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BREAKING UP IS HARD TO DO

Skadden, Arps, Slate, Meagher & Flom LLP

John C. Ale, Houston

Law Office of Buck McKinney, PC

Buck McKinney, Austin

Copyright 2007 John C. Ale and Buck McKinney All rights reserved

State Bar of Texas

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TABLE OF CONTENTS

I.

Partnership Issues..................................................................................................................................1 A. What Law Governs.........................................................................................................................1 B. So What Do I Have.........................................................................................................................1 1. Has Something Been Filed? 2. What If Nothing Has Been Filed? C. So What Does It Mean to be a Partnership.....................................................................................2 1. What Rules Apply? 2. Key Default Rules Copyright Issues....................................................................................................................................4 A. Governing Law...............................................................................................................................4 B. Ownership in Copyrighted Works..................................................................................................5 1. Work For Hire.................................................................................................................5 2. Transfer of Ownership.....................................................................................................6 3. Authorship and Co-Authorship........................................................................................6 C. Disputes Among Collaborators.......................................................................................................6 1. Joint Works.....................................................................................................................6 2. Who Qualifies as an Author?.......................................................................................6 3. Independent Copyrightability..........................................................................................7 a. The Current Scenario.................................................................................................7 b. Gaiman v. McFarlane A Relaxing Standard?.........................................................8 c. Fifth Circuit Stance....................................................................................................8 4. Intent...........................................................................................................................9 a. Must the Co-Authors Understand the Legal Consequences of Co-Authorship?...........................................................................................................9 b. When Must Intent Be Manifested?.........................................................................10 5. Independent Fixation.....................................................................................................11 D. Rights of Co-Authors and Co-Owners..........................................................................................11 Some Hypothetical Scenarios..............................................................................................................12 The Jilted Bass Player...................................................................................................................12 a. Discussion................................................................................................................12 1. Partnership Issues.........................................................................................................12 2. Copyright Issues...........................................................................................................12 The Troublesome Bandmate.........................................................................................................13 a. Discussion................................................................................................................13 1. Partnership Issues.........................................................................................................13 2. Copyright Issues...........................................................................................................13 The Spurned Angel.......................................................................................................................14 a. Discussion................................................................................................................14 1. Partnership Issues.........................................................................................................14 2. Copyright Issues...........................................................................................................14

II.

III. A.

B.

C.

Appendix Texas Business Organizations Code, Chapter 151, 152 & 154......................................................16

i
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BREAKING UP IS HARD TO DO
I. PARTNERSHIP ISSUES Business entities can take many forms, from the large publicly traded corporation to the limited partnership or limited liability company with sophisticated investors to the simple business a handful of people form. While corporations, limited partnerships and LLCs require some affirmative steps to form, the general partnership is the laws default business organization: what you have if the facts fit nothing else.1 Fortunately Texass principal partnership statutes establish a set of rules to govern a partnership that were designed for, and work well with, a small, informal group of co-owners of a business. 2 Partners are free to vary these rules by agreement, in most cases orally or by practice. A. What Law Governs? The Texas Legislature recently codified all business entity statutes into the Texas Business Organizations Code (TBOC).3 The TBOC currently applies only to entities formed under Texas law on or after January 1, 2006, and any entities formed under Texas law before that date that affirmatively have elected to be governed by the TBOC.4 Entities formed under Texas law on or before December 31, 2005, that have not elected to be governed by the TBOC remain subject to prior law. In the case of a general partnership, that is the Texas Revised Partnership Act (TRPA)5 Effective

January 1, 2010, the TBOC will apply to all Texas entities regardless of the date of formation.6 As the TBOC was intended as a codification of existing law, its provisions affecting general partnerships (or other entities) do not differ materially from prior law. B. 1. So What Do I Have? Has Something Been Filed? If the parties properly have filed a certificate or articles of incorporation, a certificate of limited partnership, or some other formation document with a governmental agency, then in almost every instance their relationship will be treated as a corporation, limited partnership, limited liability company, or whatever else the formation document states. The statute governing that type of entity controls the entitys internal affairs and its dealings with third parties. That statute may provide, of course, that the parties may vary the statutory rules by agreement, perhaps in all cases, perhaps in some, and perhaps only if the change is agreed in writing. 2. What if Nothing Has Been Filed? If the parties have not properly filed an instrument of formation, one should consider whether their relationship is a general partnership. Under the TBOC: [A]n association of two or more persons to carry on a business for profit as owners creates a partnership, regardless of whether: (1) the persons intend to create a partnership; or (2) the association is called a partnership, joint venture, or other name.7

See generally J. ALE, PARTNERSHIP LAW FOR SECURITIES PRACTITIONERS 2:1 (Vol. 20, West Securities Law Series). This paper throughout assumes Texas law applies. If an entity must make a filing to exist, then typically the law of the state where that filing is made governs its internal affairs, while the law that governed its formation controls in all other cases. TEX. BUS. ORGS. CODE (TBOC) 1.101-.103. Title 1 of the TBOC contains hub provisions that apply to all business entities. Chapters 151 and 154 apply to all partnerships, general or limited, and chapter 152 applies to general partnerships only. The provisions of chapters 151, 152, and 154 and the provisions of title 1 to the extent applicable to general partnerships may be cited as the Texas General Partnership Law. TBOC 1.008(f). The Appendix to this paper reproduces chapters 151, 152 and 154.
4 3 2

a.

Points to note from the definitions Under this definition of partnership: No filing is required. No written agreement is required. The persons involved do not need to use the words partners or partnership. The statute says to carry on a business, which implies the intent to carry on is sufficient; there is no need for them in fact to do so. The goal must be a business for profit. A non-profit purpose is insufficient for a partnership, but that, taken with to carry on, suggests a profit motive is sufficient even if the relationship loses money.
6

TBOC 401.001(a)(1), .003. TEX. REV. CIV. STAT. arts. 6132b-1.01 through -11.05.

