SEQ CHAPTER \h \r 1AGENCY/PARTNERSHIP

SULC Fall 2000

Professor M. Franks

(GENERAL) PARTNERSHIP

Partnership defined: It is a legal entity of mutual agency. It is a juridical person, distinct from its partners, created by contract between two or more persons to combine their efforts or resources in determined proportions and to collaborate at mutual risk for their common profit or commercial benefit. (Trustees and succession representatives, in their capacities as such, and unincorporated associations may be partners.)

Basic elements (from grading key): 1) two or more partners; 2) to combine efforts or resources; 3) agreement need not be in writing; 4) sharing of profits and losses; 5) equal unless otherwise stipulated; 6) participation in management; 7) unlimited liability; 8) partnership taxation; and 9) further excellent discussion.

Need the following for a partnership: 1) two or more people; 2) oral or written contract for partnership; 3) partnership objective must be for profit; 4) each partner has an ownership in the business; 4) each partner agrees to carry a loss (shares in mutual risk).

In the absence of a written agreement stating otherwise, each partner has equal liability and sharing of profits 50/50. Can agree orally or in writing to be other than 50/50. Better to be in writing because hard to prove an oral agreement to be other than 50/50.

A partnership is a juridical person (not a natural person, but a legal person) and can sue, be sued, own property, or be liable for debt.

Can use any name with or without the partners names in it. Can use a fictitious name, but have to file a Trade Name Affidavit with the Parish Clerk of Court. If no name is adopted then the business must be conducted in the name of all the partners.

Each partner must contribute capital of value which can be anything agreed upon such as money, skill, etc... Capital investment does not equal profits or losses. Capital contributions are restored back to the partners proportionally based on the percentage each partner contributed.

IMMOVABLE PROPERTY: 1) If the contract of partnership was in writing and recorded with the Secretary of State at the time when immovable property is acquired by the partnership then the property is owned by the partnership and it is effective towards third parties. 2) If the partnership was in writing, but not recorded with Secretary of State, then the partnership still owns the property, but not effective towards third parties. 3) If the partnership was not in writing on the date of the acquisition then the property is owned by the individual partners. In order to put it in the partnership name the partners would have to place the partnership in writing and then transfer the property by a separate act. Then, to be effective toward third parties, the partnership would have to be recorded with the Secretary of State.

EX: property bought on Monday, partnership executed in writing on Tuesday, and filed on Wednesday with Secretary of State. The property is owned by the individual partners not the partnership and is not effective towards third parties. The partners would have to reconvey the property to the partnership to have it in the partnerships name. Then, to be effective towards third parties the partnership agreement would have to be filed with the Secretary of State.

Partners act as agents of the partnership. Each can bind the partnership. All partners have to agree, unless otherwise agreed in the partnership agreement, to: 1) amend the partnership; 2) admit new partners; 3) terminate the partnership; or 4) permit a partner to withdraw without just cause if the partnership is for a term. A majority must agree to decisions affecting the management or operation of the partnership unless otherwise stipulated.

Each partner has a fiduciary duty to the partnership and partners.

A partner may share his interest with a third party, but cannot make that third party a partner.

A partner has a right to be informed and inform himself of the business activities of the partnership and an agreement to the contrary is null and void. But, a partner may not exercise this right in a manner that interferes with the business or other partners exercising their rights.

In a term partnership: A partner may withdraw without the consent of his partners prior to the expiration of the partnership provided that he has just cause arising out of the failure of another partner to perform an obligation.

In a no term partnership: A partner may withdraw without consent at any time provided that he gives reasonable notice in good faith at a time that is not unfavorable to the partnership. CANNOT LEAVE THE PARTNERSHIP IN A BIND.

Upon withdrawal the partner is entitled to receive his share in the capital investment that he put in.

A partnership is terminated by: 1) unanimous consent of the partners; 2) judgment of termination from a court; 3) bankruptcy; 4) reduction to one person; 5) expiration of term; 6) attainment of goal; or 7) the impossibility of attaining the object of the partnership. A partnership also terminates in accordance with the provisions of the contract.

A partnership can continue the partnership after the term expires upon express or tacit agreement of the parties.

If the object of the partnership becomes impossible the partnership may be continued for a different objective upon the express or tacit agreement of the partners.

