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Quote of the Day “Ignorance of the law is no excuse in any country. If it were, the laws would lose their effect because it can always be pretended. ” Thomas Jefferson, United States president 33 2 p Business Law for a New Century

Creating a Partnership p The association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership. p To be a partnership, the participants must share profits. • Profits count, not revenues. Click here to see a sample partnership agreement online. 3 33 p Business Law for a New Century

Partnership by Estoppel p Partnership by estoppel applies if: • Participants tell other people that they are partners (even though they are not), or they allow other people to say, without contradiction, that they are partners. • A third party relies on this assertion; and • The third party suffers harm. 33 4 p Business Law for a New Century

Terminating a Partnership p Partnership at Will vs. Term Partnership • Partnership at Will -- the partners have not agreed in advance how long their partnership will last; any of them may leave at any time. • Term Partnership -- the partners have decided on a length of time or a particular task to be completed; the partnership automatically ends at the end of the time or task. 5 33 p Business Law for a New Century

Dissociation p Dissociation occurs if a partner quits. p When one or more partners dissociate, the partnership can either buy out the departing partner(s) and continue in business or wind up the business and terminate the partnership. p A partner always has the power to leave a partnership but may not have the right. 6 33 p Business Law for a New Century

Dissociation p Rightful Dissociation • Partner in a partnership at will gives notice that he intends to withdraw. • Partners agree in advance on events that will cause dissociation. • Partner dies or becomes incompetent. • Partner is expelled by the other partners. p Wrongful Dissociation • Partner violates the partnership agreement. • Partner withdraws before the end of the term. • Court expels a partner in a term partnership due to harmful behavior. • Partner in a term partnership is bankrupt. 7 33 p Business Law for a New Century

Continuation of Partnership Business p Financial Settlement • If the partnership decides to continue, it must pay the ex-partner the value of her share of the business. p Liability of the dissociated partner to outsiders for debts incurred before dissociation • A dissociated partnership is liable to outsiders for debts incurred during her term as a partner, but the partnership must indemnify her for these debts. 8 33 p Business Law for a New Century

Continuation of Partnership Business (cont’d) p Liability of Dissociated Partner for Debts Incurred After Dissociation • A dissociated partner is liable to outsiders for partnership debts incurred within two years after she leaves, but only if the creditor reasonably believes she is still a partner. • A partnership must indemnify her for these debts. p Liability to the Partnership • If the ex-partner harms the partnership after she leaves, she is liable for the damage. 9 33 p Business Law for a New Century

Termination of the Partnership Business p Ending a partnership business involves three steps: • Dissolution --decision to end business; can be voluntary or automatic. • Winding Up -- During the winding up process, all debts of the partnership are paid, and the remaining proceeds are distributed to the partners. • Termination -- the end; happens when winding up is complete. 10 33 p Business Law for a New Century

“Partnerships are common. You need to know how to form a partnership, how to avoid forming one, and how to exit without legal or financial penalty. ” 33 11 p Business Law for a New Century

Link to the Internet p Clicking on the orange button below will link you to the website for this book. (You must first have an active link to the internet on this computer. ) 12 p Once there, click: p You should then see web links related to that chapter. • • Online Study Guide, then Your choice of a chapter, then Practice, then Internet Applications Click here! Click above to return to the slide show. 33 p Business Law for a New Century