University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

323

Pages:

2
Author:

bratrochanter

Summary: Partnerships and Joint Ventures Key Characteristics of Partnerships (RUPA Definition)        Definition: A partnership is an association of two or more persons to carry on as co-owners a business for profit. Voluntary Association: Partners must voluntarily agree to form a partnership; it cannot be imposed. Profit Sharing: Sharing profits creates a presumption of partnership unless it falls under exceptions (e.g., payments for debts, wages, rent). Management: Partners share management responsibilities. Fiduciary Duties: Partners owe duties of loyalty, care, and good faith to each other and the partnership. Unlimited Liability: Partners are personally liable for all partnership debts and obligations. Taxation: Partnerships are pass-through entities, with profits and losses reported on individual partners' tax returns. Creation of Partnerships  Partnerships may form by: o Express Agreement (written or oral). o Implied Agreement: Based on conduct meeting the RUPA definition. o No formalities are required; partnerships can be created inadvertently. Important Consequences of Partnership Status: 1. 2. 3. 4. Shared ownership, management, and profits. Joint and several liability for partnership obligations. Partners act as agents of the partnership. Limited transferability of ownership interests. Joint Ventures vs. Partnerships  Joint Venture: A single, limited-purpose enterprise involving shared profits and risks. o Key Difference: Unlike partnerships, joint ventures are typically limited to one project or a specific series of transactions. o Similarities: Both involve shared fiduciary duties and joint liability. o Authority: Joint venturers often have less implied authority compared to partners. Case: Southex Exhibitions, Inc. v. Rhode Island Builders Association, Inc.     Facts: RIBA contracted with SEM to produce annual home shows. The 1974 Agreement referred to them as "partners" but gave SEM most management responsibilities and required SEM to indemnify RIBA for losses. Issue: Was the relationship between RIBA and SEM a partnership? Key Considerations: 1. Profit Sharing: 55-45 split, consistent with partnership. 2. Management Control: SEM managed most operations, indicating a non-partner role. 3. Liability Sharing: SEM assumed all losses, contrary to typical partnership norms. 4. Title and Naming: The agreement was titled "Agreement," not "Partnership Agreement." No joint name or tax filings were made. Court’s Decision: No partnership existed. Despite using the term "partners," the overall evidence pointed to an independent contractor relationship, not co-ownership. Lessons from the Case:   Label vs. Substance: The term “partner” in an agreement is not dispositive. Courts look at the actual relationship and conduct. Shared Losses and Control: Partnerships generally share both profits and losses, as well as management. Deviation from these norms can indicate a different legal relationship.