TBOC 401.005. TBOC 152.051(b). Accord, TRPA art. 6132b-2.02.


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The persons must associate as owners. Principal and agent, lender and borrower, and other persons may associate and intend to make a profit, but they are not partners. Ownership implies joint control, which often is the most important factor in determining if a relationship is a partnershipand can be the most difficult to analyze.8 b. Factors suggesting a partnership The statute goes on to provide that the following factors suggest a partnership: Receipt of or right to receive profits Expression of intent to be partners Participation in the right to control the business Sharing of or agreement to share losses or liabilities Contributions of or agreements to contribute money9

partnership to describe themselves or their relationship. Yet they probably have contributed cash or other property to their joint enterprise, have shared profits from their successful performances or recordings, and have shared losses from their unsuccessful ones. That is a partnership. Of course, it may not be just the performers themselves who advance funds, share in cash received, and/or participate in making decisions. A manager or angel very well might be involved in all these features. It is possible that relationship is one of principal and agent, or of lender and borrower. Depending on the degree of ownership and control, however, they too may be partners.11 C. So What Does It Mean to be a Partnership? 1. What Rules Apply? The TBOC and TRPA set out many principles to govern the partners relationship with one another and the partnership and to govern the partnerships relationship with third parties. Partners have broad freedom to design their own agreement among themselves.12 In most informal partnerships, however, they have not done so, at least not through a written agreement that unambiguously states the rules that apply. Where a written agreement is absent and an oral agreement is not proven, the statutory rules would control.

c.

Factors insufficient to establish a partnership At the same time, any of the following by itself is not sufficient to find a partnership: Receipt of or right to receive profits in repayment of debt, as wages, as rent, in liquidation of a former partners interest, or in consideration of the sale of a business Co-ownership of property Sharing of or right to share gross returns Ownership of mineral property even if subject to a joint operating agreement10 3. Common scenario with artists. Applying these principles to a common scenario a group of musicians in a band or other performance artists who have not entered into a written agreement and have not made any filing with a government agencyit is easy to conclude that their relationship is a partnership. Two or more persons have associated to carry on a business (live or recorded performances) making or hoping to make a profit, and in most circumstances they make decisions jointly or by ceding control to one or more members. They may have never used the word partner or
8

2.

Key Default Rules Below are some statutory rules that frequently are relevant. Almost all may be changed by agreement of the partners. That agreement can be inferred from conduct as well as a written signed, instrument. But if not changed these are the rules that apply by default. a. Sharing of profits and losses Sharing of profits is per capita. Sharing of losses follows sharing of profits; thus if the partner did not agree to a different sharing of profits, losses also are borne per capita.13

b.

One partner, one vote

See J. ALE, supra note 1, 2.2. TBOC 152.052(a); TRPA art. 6132b-2.03(a).

See, e.g., Minute Maid Corp. v. United Foods, Inc. 291 F.2d 577 (5th Cir. 1961) (purported lender that made decisions and shared in profits was a partner; applying Texas law), discussed in J. ALE, supra note 1, 2:4. TBOC 152.002; TRPA art. 6132b-1.03. The partners, however, may restrict rights of third parties, entirely eliminate duties of one another, or eliminate the power to withdraw.
13 12

11

TBOC 152.052(b); TRPA art. 6132b-2.03(b). See, e.g., State v. Houston Lighting & Power Co., 609 S.W.2d 263 (Tex. Civ. App.Corpus Christi 1980) (co-owners of nuclear power plant sold power separately, so relationship was mere co-ownership). 2
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TBOC 152.202; TRPA art. 6132b-4.01(b).


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Each partner has an equal vote in management of the partnership.14 Ordinary decisions are controlled by simple majority; actions outside the ordinary course require unanimous approval.15 c. Apparent authority Each partner is an agent of the partnership with apparent authority to bind the partnership in the ordinary course of its business. 16 If the partner acts beyond any limitations on that scope imposed by agreement with or vote of the other partners, then unless the third party with whom the partner is dealing is aware of that lack of authority, the partnership nonetheless is bound. d. Joint and several liability Each partner is jointly and severally liable with the partnership and the other partners for the debts and obligations of the partnership. 17

Ordinarily a group of partners may expel another partner only if they have an agreement providing for expulsion and follow its requirements and procedures.21

i.

Power to withdraw A partner has the power to withdraw at any time. 22 If the partner has agreed not to withdraw, or if the partnership has a definite term or is for a particular undertaking and the withdrawal occurs before the term or the undertaking is complete, the withdrawal nonetheless is effective but the partner may be liable for damages and subject to other remedies.23

j.

e.

Duties Partners owe duties of care and loyalty to one another and the partnership.18 The latter embraces important concepts such as using partnership property only for partnership purposes, not competing, and bringing business opportunities within the partnerships scope to all the partners. f. No ownership of partnership property Partnership property belongs to the partnership, not any individual partner.19 g. Unanimous vote to admit new partners All partners must agree to the admission of any new partner.20

Redemption of withdrawn partners interest If a partner withdraws, then unless the remaining partners wind up the business, the partnership must redeem the withdrawn partners interest for its fair value.24 If the partnership and the partner have not reached agreement on this fair value within 120 days, the partnership must pay its estimate of the amount owed, and either the partnership or the withdrawn partner may institute a legal action to determine the correct amount. 25
TBOC 152.501(b)(3); TRPA art. 6132b-6.01(b)(3). A majority-in-interest may expel a partner in certain extreme circumstances, such as its being unlawful to carry on the business with that partner, TBOC 152.501(b)(4); TRPA art. 6132b-6.01(b)(4), and partners may apply to a court to expel a partner in cases of misconduct, TBOC 152.501(b)(5); TRPA art. 6132b-6.01(b)(5). Often a partnership agreement provides that a partner may be expelled simply on the vote of some fixed percentage of the other partners, with no reference to facts or conditions permitting exercise of the right. If no conditions exist, a court will not impose them, although as with any right a court might refuse to enforce an expulsion if exercised in bad faith; e.g., to deprive a partner of expected profits so as to increase the other partners shares. See, e.g., Bohatch v. Butler & Binion, 977 S.W.2d 543 (Tex. 1998); cases cited in J. ALE, supra note 1, 2:24 n.7.
22 TBOC 152.501(b)(1), .503(a); TRPA arts. 6132b6.01(b)(1), -6.02(a). 23 21

h.

