Part 9- Partnerships, Chapter 38: Operation of Partnerships and Related Forms, Doc 2

This text outlines legal principles surrounding partnerships, with a focus on partner management powers, fiduciary responsibilities, and financial obligations. The following are key points: 1. Partner Compensation and Profit Distribution: o Partnerships often specify terms for partner compensation, including expense accounts, health insurance, vacations, and other benefits. o Generally, partners share profits based on contributions, but larger partnerships may include factors such as practice area, seniority, and client revenue. Profit distributions typically align with quarterly tax deadlines. o A managing partner is not automatically entitled to extra compensation for managing duties without the explicit agreement of other partners, as illustrated in a case where the court ruled against additional compensation without consent. 2. Case Study: Spector v. Konover: o Background: Martin Spector and Simon Konover were partners in the Tri Town Realty Co., which was formed without a written agreement. Spector became dissatisfied with Konover's management practices, particularly regarding financial transparency and profit distribution. o Misconduct Allegations: Spector accused Konover of breaching fiduciary duties by commingling Tri Town funds with other Konoverowned properties, using them to cover expenses unrelated to Tri Town, and withholding profit distributions. Further, Konover charged Tri Town for unauthorized management and maintenance fees. o Court Rulings: The Appellate Court concluded that Konover’s actions —diverting partnership funds, retaining interest on these funds, and imposing additional fees—constituted a breach of fiduciary duty. This decision emphasized that a fiduciary’s interests must not conflict with those of the partnership and that self-dealing is strictly prohibited. 3. Fiduciary Duty and Financial Responsibility: o Partners in a fiduciary role must not exploit their position for personal gain. A partner’s financial management must be transparent, with profits and expenses handled fairly. o Commingling partnership funds with other entities is a clear breach, as it raises the potential for misuse and undermines trust within the partnership. 4. Management Powers and Authority of Partners: o Individual Authority: Each partner generally has authority to manage partnership affairs and make binding contracts. This authority may be expressly modified by agreement among partners, impacting each partner’s powers to make decisions such as borrowing money or entering into certain contracts. o Implied and Apparent Authority: Partners hold implied authority for acts customary in partnership operations and apparent authority for acts reasonably perceived by third parties. However, if a partner’s actual authority is restricted, third parties must be notified to avoid unintended liability. o Special Transactions: Certain transactions, like selling partnership real estate, require express authority or ratification by the partnership, especially if they affect the partnership’s continuity. 5. Borrowing Money: o Partners have implied authority to borrow funds within the ordinary course of partnership business, especially in trading partnerships where inventory purchases are typical. Non-trading partnerships, which generally offer services rather than goods, do not typically require borrowing, so partners lack implied authority in this area unless expressly granted. This overview provides a foundational understanding of how partnership law regulates management authority, profit distribution, fiduciary responsibilities, and financial obligations, especially concerning unauthorized actions and self-dealing.