Termination of partnership: when a partnership terminates the business ends except for purposes of liquidation. The authority of the partners is also terminated except for liquidating the partnership. If a third person is not aware that the partnership is terminated and acts in good faith with one of the partners then the partnership is liable for that. If the partnership is terminated because it goes to one member then that person is not bound to liquidate the partnership and can continue it as a sole proprietorship.

Dividing and paying of creditors: 1) secured creditors; 2) unsecured creditors who are not partners; and then 3) unsecured creditors who are partners. If there is any money/assets left over then the capital contributions shall be restored to the partners. If anything left over after that then the surplus shall be divided among the partners based on their respective proportionally interests (percentage they contributed).

Partnership debt: Partnership is liable for the debt. The partner is liable for his virile share only, but may plead discussion of assets.

Delictual (tort) matters: The partners of the partnership are solidary liable which means that any one of the partners can be held responsible for the whole amount.

Partners can sue other partners when they breach a duty.

PARTNERSHIP IN COMMENDAM OR LIMITED PARTNERSHIP (PIC or LP)

Basic elements (from grading key): 1) At least one general and one limited partner; 2) liability limited to limited partner as only to the percentage of the contributed amount; 3) limited partner may not participate in management; 4) see list below of what he can do without losing limited partner status; 5) name cannot appear in partnership name unless it is also the same name as that of the general partner or of a predecessor business entity; 6) can use only one name of the general partner; 7) can use an assumed name; 8) the firm name must state in commendam or limited partnership; 9) Articles of limited partnership must be in writing and be filed with Secretary of State; and 10) has benefit of partnership taxation.

What the limited partner can do: 1) be an employee or contractor of the partnership or general partner; 2) be an employee, officer, director, or shareholder of a general partner that is a corporation or a member or manager of a general partner that is a limited liability company; 3) consult and advise a general partner; 4) act as a surety for the partnership; 5) take any action required or permitted by law to bring or pursue a derivative action in the right of the partnership; 6) request or attend a meeting of the partners; 7) liquidating the partnership; or 8) proposing, approving, disapproving, by voting or otherwise, any of the following:

1) continuation or termination of the partnership; 2) alienation, exchange, lease, mortgage, pledge, or other transfer of the assets of the partnership; 3) incurrence of debt by the partnership other than in the ordinary course of its business; 4) a change in the nature of the business; 5) admission or expulsion of a general partner; and 6) amendment to the contract of the partnership.

Limited partners who let their names be used as if a general partner assume liability of a general partner.

A limited partnership or partnership in commendam must be in writing and filed with the Secretary of States office. Until it is filed the limited partner is as liable as the general partner.

LIMITED LIABILITY PARTNERSHIP (LLP)

Basic elements (from grading key): 1) called a Registered Limited Liability Partnership; 2) add-on feature to any general partnership or limited partnership; 3) limited as to tort liability only (unlimited as to contract); 4) register with Secretary of State, pay $100.00, and renew each year; 5) a partner is not individually liable for other partners torts; 6) partner is liable for virile share of contract debts of partnership.

An application to the Secretary of State for a LLP must contain: 1) name including the LLP or Registered Limited Liability Partnership; 2) address of principal office; 3) number of partners; 4) purpose of partnership; 5) majority vote to execute.

LLP partners must be natural persons - no juridical persons.

If partnership is cast with liability for the tort of a partner the other partners can sue that partner to recover the costs for the partnership.

LIMITED LIABILITY COMPANY (LLC)

Basic elements (from grading key): 1) continuity of life; 2) centralized management; 3) free transferability of interests; 4) limited liability as to all members; 5) elect partnership tax status (check-the-box).

Must file articles of organization and initial report with Secretary of State, but does not have to include operating agreement. Articles of organization must include: 1) name including LLC or Limited Company; 2) purpose; 3) limits on authority; 4) powers conferred

LLC can have one member and has perpetual existence (even after death). Owners are members as opposed to partners.

LLC should have management and managers can be either members or not. Non-members managers still owe fiduciary duty. Have to have a majority vote of the members to pass things.

Without operation agreement stipulating the members share profits evenly. Distributions cannot be made if LLC is unable to pay debts.