No right to expel

14

TBOC 152.203(a); TRPA art. 6132b-4.01(d). TBOC 152.209; TRPA art. 6132b-4.01(h). TBOC 152.301-.302; TRPA arts. 6132b-3.02, -3.03.

15

TBOC 152.503(b); TRPA art. 6132b-6.02(b).

16

TBOC 152.304(a); TRPA art. 6132b-3.04. There are exceptions for registered limited liability partnerships, see TBOC 152.801, TRPA art. 6132b-3.08, but it is unlikely in the scenarios this paper discusses that the individuals registered as an LLP.
18

17

TBOC 152.205-.206; TRPA art. 6132b-4.04. TBOC 152.101; TRPA art. 6132b-2.04. TBOC 152.201; TRPA art. 6132b-4.01(g). 3

TBOC 152.602(a); TRPA art. 6132b-7.01(b). If the withdrawal was wrongful, the price is the lower of the fair value and the amount the partner would have received had the partnership commenced winding up at the time the partner withdrew. TBOC 152.602(b); TRPA art. 6132b-7.01(b). The partnership also may offset against the redemption payment to a wrongfully withdrawing partner any amounts the partner owes on account of the withdrawal. TBOC 152.604; TRPA art. 6132b-7.01(d). TBOC 152.607(a), .609; TRPA art. 6132b-7.01(g), (l). The partnership may defer the payment if the withdrawal was wrongful. TBOC 152.607(b), .608; TRPA art. 6132bMSW - Draft August 30, 2007 - 12:01 PM
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k.

Winding up A partnership is wound up on vote of a majorityin-interest if it has no definite term or particular undertaking. If it has a definite term or particular undertaking, then it is wound up at that time or by unanimous agreement of the partners.26 On a winding up, the partners who have not wrongfully caused the winding up control the liquidation of the partnerships assets and settlement of liabilities, although a partner or a partners legal representative may petition a court for good cause to have a third party conduct the winding up.27 Profits and losses are allocated to capital accounts, and partners must contribute if assets are insufficient to cover obligations.28 II. COPYRIGHT ISSUES A. Governing Law In disputes involving musical groups and other entertainment partnerships, there is a high probability that intellectual property will be involved. Consider the example of a musical group that has written and recorded songs together, or a financier and a filmmaker who have collaborated on a documentary. In such cases, copyright law generally will determine the party or parties in whom initial copyright ownership has vested and whether there has been a valid transfer of such rights.29 The preeminence of copyright law in this context is a function of the federal Copyright Acts preemption provision, which states that copyright law preempts any claim that seeks to vindicate legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright.30 Because authorship is the well from which these rights spring,31 a disputed claim of ownership related to authorship will generally be determined by copyright law.32 Likewise, the
7.01(k).
26

Copyright Act has special provisions governing the valid transfer of ownership,33 so that these issues are typically governed by copyright law.34 Notwithstanding the foregoing, many disputes involving copyrighted material are guided by state law, including royalty disputes, contractual disputes, claims for accounting, conversion, partners rights in copyrights owned by the partnership, and the like.35 This is because the claimants in such cases generally are not seeking to enforce rights arising directly under the Copyright Act, nor would resolution of the central issues in their cases typically depend upon application of the Act.36 Indeed, where there is no dispute over authorship, transfer of copyright, or infringement of one of the exclusive rights set forth in 17 U.S.C. 106, it has been suggested that there simply is no federal jurisdiction arising under the copyright laweven though copyrighted material may be at the center of the dispute.37 Why is this so important? And why must an entertainment law practitioner be familiar with both state law (including partnership law) and copyright law? Consider a fairly straightforward example: A self-produced recording artist and a financier enter into
(S.D.N.Y.1982) (dispute over co-authorship of novel and screenplay Altered States).
33

17 U.S.C. 201(d) and (e); 17 U.S.C. 204-205.

See Konigsberg International, Inc. v. Rice, 16 F.3d 355, 357-58 (9th Cir. 1994). See, e.g., Oddo v. Ries, 743 F.2d 630, 633 (9th Cir. 1984); T.B. Harms Co. v. Eliscu, 339 F.2d 823, 828 (2d Cir.1964), cert. denied, 381 U.S. 915 (1965); Brown v. Mono Records, 2000 WL 33244473 (D. Or. 2000); Dead Kennedys v. Biafra, 37 F. Supp. 2d 1151 (N.D. Cal. 1999); Rotardier v. Entertainment Co. Music Group, 518 F. Supp. 919 (S.D.N.Y.1981); Keith v. Scruggs, 507 F. Supp. 968 (S.D.N.Y.1981); Harrington v. Mure, 186 F. Supp. 655 (S.D.N.Y.1960). See Goodman v. Lee, 815 F.2d at 1032 (citing Lieberman v. Estate of Chayefsky, 535 F. Supp. at 91). See Oddo v. Ries, 743 F.2d at 633 n.2 (citing Harrington v. Mure, 186 F. Supp. 655 (S.D.N.Y.1960)). The source of federal jurisdiction in infringement cases is 28 U.S.C. 1338(a) (The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to . . . copyrights. . . . Such jurisdiction shall be exclusive of the courts of the states in . . . copyright cases.). See also T.B. Harms Co. v. Eliscu, 339 F.2d at 828 ([A]n action arises under the Copyright Act if and only if the complaint is for a remedy expressly granted by the Act . . . or asserts a claim requiring constructing of the Act, . . . or, at the very least and perhaps more doubtfully, presents a case where a distinctive policy of the Act requires that federal principles control the disposition of the claim.). 4
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34

TBOC 11.051, .057; TRPA art. 6132b-8.01(a)-(c). TBOC 152.702; TRPA art. 6132b-8.03. TBOC 152.706-.708; TRPA art. 6132b-8.06.

