Riassunto Law Economics

BASIC RULES IN PARTNERSHIPS’ LAW

“

Control. Sec 18 all partners have equal rights in the management and conduct of the

“

partnership business” and any difference arising as to ordinary matters connected

partners”.

with the partnership business may be decided by a majority of the There is a

distinction between ordinary and extraordinary matters : the former are the day-by-day

decisions (where sometimes some of the partners decide ),while the latter are general

decisions,fundamentals for the partnership.

“

UPA section 410 an act outside the ordinary course of business of a partnership and

an amendment to the partnership agreement may be undertaken only with the consent

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partners”.

of all the In case of VIOLATION, minority can go to the judge and ask for

injunction, damages.

Voting rule : majority, one partner, one vote. In the partnership agreement you can

change this rule, introducing ratio between contribution and control, or unanimity

Agency. An agent is a person that act on behalf of the principal. In partnerships, agents

are some members of the partnerships that act in the name of the partnership. Under

“each

the rule of the UPA sec.9 partner is an agent of the partnership for the purpose of

business”

its . So the act of any partner within the scope of the business binds the

partnership. Thus, each partner has the power not only to dispose of or dissipate all the

partnership assets, but also to expose all the other partners to personal liability for

obligations in excess of those assets. This agency authority of partners need not be

consciously conferred upon them : it is an incident of their status as partners. This

power can be eliminated by the express term of partnership agreement. If there are

LIMITATION to the agency power, this limitation must be notified to third parties. Just

with reference to transfer of REAL PROPERTY by partners third parties are deemed to

know any limitation to it if it is contained in a partnership statement files in the

appropriate stare office.

Liability. Each partner is potentially liable for the full amount of partnership debts. The

basic rule of UPA is that liability is JOINT AND SEVERAL: creditors can ask for

payment from any of the partners. Each and All of the partners are liable to third

parties.

So partners are liable for partnership debts, and creditors are not obliged to sue the

partnership, since they can ask payment to one of the partners or to all of them.

Between the partners, debt are usually shared according to contributions.

In partnerships, we have PERSONAL LIABILITY : if partnerships assets are exhausted

and if a partner has personal assets, sooner or later the creditors are likely to be able to

get them.

* In the agreement, partners can agree to split their debt in many ways, but the Joint

and several rule CANNOT be changed with third parties.

TERMINATION OF AMERICAN PARTNERSHIPS

Dissociation at will : in the absence of an agreement to the contrary, a partner’s

relationship with the other partners may be ended at will. In UPA is written that a

“dissociate”

partner may from the partnership at any time. However, in the partnership

agreement there might be a TERM. The agreement on the term might also be tacit and

may be inferred from nature; if there is a term, the partnership cannot be terminated at

will earlier on.

If one partner wants to withdraw, the other might liquidate the business or continue to

operate it : the withdrawing partner is liable for past debts+damages, but the remaining

partners shall pay out the value of his interests.

If a partnership is terminated, there is the liquidation in which assets are sold that

produce a cash fund used to pay off all debts : any surplus is divided among partners.

There are several ways to generate cash funds:

1 Going-out-of business : shut down the business and sett all its assets. However, also

“goodwill” at that point is destroyed. Goodwill might include some intangible assets

2 Sale of going concern to outsiders : a second possibility for winding up is a sale of the

business to an outsider.

3 Sale to majority: a purchase of the business by those partners who wish to continue

their investment.

4 sale to minority : a purchase by minority partner/s

TRANSFERABILITY 11 di 25

Partnership interests are not transferable : so a person cannot, without the consent of

all the other partners, substitute another person for himself. The basic rule of non

transferability can be modified in the partnership agreement . For example, the partners

can agree to allow transfer either without restraint or subject to some conditions.

VARIATIONS OF AMERICAN PARTNERSHIPS

1. Limited partnerships. It consists of one or more general partners plus one or more

limited partners. These rules are found in the ULPA. General partners are

personally liable for the debts of the firm, have the power to act on behalf of the firm

and control it. Limited partners do not participate in control, do not have the power

to act for the firm, and are not personally liable for the debts of the firm.

This organization is more similar to a corporation, but to some extent is better for

taxes purposes. Limited partners have control just for really major decisions such

as dissolution. If a limited partner participate in as strategic decision, he/she will

lose limited liability.

