form 1065 which is a partnership income tax return the partnership reports the income allocated to each partner on Schedule K and then distributes a schedule k-1 to each partner advising of the amount of income allocated to that partner partners may terminate a general partnership firm many potential reasons they could dissolve it because the agreement advanced to dissolve the partnership on a fixed date additionally if partners had formed the partnership for a specific reason they could dissolve it if and when the partnership achieves its goals whatever the reasoning disillusion consists of several steps the first is winding up which is the orderly settling of the partnerships accounts and business affairs during this phase partners must complete any outstanding legal and contractual obligations collect accounts receivables and settle debts among themselves when the winding up process is complete two possibilities arise first the partnerships business may be continued by the remaining partners if they decide to continue it all rights and obligations of the dissolving partnership are assigned to the successor partnership alternatively the partnership could be dissolved and liquidated in its assets sold in the event of a rightful dissolution and absent an agreement to the contrary any partner can force liquidation in the event of a dissolution should the remaining partners wish to continue the business they must unanimously agree to do so even if partners dissolve the partnership their fiduciary duties and liabilities to predators and other interested parties continue though a creditor may choose to discharge a dissociating partner by express or implied agreement if there are insufficient assets in the partnership to settle obligations and debts then they are settled with the following priority first all outside creditors must be satisfied if the partnerships funds are insufficient to satisfy obligations to outside creditors then each partner must contribute her own money to satisfy debts second and priority are inside creditors or partners who contributed their own money to the partnership beyond the original amount invested for example Paul Michael and Vincent form a general partnership to sell hair styling products in the partnership agreement they specified that each would contribute $20,000 to start the business in the first year of operation there were unforeseen cost increases for ingredients needed to make hair gel and Paul the wealthiest of the three loaned the partnership in additional $10,000 so that it could purchase needed materials ten years later all three decide to dissolve the partnership after first paying back all outside creditors partnership will then have to compensate Paul for his ten thousand dollar loan third each partner contributed to it will receive the original amount they invested finally if any partnership funds remain they are distributed to the partners limited partnership the second type of partnership is a limited partnership a creation of state statute a limited partnership will bring together passive investors to raise capital for a business and ensure that they remain in the background while investors who have managerial talent oversee and operate the business the limited partnership is more complex than the general partnership it consists of two type of partners one is a general partner who operates the business and has unlimited personal liability for the partnerships obligations and one is a limited partner who is not personally liable to creditors but also does not have a right to control the partnership let's look at an example Jarrid is a recent Film School graduate looking for his first big break in Hollywood a native Chicagoan and rabid sports fan he wants to produce a drama based on the Chicago Cubs his 2016 World Series victory despite this zeal for the endeavor he doesn't have the capital necessary to get the project off the ground so he's looking for investors Jared like other filmmakers do can look to the limited partnership as the business entity to drive funding for the movie he and his co producers making the documentary would be the general partners while any investors who just contributed money would be limited partners the limited partners wouldn't need to have active roles in the filmmaking process and can stay in the background while they provide the money necessary to fund the film should the limited partnership incur debt and not get made or if it bombs at the box office the limited partners would only be liable to creditors for the amount they contributed and nothing more the limited partner doesn't have any rights to control her manage the partnership but she does have several other powers first she has the right to receive information about the partnership for example a General Partner may prepare and provide monthly statements to keep a limited partner apprised of finances second the limited partner can provide her with hold consent to any general partner decisions and actions third limited partners can also sue in the name of the limited partnership to enforce rights of the limited partner against the general partners finally a limited partner can vote on whether to allow other partners to join the entity new partners whether limited or general may only be admitted with the written consent of all partners if the limited partner is actively participating in management she can lose her limited status and a court will treat her like a general partner this is a factual case-by-case examination she will also lose her status if her creditor can prove that the limited partner represented herself as a general partner or behaved as though she were a general partner if a creditor successfully shows active participation then the limited partner will be fully liable for the creditors claims like a general partnership the limited partnership is a pass-through entity unlike a general partnership though it is more expensive to create and manage because a limited partnership must satisfy strict statutory guidelines first in addition to the partnership agreement the limited partnership must file a certificate