27

28

See Goodman v. Lee, 815 F.2d 1030, 1032 (5th Cir. 1987). See 17 U.S.C. 301(a); National Basketball Association v. Motorola, Inc., 105 F.3d 841, 848 (2d Cir. 1997). 17 U.S.C. 101 (definition of joint works), 201(a)-(b). See Goodman v. Lee, 815 F.2d at 1032 (dispute over authorship rights in the song Let the Good Times Roll); Lieberman v. Estate of Chayefsky, 535 F. Supp. 90, 91
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an oral partnership agreement to produce and sell records. The financier assumes that the copyrights in the sound recordings belong to the partnership because production was financed with partnership funds.38 To his dismay, he learns that the copyrights could not have become the property of the partnership without a written instrument of transfer or work-forhire situation; and that his partneras the sole author of the sound recordingsis therefore the sole owner of the copyrights.39 B. Ownership in Copyrighted Works There are two ways in which a partnership may acquire ownership in copyrighted material: (1) under the so-called work-for-hire doctrine40 or (2) by means of written transfer of ownership.41 There are three ways in which ownership of copyrights might vest in the individual partnersthe first two of which are identical to the manner in which a partnership may acquire rights: (1) if the partner acquires the rights in his own name42 under the socalled work-for-hire doctrine,43 (2) if he acquires the rights in his own name44 by means of written transfer of ownership,45 or (3) if he is an author or coauthor of the work.46 These three issues are discussed in further detail below.
A perfectly logical conclusion given the relevant provisions of the Texas Business Organizations Code. See TBOC 152.102(b); TRPA art. 6132b-2.05(c) (Property is presumed to be partnership property if acquired with partnership property . . . .). See Brown v. Flowers, 297 F. Supp. 2d 846 (M.D.N.C. 2003) (involving similar, albeit more complicated facts), affd 196 Fed. Appx. 178 (4th Cir. 2006).
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1.

Work For Hire There are two categories of work-for-hire: (1) a work created by an employee within the scope of his employment47 and (2) a specially commissioned work, evidenced by written contract, in one of nine statutorily enumerated categories.48 Thus, if an employee creates a work during the course and scope of his employment, the copyright is presumptively owned by the employer. 49 It is important to note that, because a partner ordinarily is not an employee of the partnership, works created by a partner in the scope of his duties for the partnership do not become partnership property under this doctrine.50 Without a written agreement conferring rights to the partnership, at most it will have acquired an implied license to use the work.51 With respect to specially commissioned works for hire, the important issues to consider are: (1) whether there is a written contract evidencing the relationship and (2) whether the work falls under one of the nine statutorily enumerated categories of works subject to such protection. Absent both conditions, by definition there is no specially commissioned work-forhire.52 2.
47

Transfer of Ownership
Id. 101 (definition of work made for hire).

Id. The nine statutorily enumerated categories of specially commissioned works subject to the work-for-hire doctrine are: works specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas. 17 U.S.C. 201(b). See also Saenger Organization, Inc. v. Nationwide Ins. Licensing Associates, 119 F.3d 55 (1st Cir. 1997). Brown v. Flowers, 297 F. Supp. 2d 846, 852 (M.D.N.C. 2003), affd 196 Fed. Appx. 178 (4th Cir. 2006). See also Meyers v. Cole, 1998 WL 485667, *5 (Tenn. App. 1998) (The Copyright Act includes no indication that Congress intended the works made for hire doctrine to apply to works created by a partner during the course of the partnership). See, e.g., Oddo v. Ries, 743 F.2d 630, 634 (9th Cir. 1984). Note that, if the license has been accompanied by consideration it is irrevocable. See Lulirama Ltd., Inc. v. Axcess Broadcast Services, Inc., 128 F.3d 872, 882 (5th Cir.1997). This is so because a nonexclusive license supported by consideration is a contract. Id. 17 U.S.C. 101 (definition of work made for hire). See also Konigsberg International Inc. v. Rice, 16 F.3d 355, 357-58 (9th Cir. 1994). 5
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48

17 U.S.C. 201(b).

41

Id. 204(a).