Articles of organization can either limit or eliminate liability, but not with fraud or unfair financial gain. Members and managers are not individually liable for debts of LLC.

The LLC is taxed as a partnership and not a corporation unless the LLC acts in a way that resembles a corporation. Remember, a corporation is double taxed - the corp and then the dividends that are paid out are taxed.

LLC must keep a copy of names and addresses of members, financial statements, operating agreement, etc..., because members have a right to see these. This can be waived by agreement.

To dissolve: 1) members vote to dissolve; 2) juridical dissolution; and 3) affidavit if owes not debts. Upon dissolution and commencement of winding up must file articles of dissolution with Secretary of State that are signed by one or more managers. Certificate of dissolution has to be signed by one or more of the members stating that the company has been liquidated.

MISCELLANEOUS

Activities that can subject a limited partner to unlimited liability: 1) manage or conduct business with third parties; 2) name appears in firm name unless it is also the name of general partner or of a predecessor firm.

Name some activities that a limited partner may do without losing limited liability status: 1) serve as a non-managerial employee; 2) limited partner may consult and advise; 3) limited partner may be a surety; 4) may vote on admission or expulsion of a partner; 5) may vote on continuation or termination of a partnership; (see above list for other things may do).

SOLE PROPRIETORSHIP

The major disadvantage is that there is unlimited liability.

Can carry on the business under an assumed name, but must file a trade name affidavit with the clerk of court. This is to put creditors on notice of who owns the assumed named business.

Sole proprietorship cannot be a bank or insurance company in La.

No distinction between personal and business assets for taxes. Have to file a schedule C for the IRS.

AGENCY

Agency and mandate in Louisiana mean the same thing. Mandatory is having an obligation or command which must be obeyed. A mandate is an order directing some specific action or authority, a contract.

Purpose of agency: to accomplish results through the work of another.

Procuration is a juridical act by which a person, the principal, confers authority on another person, the representative (or agent or mandate), to represent the principal in legal relations. The procuration can be addressed to the representative or to a person with whom the representative is authorized to represent the principal in legal relations.

Authority of agent: may be conferred by law, contract, or by unilateral act of procuration.

Mandate (agency) is a contract by which the principal confers authority to the mandatory (agent) to transact one or more affairs for the principal. The contract of mandate may serve the exclusive or the common interest of the principal, mandatory (agent), or third person.

Principal: the person who authorizes another to act for him. The person to whom the agent is obligated.

Agent: the person who is authorized to act on behalf of another which is the principal. Agent must be prudent.

Powers of agent: express or implied, general (express need not be written).

Certain things require expressed authority: 1) inter vivos donation; 2) successions; 3) loans, debts, surety; 4) endorse promissory notes; 5) enter into compromise; and 6) make health care decisions

Implied authority: act in manner as if accepting for agent.

Apparent authority: person acted so as to give innocent third party reasonable belief that person had authority (manifestation).

An agent is bound for : property, performance, information, and money.

Disclosed mandate (agent): contracts in the name of the principal and agent not bound personally.

Undisclosed mandate: mandate is personally bound.

Disclosed mandate/undisclosed principal: mandate is bound personally until principal refers himself.

Putative: when a person causes a third party to believe that another is acting as his mandatory then the person acting as the principal is bound to the third party.

Fiduciary: entrusted with a duty and a high degree of care.

Termination of mandate (agency): 1) death of the principal or agent; 2) interdiction of the agent; 3) qualification of a curator after the interdiction of the principal.

If unlawfully terminated is the agency over? Yes, but the agent still has the power to sue for damages. In union activities - be reinstated and get back pay.

Principal is bound to notify third persons when agency is terminated or else is still bound by the agents acts.

Ways in which an agency terminates: 1) when revoked by the principal; 2) when the agent resigns or renounces his power; 3) upon the death of the principal or agent; 4) upon interdiction of the agent; 5) upon interdiction and appointment of curator for principal; 6) upon occurrence of resolutory condition specified in the power; 7) when purpose of the power becomes impossible; 8) when purpose of power is accomplished.

REAL ESTATE

Customer: person not represented by licensee but licensee performs ministerial acts .

Client: engages the professional services and advice of licensee as his agent.

Duties of real estate agent: perform terms, promote best interests, adhere to price and terms stated, act timely, account for money.