2. Limited liability Companies (LLC) = state legislations. LLC is a recent statutory

development that reflects the importance in the organization of many business

entities of two objects : limitation of the liability of investors to the amount invested

in the firm and avoidance of the double tax on corporate income. The formation of

the LLC, like the formation of the corporation, requires the drafting and filing of

certain documents. Once LLC is formed, the equity investors achieve the corporate

characteristics of limited liability. A limited term of existence, or duration, must be

stated (no more than 30 years). This is in contrast to a corporation , where the

duration is in general unlimited. Moreover, investors may withdraw at will, generally

months’

with 6 notice. The other members can continue to operate the business if

they agree unanimously to do so or pursuant to any agreement that they may have

entered into in advance. A member of LLC that withdraws is entitled to be paid off.

As for transferability, LLCs may transfer, but, in absence of unanimous consent of

the other members or a provision or an agreement to the contrary, not the right to

participate in the management.

The LLC advantage over the limited partnership is that ALL investors can

participate in the management, plus the advantage that there need be no person

comparable to the general partner with exposure to unlimited liability.

3. Limited Liability partnerships (LLP) : Is the newest type of organization. Is like a

general partnership but liability go general partners is restricted. So there is no

personal liability (just limited to contributions) for misconduct, negligence, wrongful

acts of other partners. As the price for the restriction on liability, some states (like

New York) require a minimum amount of liability insurance coverage.

4. Mining partnerships : They are partnerships for specific ventures : mining ventures,

oil ,gas . Rules are developed by case law in consideration of the special nature of

the businesses. They are considered partnerships but interests are freely

transferable , there is no dissolution at death or bankruptcy, the duration is defined

by its scope, narrow powers to bind the partnership.

Partnership under italian law

In Italy there are three types of partnerships :

- Società Semplice (SS) : commercial rules do not apply

- Società in Nome Collettivo (SNC)

- Società in accomandita semplice (SAS) 12 di 25

The Art.2247 of the Civil Code provides a basic notion of contract for both partnerships

“

and companies : By a contract of società two or more persons contribute goods and

profits”.

services for the joint exercise of an economic activity for the purpose of sharing

American vs Italian law :

1. They have the same economic function ; there are the same possible contributions

(goods, service, real property, receivables). There are mainly default rules and few

mandatory rules.

2. There is the same importance of mutual trust, reliance, personal characteristics =

affect societatis. There is the same principle of transferability of interests just in

case of unanimity.

3. There is the same distinction between partnership and joint tenancy

BUT

The distinction between commercial /not commercial activities remain : SS is not

allowed to exercise commercial activities but there is an exception:

SS are activities such as agricultural, professional and craftsmanship.

It is not a commercial partnership, hence it is not subject to special rules regulating the

commercial entrepreneur.

SNC and SAS are allowed to exercise commercial activities(so they can carry out

it’s

commercial activities but not mandatory). They are commercial partnerships,

subject to special rules regulating the commercial entrepreneur. doesn’t

Also in Italy there is the debate of REIFICATION : the Civil Code state that

partnerships are entities. However, legal authors agree they are separate entities ;

some authors argue a distinction between SS= no separate entity and SNC,SAS=

separate entities.

SOCIETA’ SEMPLICE. It can be set up with or without formalities. BUT if among the

contributions there is a real estate, then the written form is required.

This kind of partnerships born as course of action, and are called by Italian case law

società di fatto (partnerships in fact). They can born also without realizing it, if they

appear as such to third parties, and are called società apparente (apparent

partnership).

Società di fatto and societa apparente are not regulated under civil code, but under

case law.

When a judge has to decide whether there is or there is not a partnership among two

people it must be proven that there is a share in decision making and profit sharing

among two or more people.

There might also be silent partners, called soci occulti.

Soci occulti are regulated under barkruptcy law (art 147).

SS is not a commercial activity, so is not entitled to strict rules about the accounting. It

report’s

just needs an yearly report. Profits shall be shared after approval =

automatically. The report is a very brief and easy to read document, different from

accounting books that must be provided by commercial partnerships. The proportion

between contributions and profit/losses is a default rule : however, there is a

MANDATORY RULE : void the agreement under which one or more partners do not

“lion”

bear any loss nor share any profit. This is the so-called agreement.

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There are three main aspects to be assessed