Property acquired in the name of one or more partners, without an indication in the instrument transferring title to the property of the persons capacity as a partner or of the existence of a partnership, and without use of partnership property, is presumed to be the partners property, regardless of whether the property is used for partnership purposes. TBOC 152.101(c); TRPA art. 6132b-2.05(d).
43

42

17 U.S.C. 201(b). See supra note 42. 17 U.S.C. 204(a). Id. 201(a).

44

45

46

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Rules applicable to transfer of copyright ownership are fairly straightforward. If there is a written instrument evidencing transfer of ownership, the transfer is valid. Otherwise, there is no transfer of ownership.53 3. Authorship and Co-Authorship The most direct manner in which copyrights may be acquiredand perhaps the most common in situations involving musical groups and other informal entertainment partnershipsis by virtue of authorship. The Copyright Act provides that initial ownership of copyrights vests in the author or authors of same.54 The authors of a joint work are co-owners of copyright in the work.55 C. Disputes Among Collaborators In accordance with the foregoing principles, where a dispute has arisen among collaborators unless a putative co-owner can prove that he gained rights by written contract (e.g., by written transfer or work-for-hire)the endgame will be the successful assertion of a claim of co-authorship. In common with many issues arising in the domain of copyrights, the determination of whether to recognize joint authorship in a particular case requires a sensitive accommodation of competing demands advanced by at least two persons, both of whom have normally contributed in some way to the creation of a work of value.56 In other words, in most cases involving a dispute of co-authorship, both parties will have actually collaborated on the work. The question is whether each collaborator is legally entitled to a copyright interest. A warning in advance: This area of copyright law is fraught with competing policy arguments, conflicting decisions, and differing tests in various federal circuits, or no developed position at all. Of course, this is what makes it all so interesting. 1. Joint Works Under the plain language of the Copyright Act, [t]he authors of a joint work are co-owners of the copyright in the work.57 A joint work is defined as a work prepared by two or more authors with the
17 U.S.C. 204(a) provides that copyright ownership may be transferred only by means of a written instrument signed by the copyright owner, or by operation of law (i.e., a work-for-hire).
54 53

intention that their contributions be merged into inseparable or interdependent parts of a unitary whole.58 That definition is easily stated, but its application has vexed many a court. Obvious questions arise. For instance, who qualifies as an author? Will any creative contribution suffice, or is something more required? The inquiry has not stopped there. When faced with a fact pattern that appears deserving of a more nuanced test of co-authorship, courts have asked additional questions. For instance, regarding intent, is it necessary that the parties fully comprehend the legal consequences of their relationship, or is it sufficient that the parties simply intend to create a unified work? When must this intent arise? Must it be contemporaneous with initial creation, or is subsequent intent to merge efforts sufficient? Some of these issues are fairly well settled. For better or worse, many are not. 2. Who Qualifies as an Author? Given that a persons status as an author is a principal benchmark in determining both ownership of a work59 and whether a joint work has been created,60 one would expect to find a definition of the term in the Copyright Act. Incredibly, Congress failed to include one. As a result, definition of that pivotal term has become the unenviable job of the courts. 3. a. Independent Copyrightability The Current Scenario Under the bulk of the relevant jurisprudence, each putative co-author must have made a contribution that could stand on its own as the subject matter of copyright.61 In other words, it is not enough that the end product may be copyrightable: for any contributor to claim a copyright interest, his contribution must have been independently copyrightable.62 This so-called rule of independent copyrightability may be appropriate in a number of settings: e.g., preventing those who have made no more than de minimus contributions from participating in the ownership of a work. However, there are other situationsparticularly in the entertainment industry in which a strict application might lead to the evisceration of copyright protection for persons making
58

Id. 101 (emphasis added). Id. 201(a). Id. 101.

59

Id.. 201(a). Id. Childress v. Taylor, 945 F.2d 500, 504 (2d Cir. 1991). 17 U.S.C. 201(a) (emphasis added). 6

60

55

56

P. GOLDSTEIN, GOLDSTEIN ON COPYRIGHT 4.2.1.2 (2d ed. 2000 and Supp. 2005), and cases cited therein.
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61

57

Id.
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significant artistic and expressive contributions. Consider, for example, a sound engineer who captures the live performance of a musical group, or a producer who collaborates with an artist in the studio. May the contributions of either of these parties be said to stand on their own as the subject matter of copyright?63 Consider further the example of the drummer and bass player who, as part of a musical group, regularly contribute their creative efforts to songs brought in by the groups songwriters.64 Should those persons occupy the status of coauthors, or be relegated to some lesser status where only a written contract would insure remuneration? Under an ordinary definition of authorship, all of these collaborators should be accorded co-authorship status.65 However, a number of courts have used the test of independent copyrightability to deny authorship in such cases. 66 Fully acknowledging the uphill battle, the Nimmer treatise has argued for some time against a
This author suggests that, intuitively, the answer is no. As a practical matter, an engineers or producers contribution cannot stand on its own. If there is no performanceall the knob-twisting, microphone selection and effects processing in the world will be for naught. Significantly, a recent court opinion out of the Fourth Circuit used the independent copyrightability test to deny authorship status to a producer/engineer. Brown v. Flowers, 297 F. Supp. 2d 846 (M.D.N.C. 2003) (allegations that plaintiff acted as recording engineer and producer failed to state claim of joint authorship), affd 196 Fed. Appx. 178 (4th Cir. 2006). The decision has been criticized in the Nimmer series, and appears to run counter to the legislative history and case law on the subject. See H.R. REP. NO. 94-1476, 94th Cong., 2d Sess. 56 (1976), reprinted in 1976 U.S.C.C.A.N. 5659 (The copyright in a sound recording will usually, though not always, involve authorship both . . . [by the artist and by] the record producer responsible for setting up the recording session, capturing and electronically processing the sounds, and compiling and editing them to make a final recording.). See also Forward v. Thorogood, 985 F.2d 604 (1st Cir. 1993); JCW Investments, Inc. v. Novelty, Inc., 289 F. Supp. 2d 1023 (N.D. Ill. 2003); Systems XIX, Inc. v. Parker, 30 F. Supp. 2d 1225, 1228 (N.D. Cal. 1998). Certainly, as a matter of practice in the record industry, the authorship rights of producers and engineers are routinely recognized through written producer agreements, work-for-hire agreements, and the like. Indeed, a primary purpose of such agreements (in addition to memorializing financial terms) is to acquire the authorship rights of the producer.
64 The abundance of drummer and bassist jokes notwithstanding, this author casts no aspersions on these worthy contributors. 63

