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CALIFORNIA CORPORATE & SECURITIES LAW

How Certain Can You Be Of A General Partner’s Authority?

In this post, Professor Douglas K. Moll attacks the question of whether a partner has “actual authority, simply as a matter of his ‘partner’ status, to bind the partnership to an ordinary business transaction”:

On the one hand, RUPA [Revised Uniform Partnership Act] § 401(j) states that “[a] difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners.”  That suggests that a partner is not authorized to act absent a majority vote.  On the other hand, RUPA § 301(1) states that “[e]ach partner is an agent of the partnership,” and comment 2 states that “[t]he effect of Section 301(1) is to characterize a partner as a general managerial agent having both actual and apparent authority co-extensive in scope with the firm’s ordinary business” (emphasis added)).

Professor Moll doesn’t mention RUPA §§ 302 & 303 (enacted in California as Cal. Corp. Code §§ 16302 & 16303).  Section 16302 provides that partnership property held in the name of the partnership may be transferred by an instrument of transfer executed by a partner, subject to the effect of a statement of partnership under Section 16303.  Under Section 16303, a partnership may file a statement of partnership with the Secretary of State.  The statement of partnership must specify the names of partners authorized to execute an instrument transferring real property held in the name of the partnership.  The statement of partnership may specify the authority, or limitations on the authority, of some or all of the partners to enter into other transactions on behalf of the partnership and on any other matter.  The statement of partnership supplements the authority of a partner to enter into transactions on behalf of the partnership as follows:

  • Except for transfers of real property, a grant of authority contained in a filed statement of partnership authority is conclusive in favor of a person who gives value without knowledge to the contrary, so long as and to the extent that a limitation on that authority is not then contained in another filed statement. A filed cancellation of a limitation on authority revives the previous grant of authority.
  • A grant of authority to transfer real property held in the name of the partnership contained in a certified copy of a filed statement of partnership authority recorded in the office for recording transfers of that real property is conclusive in favor of a person who gives value without knowledge to the contrary, so long as and to the extent that a certified copy of a filed statement containing a limitation on that authority is not then of record in the office for recording transfers of that real property. The recording in the office for recording transfers of that real property of a certified copy of a filed cancellation of a limitation on authority revives the previous grant of authority.

Cal. Corp. Code § 16303(d).

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