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Appunti di Law & economics basati su appunti personali del publisher presi alle lezioni della prof. Bruno dell’università degli Studi Guido Carli - Luiss, della facoltà di economia, Corso di laurea in economics and business. Scarica il file in formato PDF!

Esame di Law & Economics docente Prof. S. Bruno

Anteprima

ESTRATTO DOCUMENTO

INTRODUCTION

Business and company law (based on economic principles) covers: proprietors,

partnerships, companies as well as bankruptcy and insolvency. We will deal with Italian

law, german, UK and US law. The reason is that these countries belong to two legal

families. The meaning of legal families was given by René David who said that

“comparative studies aimed at systemizing jurisdictions, finding common origins to

identify main characteristics and justify differences. Originally, the distinction between

legal families was very sharp.

• The Roman-German or civil law family

Legal systems deriving from Roman law : Italy, France, Germany, other

continental European countries as well as China and Japan( since in the 20th

Their codes are based

century they were under the influence of Western Europe).

on the French/German code.

The role of Universities is fundamental to develop legal principles, since from the

12th century the role of roman law was expanded and developed.

th

During the 20 century roman law was studied again and the legal principles were

further developed and layed the basis for modern codes.

The main sources of law are written statutes(and codes) ; legal doctrines

A source of law is where a legal rule comes from.

• The common law family

First Laws of England, then also of colonized countries, like USA and Australia,

India. The historical development is from JUDGE-MADE LAW (case law) and legal

precedents. (Important for coherence) Written laws play a minor role as a source of

law.

- Difference between Common law and Equity law : Equity law has been a system

of legal doctrines and procedures which developed side by side with the common

law and having originated in doctrines and procedures evolved by the Court of

Chancery in its attempts to remedy some of the defects of the common law. So

equity law was a modification, a supplement to the common law. Indeed, company

and trust law was developed by the Court of Chancery. However, in the 19th

century (1873-1875) there was a fusion between common law and equity law so

that now they are a unified system.

In principle, common law was more similar to Roman law, while equity law was

don’t

totally different. Nowadays we find these differences anymore.

In 1066 hastings and William wanted a common system throughout England and he

developed this systems thanks to judges, this is why judges are so important,

because they unify the country and play a major role.

Equity law developed after the common law, which was very strict, and based on

equity principle.

• Other families

- The soviet law family :countries originally used to belong to the Roman-German

family but that after the Marxist-Leninist revolution have adopted new rules. After

1980’s

the however those countries are getting back to their original legal tradition

(civil law).

- Muslim law : religious influence on legal norms

- African legal system : customary law/ legal pluralism

LEGAL FAMILIES AND EUROPEAN COMPANY LAW

European Union is a common source of law for all European countries, belonging to

both families. In company law especially, influence of European legislation has been

very strong since 1969. There are, in fact, directives ( to be implemented in each

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country) and regulation (directly binding in each country) used to harmonize national

laws just on certain aspects of company law. Issued by the European parliament.

There have been more or less 15 directives issued by the EU parliament which cover

the matter of company law. This is a reason of why now differences are less sharp.

Topics dealt by European laws : publicity, capital requirements, mergers, balance

sheet, financial statement, branches. Traditionally, there are no corporate governance

issues (no rules on the distribution of powers within the corporation).

*Remember : proprietors and partnerships DO NOT have directives : Just companies

have directives.

LEGAL FAMILIES AND GLOBALISATION

In the wake of globalization, differences of legal families are becoming less sharp, at

least with reference to business and company law. In civil law countries, indeed, case

law is becoming relevant to interpret rules. Legal doctrine plays a fundamental role in

American law and it is starting playing an important role also in UK. So there is a

mutual convergence to the most efficient model especially with reference to companies,

while for individual traders and partnerships this convergence is not happening. This is

because companies have interests worldwide, while single traders and partnerships do

not.