strict requirement of independent copyrightability of each authors contribution.67 Nimmer observes that neither the plain language of the Act nor its legislative history requires the conclusion that each putative authors contributions must be independently copyrightable.68 Rather, as Nimmer notes, the intention to merge each putative authors contributions into a unitary whole appears to be the touchstone.69 Nimmer notes that the copyrights goal of fostering creativity is best served . . . by rewarding all parties who labor together to unite idea with form. 70 As such, the test Nimmer would employ is whether the putative authors contributions were more than de minimus.71 b. Gaiman v. McFarlaneA Relaxing Standard? As indicated above, the bulk of the relevant jurisprudence adheres to Professor Goldsteins test, requiring each putative authors contributions to be independently copyrightable.72 However, the landscape
See e.g. BTE v. Bonnecaze, 43 F. Supp. 2d 619 (E.D. La. 1999) (denying co-authorship in musical compositions to the drummer of the musical group Better Than Ezra); Brown v. Flowers, 297 F. Supp. 2d 846 (M.D. N.C. 2003) (denying co-authorship status to producer/engineer), affd 196 Fed. Appx. 178 (4th Cir. 2006), discussed supra note 63.
67 66

See M. NIMMER & D. NIMMER, NIMMER Id. 6.07[A][3][a].

ON

COPYRIGHT

6.07.
68

Id. (citing H.R. REP. NO. 94-1476, at 120 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5736). The House Report states, in pertinent part, as follows: [A] work is joint if the authors collaborated with each other, or if each of the authors prepared his or her contribution with the knowledge and intention that it would be merged with the contributions of other authors as inseparable or interdependent parts of unitary whole. The touchstone here is the intention, at the time the writing is done, that the parts be absorbed or combined into an integrated unit . . . .
70

69

M. NIMMER & D. NIMMER, supra note 67, 6.07[A][3] Id. 6.07[A][1].

[a].
71

See Childress v. Taylor, 945 F.2d 500, 506 (2d Cir. 1991) (Author is not defined in the Act and appears to be used only in its ordinary sense of an originator.). 7
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See Aalmuhammed v. Lee, 202 F.3d 1227, 1234 (9th Cir. 2000) (A joint work in this circuit requires each author to make an independently copyrightable contribution to the disputed work.; internal quotation marks omitted); Childress v. Taylor, 945 F.2d 500, 507 (2d Cir. 1991) (It seems more consistent with the spirit of copyright law to oblige all joint authors to make copyrightable contributions, leaving those with non-copyrightable contributions to protect their rights through contracts.) (citing cases). See also Brown v.
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changed a bit in 2004 with the Seventh Circuits decision in Gaiman v. McFarlane,73 which appears to have adopted Nimmers interpretation of coauthorship. In Gaiman, the creator and illustrator of a comic book series invited plaintiff to write a script for one issue.74 Subsequently, the plaintiff wrote a script in which he introduced three new characters to the series.75 Based on the plaintiffs oral description of the characters and his written dialogue, the creator/illustrator drew those characters into the series.76 Thereafter, plaintiff brought suit, contending that he was entitled to an ownership interest in the copyright to the three characters by virtue of the Copyright Acts joint-work provision.77 Although Judge Posner recognized that a contribution of some original expression is required for authorship status, he rejected the notion that such contributions must always be independently copyrightable.78 He reasoned as follows: [W]here two or more people set out to create a character jointly in such mixed media as comic books and motion pictures and succeed in creating a copyrightable character, it would be paradoxical if though the result of their joint labors had more than enough originality and creativity to be copyrightable, no one could claim a copyright. That would be peeling the onion until it disappeared. The decisions that say, rightly in the generality of cases, that each contributor to a work must make a contribution that if it stood alone would be copyrightable werent thinking of the case in which it couldnt stand alone because of the nature of the particular creative process that had produced it.79
Flowers, 196 Fed. Appx. 178 (4th Cir. 2006) (indicating that the Fourth Circuit has now adopted this approach, albeit in an unpublished opinion).
73

Applying this logic, Judge Posner concluded that the plaintiffs creative contributions, although not independently copyrightable, were sufficient to accord him authorship status.80 Regarding one of the comic book characters, Judge Possner noted that Gaimans contribution may not have been copyrightable by itself, but his contribution had expressive content without which [the character] wouldnt have been a character at all, but merely a drawing.81 In supplements to the Nimmer series after Judge Posners opinion, one can sense a bit of triumphant vindication.82 Will this be the beginning of a trend? If a recent decision on the subject is any indication, the tide has not yet turned;83 however, curiosity and thoughtful judicial inquiry into the issue has certainly been piqued.84 c. Fifth Circuit Stance The Fifth Circuit has yet to announce whether independent copyrightability is a requisite element of joint authorship.85 As discussed above, one judge from the Eastern District of Louisiana has announced the requirement.86 However, that decision predated Gaiman, and because it was a district court opinion, it has no binding precedential value on other trial judges.87
80

Id. Id. at 661.

81

See M. NIMMER & D. NIMMER, supra note 67, 6.07[A] [3][c] (observing now that the camels nose is under the tent, it is ripe to re-examine the rejectionist point of view).
83

82

See Brown v. Flowers, 196 Fed. Appx. 178 (4th Cir.

