Partners' Relations: UPA Section 18
- I. UPA Section 18
sets out basic rights
and duties.
- A. All of Section
is default rules.
- B. Section 18
(a):
- 1. Basic profit
rule: equal shares
per person.
- 2. Basic losses
rule: follows
profits.
- C. Section 18
(b): Indemnification
for advances made.
- D. Section 18
(c, d):
- 1. The distinction
between contributions
and loans.
- 2. No interest
on capital contributions.
- E. Section 18(e):
Equal rights
- F. Section 18
(f): no salaries.
- G. Section 18(g):
black ball rule.
- H. Section 18(i):
legislative/constitutional
rule
- 1. majority
vote for ordinary
changes
- 2. unanimous
vote for partnership
agreement
- I. UPA Section 18
sets out basic rights
and duties.
- A. All of Section
is default rules.
- -- may be varied
by agreement; but
important to be explicit.
- B. Section 18 (a):
- 1. Basic profit
rule: equal shares
per person.
- -- not based on
contribution. The
big investor and the
small get the same
profits unless otherwise
agreed.
- 2. Basic losses
rule: follows profits.
- -- so if
you divide give
Organizer 75%
of the profits
because he is
doing all the
work, he also
bears 75% of
the losses,
which may not
be the intent.
This is a major
trap, since
founders normally
are optimistic,
not focusing
on losses.
- C. Section 18 (b):
Indemnification for
advances made.
- D. Section 18 (c,
d):
- 1. The distinction
between contributions
and loans.
- 2. No interest on
capital contributions.
- -- interest paid if
contribution should
be repaid.
- -- Partner can
make loans or contributions;
may not always be
clear which is which.
- E. Section 18(e):
Equal rights
- -- like 18 (a),
per partner, not per
dollar.
- F. Section 18 (f):
no salaries.
- G. Section 18(g):
black ball rule.
- H. Section 18(i):
legislative/constitutional
rule
- 1. majority vote for
ordinary changes
- 2. unanimous vote
for partnership agreement
-
-- the Black ball
rule follows necessarily.