SOURCES OF BUSINESS AND COMPANY LAW IN ITALY

Formal sources :

1. Civil Code dated 1942 ; originally there was the commercial code in Napoleon years

2. Special legislation : bankruptcy and insolvency law 267/1942 ; Legislative decree of

financial markets 58/1998 dealing with listed companies and financial markets.

3. Regulations, issued mainly by the Stock Exchange Authority ex. CONSOB

Substantial sources :

4. Legal doctrine (interpretation of laws)

5. Case law (judges, and what they believe)

In 2004 The Civil Code has been amended to implement European Union Directives,

* most importantly, the reform on company law. Also bankruptcy law has been

amended subsequently

SOURCES OF BUSINESS AND COMPANY LAW IN UK

Even though laws should be made by cases, there are in fact many acts implemented,

and those acts are sources of law.

The insolvency act 1986

Partnership act 1890

Limited partnership act 1907

Limited liability partnership act 2000 It’s

The COMPANIES ACT dated 2006(huge reform). in force since november 2008.

Case law, but has lost some importance; legal doctrine

SOURCES OF BUSINESS AND COMPANY LAW IN US

Since US is a federal system, we have state laws and federal laws ; the state laws are

issued by the Parliaments in every state while the federal laws are issued by the

American Congress or by federal authorities, such as SEC.

Partnerships, incorporations are regulated by state laws * remember : partnerships can

choose under which state they want to be regulated

Securities / stock exchange are regulated by federal law.

However, there is the Uniform Partnership Act(UPA) and Model Business Corporation

Act that simplify things : they are not not binding but voluntarily adopted by States to

have uniform laws.

Another source of law is obviously case law ; legal doctrine

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SOURCES OF BUSINESS AND COMPANY LAW IN GERMANY

The commercial code (HGB) 1897 and later amended,

The german Plc. Act (AktG) 1965

Further special legislations regulating some topics about companies.

Legal doctrine; case law

CHAPTER 1

Who are the people involved in a business?

1)Owner of a business: one who shares the fundamental of risk, reward, control,

liability.

the sole proprietor

The sole proprietorship is a business owned directly by one individual, called a sole

proprietor.

We know that business law applies when a business venture is an ORGANIZATION,

and can we define the sole proprietorship an organization ?

Since a sole proprietor has no formal elements of co-ownership, it is usually not thought

“business organization”

of as in legal sense. The fact is ,however, that a business

owned by a sole proprietor may be large and complex, involving many people other

than the owner, money from bank are borrowed, profits are generated :so these kind of

sole proprietorship can plainly be an organization in the non legal sense of the term.

The concept of organization is equivalent in ALL jurisdictions.

Other participants> employees, suppliers, lenders.

Elements needed to form an organization> owner, employees, raw materials,

know/how, equipment, capital.

The sole proprietor : Italian Law

“Imprenditore

- Civil Code art.2082 commerciale” (commercial entrepreneur or sole

proprietor) = business activity whenever organization is prevalent over the individual

who owns the business.

In common law we would not have a codification of the concept of organization. In this

case it turns out that Italian is more precise.

Formally art.2082 it is an entrepreneur who professionally exercises an economic

services”.

activity organized in order to produce or exchange goods or

“Professionally” means having the intention to run the activity time after time.

“Economic” means when it generates profit.

ORGANIZATION = ENTERPRISE under italian law doesn’t

*No-profit organizations are organizations but business law apply.

What is an organization ? The article of the Civil Code 2195 gives a list of business

it’s

activities( but not a comprehensive list: it means that if an activity misses in the list ,

it still might be an organization. This list is only for example) : industry, trade,

transportation, banking and insurance, supporting activities. We added also : sports

club, touristic agencies, construction activities., private education, finance.

What shall we look at to determine whether an activity is a business activity or not? If

the org. is prevalent.