2006) One of the judges in Brown v. Flowers issued a forceful and extensive dissenting opinion on the issue of coauthorship, arguing for the expansive approach espoused by Nimmer. Id. at 183-194. The Fifth Circuit came tantalizingly close in Quintanilla v. Texas Television Inc., 139 F.3d 494 (5th Cir. 1998), where plaintiff attempted to assert a claim of joint authorship, but failed to timely plead the cause of action. The Fifth Circuit upheld the District Courts decision to deny leave to amend, and thus never reached the issue. See BTE v. Bonnecaze, 43 F. Supp. 2d 619 (E.D. La. 1999). In addition, the test is mentioned (although not applied) in at least one other case emanating from a district court within the Fifth Circuit. See Clogston v. American Academy of Orthopedic Surgeons, 930 F. Supp. 1156, 1159 (W.D.Tex. 1996). Bridgeport Music, Inc. v. Dimension Films, 410 F.3d 792, 804 n.16 (6th Cir. 2005). Indeed, the court in Bonnecaze itself refused to follow precedent from the Western District of Texas on a different issue, adopting 8
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87 86 85 84

360 F.3d 644 (7th Cir. 2004). Id. at 649. Id. Id. Id. at 650. Id. at 658. Id. at 660.

74

75

76

77

78

79

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As such, practitioners are free to urge either side of the argument, and depending on who they represent, should certainly consider both approaches. 4. Intent a. Must the Co-Authors Understand the Legal Consequences of Co-Authorship? The Copyright Act requires putative authors to intend that their contributions be merged into inseparable or interdependent parts of a unitary whole.88 There is nothing in that definition that requires a putative author to understand the legal consequences of joint authorship or to manifest that understanding by his conduct. Nonetheless, a number of courtsincluding several district courts within the Fifth Circuitappear to have adopted these requirements. The trouble started with the Second Circuits opinion in Childress v. Taylor.89 That case involved a claim of co-authorship of a play about comedienne Jackie Moms Mabley. The putative co-author contracted the playwright to create the script, and allegedly contributed the results of her research into the comediennes life.90 The district court denied plaintiffs claim of co-authorship, finding that the parties did not share the requisite intent to be coauthors.91 On appeal, the Second Circuit observed that the Copyright Act limits its analysis of intent to the coauthors state of mind regarding the unitary nature of the finished work. 92 It nevertheless decided that this limited inquiry may not be sufficient in all cases, particularly those involving a dominant author.93 In such cases, the court believed that it was necessary to plumb the co-authors awareness and understanding of the concept of joint authorship94 and to adduce whether the putative authors had evidenced such an
instead principles established in the Second Circuit. 43 F. Supp. 2d at 620.
88

understanding through their conduct.95 Although the court insisted that it was not requiring an understanding of legal consequences,96 it would be difficult to imagine a situation in which the authors could evidence an understanding of the concept of co-authorship without some notion of the legal consequences. The most recent opinion emanating from a district court within the Fifth Circuit acknowledging the reasoning of Childress is BTE v. Bonnecaze.97 In Bonnecaze, a former drummer for the musical group Better than Ezra claimed co-authorship in the groups sound recordings and musical compositions. The drummers alleged authorship contributions were significant, consisting of harmony, lyrics, percussion and song rhythms, melody and song and musical structure.98 Despite the weighty nature of the alleged contributions, and the undeniable fact that collaborators merged their contributions into a unitary whole when they recorded the works, the court insisted that a specific finding of [subjective] mutual intent remain[ed] necessary.99 The court did not clarify whether proof of the parties understanding of the legal consequences of co-authorship was required; however, its identification of the factual indicia of ownership and authorship suggests that it was. For instance, the court insisted that it was necessary to examine how the parties bill[ed] or credit[ed] themselves with regard to the work, and whether the drummer had entered into any written agreements with third parties involving the work.100 The problem with this formulation of the mutual intent requirement is that it is impractical, particularly in situations involving informal partnerships such as musical groups. To put it mildly, musicians (and other artists) seldom comprehend all of the legal ramifications of their actions. It is therefore absurd to require them to acquire such an understanding (and to
95

Id. Id.

17 U.S.C. 101 (definition of joint work). 945 F.2d 500 (2d Cir. 1991). Id. at 503. Id. at 504. Id. at 507.

96

89

90

43 F. Supp. 2d 619 (E.D. La. 1999). See also Visitor Industries Publications, Inc. v. NOPG, L.L.C., 91 F. Supp. 2d 910, 914 (E.D. La. 2000) (mentioning the test, but failing to specifically apply it).
98

97

91

43 F. Supp. 2d at 621. Id. at 624.

92

99

Id. at 507-508. The court specifically mentions writer-editor and writer-researcher relationships, noting that what distinguishes the writer-editor relationship and the writer-researcher relationship from the true joint author relationship is the lack of intent of both participants in the venture to regard themselves as joint authors. Id.
94

93

Id. at 508. 9

Id. at 624-625. Interestingly, although the court discussed the intent requirement at length, it eventually decided that joint authorship didnt exist for a different reasonspecifically, that the putative author never independently fixed his contributions. Id. at 628. As discussed in Section IIC(4) above, that is a conclusion of dubious merit.
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manifest that understanding in their affirmative actions) in order to enjoy co-authorship status. A recent opinion from the Western District of Texas shows just how dangerously restrictive this approach can be. In Clogston v. American Academy of Orthopedic Surgeons,101 a photographer brought a claim of co-authorship, based upon his contribution of 90% of the photographs appearing in an instructional textbook comprising some 450 photographs.102 The court cited deposition testimony of the putative author in which he opined that the issue of joint authorship was a legal question (a perfectly reasonable response). Based on that testimony, the court concluded that the photographer did not have the requisite intent to become a co-author.103 Obviously, that sort of logic is circular and is not in the least bit compelled by the Act itself which requires only that co-authors intend to merge their efforts into a unitary whole. The plain language of the Copyright Act in fact mirrors the test first announced by an English court 100 years prior: to constitute joint authorship, there must be a common design.104 Obviously, a common design is a far cry from a pre-manifested intent to enjoy the legal status of a co-author. Happily, a universal application of the mutual intent requirement set forth in Childress does not appear to have been suggestedeven by that court. Thus, those courts that have slavishly applied it as a strict requirement may have overreacted. Indeed, the Childress courts announcement of the conceptual understanding test was in response to concerns over special cases involving a dominant author, such as a writer-editor or writer-researcher relationship (the later of which was precisely the case before the court).105 Perhaps confined to those situations, the conceptual understanding requirement is helpful, but the problem with the test is that it quickly falls downhill into situations in which it has no business, including co-songwriter cases like Bonnecaze. As the Childress court properly noted, the test requires less exacting consideration in the context of traditional forms of collaboration, such as between the creators of words and music of a song.106 Evidently, the court in Bonnecaze overlooked that portion of the opinion. Fortunately, other courts have
101