eliminate partnership with the appropriate state office every state has its own requirements for certificate but states generally require the partners to include the following information the LPS name the LPS principal place of business address the name and residence address of each general partner and the name and address of the LPS registered agent limited liability partnership browsing through websites for law firms and accounting firms one will notice that the name of nearly every single one ends with the suffix LLP LLP stands for limited liability partnership the LLP is a general partnership that registers with the state to provide all partners with limited liability protection LLP s first appeared in Texas in response to the large amounts of losses general partnerships incurred because of the 1980s is savings and loan crisis in the crisis is aftermath thousands of Texas attorneys had their personal non-exempt assets seized for their partners as malpractice to prevent this from occurring again attorney salt legislative changes to limit their vicarious liability by 1999 all 50 states and the District of Columbia had enacted statutes authorizing LLP registration an example of a state LLP statute is Nebraska's which provides a partner in a registered limited liability partnership is not liable directly or indirectly including by way of indemnification contribution assessment or otherwise for debts obligations and liabilities of or chargeable to the partnership or another partner or partners whether in tort contract or otherwise arising from emissions negligence wrongful acts misconduct or malpractice performed or committed while the partnership is a registered limited liability partnership at its core a limited liability partnership is a combination of a general partnership and a limited partnership for example the government continues to tax partners on a pass-through level and entrepreneurial professionals seeking to form one will draft a partnership agreement however unlike the limited partnership the LLP allows limited partners to actively participate in the business without the risk of becoming personally liable for partnership obligations or another partners liabilities states differ in what they require for LLP formation but typically the additional necessary step 2 LLP is to file with a Secretary of State in application establishing the name of the partnership the address of its principal office the street address of its registered office the name and street address of the registered agent for service of process in the state a brief statement of the business in which the partnership engages any other matters the partnership determines to include and a certificate of registration as a limited liability partnership the LLP is similar to another business entity the limited liability company or LLC which we will discuss later partner fiduciary duties regardless of the partnerships form each partner owes several duties to other partners and a breach of any Duty entitles the non breaching partners to a remedy the court will scrutinize and strictly construe any partnership agreement that alters these fiduciary duties the duty of care the first is a duty of care the standard of care states impose is that of gross negligence where a partner must refrain from reckless conduct or intentional misconduct that hurts the partnership or the interests of the other partners for example states have enacted legislation requiring businesses to be proactive and keep records of job applications resumes and other employment materials for at least one year after reaching a hiring decision a partner in a general partnership who handles Human Resources matters and who disregards the law and discards these materials less than one year after hiring an employee not only violates the law but also reaches a duty of care the duty of loyalty the second is a duty of loyalty requiring a partner to account the partnership and hold partnership property in trust for the partners is benefit additionally the partner must place the success of the partnership above personal interests and should avoid any conflicts of interest between partnership duties and personal activities for example assume that Amber is a law partner in a firm she knows that the firm is looking to rent a bigger office and she finds a building for sale suitable to serve as the new office instead of letting her partner's know of it though amber purchases the building as a personal investment if her law partners find out they could successfully claim that she has breached the duty of loyalty to the partnership because amber placed her own financial interests above the partnerships the duty of good faith and fair dealing the third is a duty of good faith and fair dealing requiring each partner to act honestly candidly and fairly towards one another in all partnership dealings additionally a partner must avoid reaching agreements through threats or other forms of intimidation that can cause duress the duty of full disclosure the fourth fiduciary duty is a duty of full disclosure requiring partners to disclose all risks and benefits of actions affecting the partnership to one another for example Devon wants to buy out Lisa's interest in an accounting firm they operate as a general partnership to comply with the duty of full disclosure Lisa must disclose any and all material information that relates to the value of her partnership interest that Devon couldn't learn mout over the normal course of business so if Lisa doesn't disclose to Devon that a rival accounting firm is relocating to an office closer to them and could more effectively threaten their business and Devon has no way of knowing this then Lisa would be in breach of this Duty if she doesn't tell her the court has numerous remedies available for partners breaches and the remedy an aggrieved partner can receive depends on the breach for example if a partner breaches the duty of loyalty by concealing profits from another partner the aggrieved partner can recover monetary damages or the court can impose a constructive trust on the breaching partners profits