Under the Italian law there are three DIFFERENT sole proprietors that must not be

confused since there are some special duties and requirements that apply only to sole

proprietor;

-“imprenditore commerciale” =sole proprietor , art.2082/2195, therefore business law

applies. 3 di 25

-“imprenditore agricolo”= agricultural proprietor, art.2135 = farming, breeding

animals,taking care of forestry BY THE SAME PERSON, then secondary,derived …

activities supporting to or consequential from primary activities : sale ,transformation

Even if for the imprenditore agricolo some of the features are similar to ones of the

commercial entrepreneur still the provisions are different.

“the

-“piccolo imprenditore”=small proprietor, art 2083 = small farmer, the artisan and

the owner of a business who mainly works by himself of being helped by members of

family”.

his

THE SOLE PROPRIETOR - duties and requirements (so just for imprenditore

commercial or commercial entrepreneur)

1. Publicity : duty to register with REGISTRAR OFFICE (at Chambers of Commerce),

in the GENERAL SECTION(there are two sections, the other one is called special

section. The difference is that when comm. entrepreneurs register in the General

they can enforce what is registered). Here, once facts or acts are registered, they

are automatically enforceable vis-à-vis third parties(even if third parties are not

aware). However, if no registration has been made to enforce them, the owner shall

prove the third party was aware.

2. Accounting : duty to keep books, accounts and BALANCE SHEET

3. They may be declared BANKRUPT in case of insolvency.

4. Legal representatives: Institore, procuratore, commesso. Just upon appointment (

they DO NOT need to confer power of attorney) they have the power to represent

and bind the sole proprietor vis-à-vis third parties.

5. Restrictions : special legislation

* Power of attorney = people that can act on behalf of someone else. Commercial

entrepreneurs do not need to give someone the power of attorney because by law

those people are legal representatives of the commercial entrepreneurs. We use power

of attorney also to register restrictions.

owner’s “alter ego”

INSTITORE it is also called the and is the person to whom all

representation and managerial powers might be delegated by the owner. If someone is

appointed institore it means that he/she AT LAW has the same powers as the owner

EXCEPT for the power to sell real estate or establish mortgage over it. Any limitation to

powers at law shall be registered at the Registrar Office to be enforced vis-à-vis third

parties.

PROCURATORE: has more limited power: not managerial power, only power to enter

into contracts on behalf of the owner.

COMMESSO: even more limited powers.

SMALL AND AGRICULTURAL PROPRIETORS -duties and requirements

1. No duty to keep books, accounts and balance sheets

2. No bankruptcy in case of insolvency

3. No legal representatives at law : just ordinary representation under the Civil Code.

(So here we need the power of attorney).

4. Registrar office, in SPECIAL SECTION : this registration is just for statistics, no

effects to evidence facts or acts to third parties. So these proprietors must notify

facts or acts to third parties.

* REMEMBER : agricultural proprietors registration is useful to notify facts or acts to

third parties, just like commercial entrepreneurs. So they will register in the SPECIAL

SECTION, but it is as if they were registered in the general section. So agricultural

proprietors shall register a change in the power of attorney.

* Small proprietors can give power of attorney to a person that shall represent him/her

vis-à-vis third parties. To limit this power of attorney, the small proprietor should amend

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the power of attorney and then notify this to the third parties, since there is no

document that can prove this limitation.

PROFESSIONALS

Professionals are NOT commercial entrepreneurs. Their activity is called Intellectual

activity and other sections of the Civil Code applies (self-employment work). Art.2222

“contratto d’opera” = Prevalence of his/her own work, self-employed, no subordination.

Art.2229=intellectual professions. Personal responsibility of contract execution.

Only in special cases, as Art 2238 says, professionals are counted as commercial

entrepreneurs, and is when in the activity there are elements organized as an

enterprise, for instance private hospitals, big law companies.

Protected professions : professions that require a specific exam to be registered in an

couldn’t

ALBO, like lawyers, notaries , accountants. In the past these people set up

companies, now they can.

So in professional activities business law DOES NOT apply : professionals shall not

declare bankruptcy, do not have to register. Any special requirement may be provided

by each category/association.