No breach of duty when: agent for client shows other properties to other clients or showing property in which client is interested to other buyers; when agent receives higher fee based on higher price; providing false information when no reason to know it was false.

Dual agency only with conformed and written consent of all parties. Must disclose certain things.

Termination of agency: upon expiration or completion of agreement.

Payment not determinative of agency relationship.

EMPLOYEE / EMPLOYER

Employer (master): a principal who employs an agent to perform service in his affairs and who controls or has the right to control the physical conduct of the other in the performance of the service.

Employee (servant): an agent employed by a master to perform services in his affairs whose physical conduct in the performance of the service is controlled or is subject to the right of control by the master.

Independent contractor: a person who contracts with another to do something for him but who is not controlled by the other nor subject to the others right to control with respect to his physical conduct in the performance of the undertaking. He may or may not be an agent.

Factors that the court will look at to see if a person is an employee or independent contractor: 1) extent of control the master may exercise over the details of the work; 2) whether the one employed is engaged in a distinct occupation or business; 3) whether the employer or workman supplies the tools; 4) length of time for which the person is employed; 5) the skill required in the particular occupation; 6) whether the work is a part of the regular business of the employer; 7) method of payment, whether by the job or by the hour; and 8) whether the principal is or is not in business.

WORKMANS COMPENSATION

Statutory employer: A statutory employer relationship shall exist whenever the services or work provided by the immediate employer is contemplated by or included in a contract between the principal and any person or entity other than the employees immediate employer. Work shall be considered part of the principal's trade, business, or occupation if it is an integral part of or essential to the ability of the principal to generate that individual principal's goods, products, or services.

In other words: a statutory employer are the employees of the contractor and the contractor is engaged to perform work that is a part of the principals trade.

Three wicked sisters: 1) fellow servant rule; 2) assumption of risk; and 3) contributory negligence.

Workers compensation eliminated the three wicked sisters by allowing the worker to get compensated by the employer for a work related injury (course and scope of employment) and giving up the right to sue the employer for the injury. The employer is compelled to pay. Cannot bring a suit against the employer unless it is for a tort.

TRADE SECRETS

Trade secret: may consist of any formula, pattern, device, or compilation of information which is used in ones business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.

A trade secret need only be sufficiently novel that it is not a matter of public knowledge. It may be only a slight advantage over common knowledge and practice in the trade. Secrecy need not be absolute and the owner of the secret needs only to take reasonable precautions to ensure that it would be difficult for others to discover the secret without using improper means.

It can relate to the production of goods, formula to produce an article, sale of goods, operations in the business, concessions in a price list, discounts, customer list, method of bookkeeping, or office management.

Do not need a covenant not to compete to keep trade secrets from being disclosed. One who discloses or uses anothers trade secret, without a privilege to do so, is liable to the other if: 1) he discovered the secret by improper means; 2) his disclosure or use constitutes a breach of confidence reposed in him by the other disclosing the secret to him; 3) he learned the secret from a third person with notice of facts that it was a secret and that the third person discovered it by improper means or that the third persons disclosure of it was otherwise a breach of his duty to the other; or 4) he learned the secret with notice of the facts that it was a secret and this its disclosure was made to him by mistake.

It is not a trade secret if it is patented. Can use reverse engineering. Can use public information to find out things. Is how many elevators in Baton Rouge a trade secret? No, just go to city hall and look at the permits.

Matters of general knowledge in an industry cannot be appropriated by one as a trade secret. The efficiency and skills which an employee develops through his work belong to him and not to his former employer.

NON COMPETITION COVENANTS

They must be reasonable as to scope of activity prohibited, duration, and geographic area. In Louisiana the duration is limited to two years.

Needs to be consideration given to enter into a non-competition covenant. Cant just say sign it. Look at the circumstances surrounding the covenant to see if it is reasonable in the activity prohibited, the duration, and the geographical area.

A person can lay the groundwork while still employed to start another, even competing, business, but cannot actually start to compete with former employer until not employed by them. Can obtain loans, purchase property/equipment, research, etc... Look to see if the circumstances indicate that the new business is similar or not to the former employer.

SIGNATURES

Remember: see if the person signed in a way that reveals he is an agent or principal.