Part 9- Partnerships, Chapter 38: Operation of Partnerships and Related Forms, Doc 3

This section addresses several aspects of partnerships, focusing on management powers, authority limitations, joint ventures, liability, and ethical considerations of LLPs. Key points include: 1. Management Powers and Voting Rights: o Partners generally have apparent authority to bind the partnership within the ordinary course of business unless third parties are explicitly informed of any limitations. o Partnership agreements often grant specific management powers, create classes of partners, and specify voting rights, with larger partnerships allowing unequal voting to reflect different partner roles or contributions. o Managing partners or committees may control daily operations, including financial matters, personnel decisions, and office management. Some decisions, however, may require full partner consent or supermajority votes, especially significant actions like selling property or taking substantial loans. 2. Case Study: NBN Broadcasting, Inc. v. Sheridan Broadcasting Networks, Inc.: o NBN and Sheridan Broadcasting created a partnership (AURN) with a management structure that included a mechanism for resolving deadlocks. However, when disputes arose regarding office expansions and personnel hires, Sheridan used its majority control to break ties in ways that NBN contested as exceeding the partnership agreement’s authority. o Sheridan’s unilateral actions led to litigation, with NBN arguing that certain decisions required unanimous approval. The federal court ultimately upheld Sheridan's actions in part while remanding some claims, emphasizing the importance of clear terms in partnership agreements to avoid ambiguities in voting rights and authority limitations. 3. Joint Ventures and Mining Partnerships: o Joint ventures and mining partnerships follow most partnership authority rules but with limited implied authority, as these partnerships are usually formed for specific projects rather than ongoing operations. o Members have limited authority, often requiring clear agreements to avoid overreach. 4. Modifying Management Rights: o Partners can modify their management rights through unanimous agreements, either expanding or restricting authority. For example, partners may agree to restrict certain members’ powers, such as prohibiting an individual from borrowing money on the partnership’s behalf. Any changes to authority should be communicated to third parties to prevent misunderstandings about the scope of authority. 5. Liability in Partnerships and LLPs: o Partners are personally liable for torts and contracts undertaken by the partnership within the ordinary course of business, following the principle of respondeat superior. For intentional torts, liability applies if the tort aligns with the business’s ordinary scope or authority. o Limited Liability Partnerships (LLPs) provide partners protection from liability for other partners’ malpractice, limiting each partner’s risk to their equity interest in the LLP. However, direct involvement in wrongdoing still subjects individual partners to liability. 6. Ethical Considerations of LLPs: o Forming an LLP can limit partners’ liability, which raises ethical questions, especially if a partnership defaults on obligations to lenders or clients. For instance, the ethicality of limiting liability is debated among utilitarian, rights-based, and profit-maximization perspectives. o Questions arise over whether limiting liability is fair to creditors if the LLP cannot fulfill its obligations, as partners are not personally liable beyond their investment. o Overall, the importance of detailed and carefully drafted partnership agreements is emphasized, as these agreements help clarify partner roles, authority limits, and decision-making processes, preventing disputes like those in the NBN case.