OWNERS AND CREDITORS

Creditors are usually banks, suppliers, employees: in general, people who expect to

receive money from the owner. There are two classes of creditors:

GENERAL CREDITORS and SECURED CREDITORS. A secured creditor is one

whose claim is secured by specific property, and who has a first claim to the proceeds

of the sale of such property. General creditors, instead, are all the other creditors.

Liability for debts : personal liability is associated with business. This means that if a

sole proprietor becomes insolvent, he/she is liable with ALL the assets,both business

and personal assets. So, business creditors can seek recovery from the business

assets as well as the personal assets. Personal creditors can seek recovery both from

personal assets as well as business assets. In the event of bankruptcy, there is no

distinction whatsoever between personal and business assets nor between personal

and business debts. All assets are in the same pot and all creditors share the same pot.

However, secured creditors have a privilege over unsecured creditors. THIS

PRINCIPLE APPLIES TO ALL JURISDICTIONS. In Italian law this concept is codified

“the assets”.

in art.2740 debtor is personally liable with all present and future This is a

general provision that applies to ALL DEBTORS (even to business owners).

It is possible to avoid personal liability for business debts by executing a

NONRECOURSE LOAN. Such loan would ordinarily be secured by a specific property :

the lender would agree that in case of nonpayment its sole recourse would be to sell

the property and apply the proceeds to the debt. This is a potential device for limiting

loss to the amounts initially invested in the business, however this arrangement would

be very unusual in the case of a sole proprietor.

Debt and Equity. The EQUITY in business is the difference between the value of the

business and the amount of the debt.

The use of debt creates financial LEVERAGE for the equity. The greater the debt, the

greater the leverage. The greater the leverage, the greater the potential gain and

losses for the equity and the greater the risk of loss for the debt.

The effects of leverage result from the facts that the lender has a fixed claim(amount of

loan + interest) ; the return on the investment or business financed by the debt is

uncertain ; the borrower has a residual claim(what is left after the debt is satisfied).

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- If the rate of return on investment is greater than the rate of interest, leverage will

work in favor of the owner , but if the rate of return on the total investment turns out to

be less than the rate of interests, then leverage will work against the owner.

Creditors, and especially general creditors, may be concerned with how well the

business is carried out. The the business goes bad and the owner is not able to repay

the debt, credits will lose money! So creditors share the RISK OF DEFAULT ; the

degree of the risk will of course depend on the total value of the business as compared

to the amount of the debt. As the risk rises, general creditors will become more and

more concerned with how the business is run and are likely to want increasing degrees

of CONTROL. As risk rises, the bank is also likely to demand a higher interest rate- that

is, a higher return on its investment in the business.

OWNERS AND EMPLOYEES

In small businesses it is unlikely that there will be a written contract spelling out the

mutual rights and obligations between owner and employee. Even though not spelled

out in writing, however, a set of rights and obligations does exist. The term of this

doctrines of agency and

implicit agreement can be found in part in common law

contract.

In some settings union rules or contracts may be of considerable relevance,but an

individualized written agreement would be unusual. Negotiation of an individualized

agreement would take time and might call for services of a lawyer. The time and the

cost spent for those legal services are called TRANSACTION COSTS. There might be

also the problem of INFORMATION COSTS that is too high, when the parties are

unaware of the opportunities for the written agreement that vary the contractual terms.

In general, employment relationships = union rules and contracts or individualized

agreements.

There is the contract of agency = principal and agent (acting on behalf of other) &

Employment contract = master and servant (Right to control)

The word AGENT means any person who has agreed with another person (the

principal) to act on his behalf and subject to his control. But is NOT subject to the

principal’s control over how the task is performed (this is what happens with the

servant). Agents are held to owe a duty of loyalty , or FIDUCIARY OBLIGATION to their

principals. agent’s

A principal may be bound by the acts of an agent : - if the acts were authorized

either explicitly or implicitly

- if the agent had apparent authority- that is, if the principal engages in conduct that

leads a third person reasonably to believe that the agent had authority

power”

-“inherent agency

The MASTER/SERVANT is a relationship in which one person(the master) control or

has the right to control the physical conduct of the other. This means that the master

can tell the servant also how to perform a specific task. An important element of this

kind of relationship is the VICARIOUS LIABILITY : when employees, while performing

their task, cause injure negligently to third parties, the injured part can seek recover

damages not only from the person that injured him/her but also from the master.

“Masters

Art.2049 and principals are liable for damages of their servants and agents

functions”.

caused within the exercise of their So the master, which is the owner, is

liable regardless that he /she was personally without fault. However, owners can

protect themselves by buying liability insurance.

The master is responsible for choosing a servant that will perform task in a good way,

plus the master has the duty to control and check the servant actions.

Vicarious liability stems from employement relationships and not from agency

contracts. 6 di 25

However in Italy it tends to be applied also to agency relationships.

* Remember : vicarious liability applies only if the damage was caused negligently: if it

was on purpose, the fault is only of the servant.

OWNERS AND MANAGERIAL EMPLOYEES

Sometimes owners delegate the decision-making authority, giving it to one of the

employees. Delegation is unavoidably, especially if the business is complex : the

purpose of hiring a general manager is to shift to that person the burden of making

important decisions as problems arise. Is essential for the owner to trust in the

manager’s competences and on good faith. In this situation , the owner has still the

power to control, but the day-by-day decisions,operating decisions will de delegated to

some other person.

The relationship will be significantly affected by the ease with which the manager can

replaced. knowledge training.

be It will also depend on the specific or Something

compensation

important is also : for example , part of the reward of the manager might

“package”

be contingent on the success of the business. So that the compensation

consists of a salary (a fixed claim) plus a bonus based on profits (a residual claim). The

presence of an element of incentive compensation shifts some risk of the business to

the manager, that now wants to perform well since he /she will have a reward. In this

way the interests of the owner and of the manager are aligned. However, if the

compensation of the manager depends too much on profit of the business, the

manager might be tempted to take excessive risks—> moral hazard.

The problems of contingent reward and control are in turn related to the problem of the

duration of the relationship - the problem of termination. A common problem relation to

the duration aspect of the owner-employee bargain arises from the difficulty of

employee’s

enforcing the obligations. It might also be that the time horizons of the

employee and of the employer are very different : one seeks for a fast profit, while the

other seeks for a long lasting ownership.

ITALIAN BANKRUPTCY LAW

We know that commercial entrepreneurs have to declare bankruptcy. Art 267/1942

“insolvency”

conditions to be declared bankrupt : + commercial entrepreneur.

* Remember : Under american and english law, it is not necessary to be a commercial

entrepreneur in order to be declared bankrupt ; also normal people are declared

bankrupt.

INSOLVENCY : art.5 of law 267/1942 says that insolvency is whenever the

regularly

entrepreneur is not able to satisfy claims. So even if in a business liabilities

exceed assets, as long as the owner is able to be financed by banks, he/she is not

insolvent.

*REMEMBER : there are three conditions that allow also some commercial

entrepreneurs not to be declared bankrupt if in the last three financial years they

showed :

- assets < 300 000€

- profits < 200 000€

- €

debts < 500 000

This is art.1 law 267/1942.

Bankruptcy is declared by the Court. The EFFECTS :

1. After declaration all assets, personal and business assets, are in the same pot to all

creditors (par condicio creditorum = equal treatment among all creditors)

creditors’

2. individual claims are stopped

3. business activity is stopped 7 di 25

4. A TRUSTEE in bankruptcy (curator) is appointed by the court. He will be in charge

creditors’

of satisfying claims taking into account distinction between claims with or

without security : so we have a ranking of claims

5. Liquidation of assets after having satisfied liabilities.

—> If there are residual assets, the owner can claim those because he is a residual

claimant.

The trustee has several legal tools, one of them is AVOIDANCE OF ACTS(revocatoria

fallimentare). If the owner, foreseeing that he/she will be bankrupt, has undertaken

some acts that made favor to one creditor instead of another, the trustee can declare

these acts void. The trustee in bankruptcy cannot undertake any NEW business act,

because his role is helping in liquidating assets. The exception is when he realizes that

there is a way to better liquidate assets.

There is a law that provides for an alternative procedure to avoid bankruptcy then the

entrepreneur is insolvent but has prospects of turning around the financial crisis.

However, this alternative procedure can occur only if creditors accept to receive a lower

sum than the one they should have from the owner = composition with creditors.

And then there is also the administrative receivership.

Terminologia : for companies = winding up bancarotta

for banks, financial and insurance companies, cooperative = administration

(liquidazione coatta amministrativa)

for big enterprises (individual enterprises or companies or partnerships)=

“Big”=

amministrazione straordinaria delle grandi imprese in crisi. number of employees

not less than 200 for at leat 1 year + amount of debts not less than 2/3 of both assets

and revenues in the last financial year

There are certain rules governing the way business activity may be runned, with

differences applying on whether the type of business we are analyzing are partnership,

sole proprietorships, corporations

JOINT OWNERSHIP = PARTNERSHIPS ch.2 (under american law)

When firm size increases, joint ownership becomes more common. Even so,

partnerships themselves ordinarily are engaged in economic ventures of relatively small

scope. This means that partnerships are encountered most frequently in those sectors

of the economy where the optimal firm size is relatively small. Partnership law is

addressed primarily to a firm with a few partners, all of whom are involved in the

operation of the business and all of whom look to their share of the profits of the

business as the return for their contributions of capital or service or both. The personal

relationship typically is an essential element of the bargain that is manifested in the

formation of a partnership.

It is also worth noting that while partnership law in general is associated with small

ventures, some large ventures may use the partnership form. For example, two or more

large companies may engage in a joint venture to produce something new.

There are problems that arise from division among two or more people of the

ownership of a business enterprise— these problems are avoided when the entire

ownership interest is held by one person.But joint ownerships exist because there

might be resources requirements to set up a new business that go beyond those

available to a single individual. Moreover, there are some other elements that can be

shared between partners, other than capital : expertise, know-how, sharing risk.

An owner can decide to borrow money from the bank ; however, the bank or other third

parties that agrees to lend you money and share risk would require something else.

Indeed, as the amount of debt increases in relation to equity, the lender would be

8 di 25

subject to all risks of losses of the business. At that point the lender might ask for

control.

If you sum up CAPITAL,RISK,PROFITS,CONTROL you obtain the provisions

regulating partnerships. If you share all these elements with one or more persons you

are ,in law, partner to them. There will be no transaction costs if you, instead of

bargaining all clauses, rely upon legal norms. In addition, people(banks) who are willing

to lend money require the business be financed with enough equity capital to feel

secure against any risk of default.

Partnerships are made of few partners and are set up for small firms and businesses.

Typical businesses: accounting,architecture,legal. Characteristics of partnerships :

mutual trust and reliance (affectio societatis).

Partnership law. The basic law is default rules. So those basic rules leave ample

leeway for express agreements designed to alter those rules. There are few mandatory

rules. (this is a big difference in the way partnerships and companies are regulated)

Contributions are those things (capital, know-how, expertise, particular skills,

properties) that each partner gives to the partnership.

Tacit means not written.

AMERICAN LAW OF PARTNERSHIPS. Regulated under state law BUT the sources of

law of partnerships are:

-Uniform Partnership Act (1914) is a model statue that was drafted and approved by the

Commissioners on Uniform State Laws ; adopted in all states but Louisiana

- Revised Uniform Partnership Act (1994) + some variation = 1997 which retains most

of the core concepts of UPA(1914) but incorporates significant changes ; not adopted

by all states. “

Section 6 of UPA : a partnership is an association of two or more persons to carry on

profit”.

as co-owners a business for So a partnership exists when two or more people

have agreed (association),expressly or tacitly, to share in the profits and the control

(co-owners) of a business. Under the UPA, profit sharing alone is NOT enough.

* Remember : when two or more people own real estate as joint tenants, they share

profits and are co-owners, but they are not partners unless the management of the

property requires enough activity to constitute a business.

CREATION WITHOUT FORMALITY

A partnership relationship may arise without meetings to be held, documents signed,

certificates filed, nor feeds paid. Indeed, people may become partners without realizing

it (a handshake,nod of head). If they share in the profits and in the control of a business

they are partners as a matter of law and are subjects to the rights and liabilities that

flow from the status. (It is true in Italian and UK law too)

THE SILENT PARTNER. It is worth to emphasize that control does not necessarily

mean active involvement. One of the most interesting figures in partnership law, in fact,

is the silent partner - typically a person who has invested in a business in return for a

profit share and who reserves a right to participate in major decisions, but who does not

expect to participate in routine management decisions, may participate in no decisions

at all and may even be unaware of what is happening in the business for long periods

person’s

of time. The fact of the financial interests in the partnerships may be a secret

from everyone except the other partners. Such secrecy may be vital, especially for

doesn’t

creditors. Law simply distinguish between passive and active partners.

Implied terms. In absence of any agreement all default rules contained in UPA shall be

applied in case of any controversy among partners. Since the partnerships rules are

default rules, they can be modified by the private agreement of the partners. A lawyer

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may build TAILOR-MADE solutions for each partnership, taking into account the size

of the business, the needs of the partners.

it’s

While some lawyers think their responsibility not only to try to raise all significant

issues with which their clients may be confronted in the future but also to be sure that

the clients understand those issues, other lawyers will tend to pay less attention to all

the details : this kind of lawyer may express the idea by saying that he did not want to

“SPOIL DEAL”.

THE

The topics that usually are included are : withdrawal,vote,contributes and

profits,conditions for new partners,minimum capital requirements,duration.

PARTNERSHIP : ENTITY OR AGGREGATE? Are partnerships endowed with

existences of they own, separate from the individual existences of the partners?

REIFICATION= if partnership is a separate entity from partners NO REIFICATION

=partnership is an aggregate of all partners

With smaller organizations, like most partnerships, reification is a less significant

phenomenon. Correspondingly, the law of partnerships exhibits much less tendency to

treat partnerships as entities separate and distinct from their owners than does

corporate law. The original UPA left the issue of entity/aggregate unsolved ; by contrast

“partnership entity”,

the RUPA expressly adopts the position that a is an even though

the partnership does not have legal personality. The distinction is important, mainly for

three issues :

TAX ISSUES and

PERSONAL/PARTNERSHIP ASSETS,

RIGHT TO SUE/TO BE SUED.

FIDUCIARY OBLIGATION

A fundamental tenet of the law of partnerships is that members of a partnership must

treat each other fairly in matters relation to the activities of the partnership. This

“fiduciary “fiducial

principle of fairness is by law called obligation”, or duty” of partners.

“shall

The UPA and the RUPA treat this concept vaguely, but there is a list of all the

nots” provided by the United States Supreme Court in partnership dealings(non

comprehensive list).

No use of the asset for his/her own benefits,

No secret profit,

No private advantage,

No competition with the business,

No avail of information or knowledge for himself.

Often a partnership may arise as a result of a person who finds an investment

opportunity and sets up and manages the partnership. Such a person is often referred

to as a PROMOTER. The promoter may be or not a partner. In these situations,

fiduciary obligation matters. So, since fiduciary obligation is a vague and broad

concept, we should carefully examine all facts and circumstances.

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

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Corso di laurea: Corso di laurea in economics and business
SSD:
A.A.: 2017-2018

I contenuti di questa pagina costituiscono rielaborazioni personali del Publisher turbion di informazioni apprese con la frequenza delle lezioni di Law & Economics e studio autonomo di eventuali libri di riferimento in preparazione dell'esame finale o della tesi. Non devono intendersi come materiale ufficiale dell'università Guido Carli - Luiss o del prof Bruno Sabrina.

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