been more observant of the limited application of the Childress test. A good example is Systems, XIX, Inc. v. Parker.107 In that case, a recording studio brought a claim of co-authorship against the performer KRS-ONE and his record company, claiming rights in a live recorded performance that had been specifically requested and authorized by the performers road manager.108 Citing Childress, the defendants raised the defense of mutual intent, asserting that the parties did not share the subjective intent to be co-authors.109 Noting that the Childress court itself suggested that its test should be applied only in circumstances not likely to have been within the contemplation of Congress and noting further that the producer/performer relationship had been under the specific contemplation of Congress when it enacted the Copyright Act, the court declined to apply the Childress test.110 b. When Must Intent be Manifested? The intent to merge contributions into a unitary whole111 must exist at the moment in time when the work is created, not at some later date.112 However, the rule is somewhat broader than it appears. First of all, the actual identity of a co-author does not need to be known, nor must the respective contributions be made at the same time.113 Thus, a lyricist who intends for his lyrics to be set to music may be considered a joint author of a composer who even years later, with the permission of the lyricist (or his agent), eventually sets the lyrics to music.114 Here, it is instructive to go back to the example of the bass player and the drummer who, as part of a musical group, regularly contribute their creative efforts to songs brought in by the principal songwriter. In this instance, the question of intent would appear to be relevant, perhaps determinative. If there is evidence that the songwriter intended for his song to be complete upon the addition of drums and bass, then one could argue that he had the requisite level of intent for
107

30 F. Supp. 2d 1225 (N.D. Cal. 1998). Id. at 1226-27. Id. at 1228.

108

109

930 F. Supp. 1156 (W.D. Tex. 1996). Id. at 1157, 1162. Id. at 1160-1161.

Id. (citing H.R. REP. NO. 94-1476). See note 63 above for further discussion of this House Report.
111

110

102

17 U.S.C. 101 (definition of Joint Works).

103

Levy v. Rutley, 6 L.R.-C.P. 523, 529 (1871) (emphasis added).


105

104

M. NIMMER & D. NIMMER supra note 67, 6.03 (citing H.R.REP. NO. 94-1476 at 120 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5736). Id. (citing Edward B. Marks v. Jerry Vogel Music Co., 140 F.2d 266 (2d Cir. 1946)).
114 113

112

945 F.2d at 507. See supra note 93. 945 F.2d at 508. 10

106

Id.
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joint authorship. On the other hand, if the evidence suggests that he intended for the song to stand on its own (e.g., as lyrics with guitar accompaniment only), the better argument might be that the songwriter lacked the intent to create a unitary whole with the bass player and drummer (although he may have intended to create a derivative work).115 Regardless, if the musicians subsequently collaborated on a recording of the song, a logical conclusion could be drawn that all parties intended to collaborate in a unitary whole (the sound recording). Thus, a claim of co-authorship in the sound recording would appear to be the easier argument.116 5. Independent Fixation In addition to the hard line it took on intent, the Court in Bonnecaze announced that it is necessary for each putative coauthor to fix his contributions into a tangible form of expression in order to be entitled to co-authorship status.117 That conclusion would appear to be in error. Even Professor Goldstein a strong proponent of the independent copyrightability requirement opines that it is not necessary to the creation of a joint work that each collaborator actually fix the work in a tangible medium of expression.118 One could imagine the difficulties of applying such a strict test in the field of music, where musicians commonly write parts by ear. In fact, that appears to have been the exact context in which the Bonnecaze court applied the rule. The courts denial of co-authorship was all the more curious given that the claimant did in fact fix his contributions in the groups sound recordings.119 D. Rights of Co-Authors and Co-Owners Absent a written agreement to the contrary, coowners of a copyrighted work (including co-authors)
See M. NIMMER & D. NIMMER supra note 67, 6.05 (Alternatives to Joint Authorship: Derivative Works and Collective Works). See BTE v. Bonnecaze, 43 F. Supp. 2d 619 (E.D. La. 1999) (recognizing drummers rights in sound recordings, but not in musical compositions). Id. at 626 (citing Community for Creative NonViolence v. Reid, 490 U.S. 730, 737 (1989)). P. GOLDSTEIN, supra note 61, 4.2.1.2 (citing Easter Seal Society For Crippled Children & Adults of Louisiana, Inc. v. Playboy Enterprises, 815 F.2d 323, 337 (5th Cir.), rehg denied, 820 F.2d 1223 (5th Cir. 1987), cert. denied, 485 U.S. 981 (1988). The court ruled that this fixation was sufficient to establish rights in the sound recording, but not in the musical composition. 11
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119 118 117 116 115

share equally in the ownership of the work.120 In the case of co-authors, this is true regardless of whether their respective contributions to the joint work are equal.121 Indeed, one court has held that the varying of this general rule amounts to a transfer of copyright ownership that will be valid only if it is confirmed by a signed instrument.122 A joint author (or joint owner) of a copyrighted workregardless of his ownership percentagemay, without obtaining the consent of the other joint owners, either exploit the work himself, or grant nonexclusive licenses to third parties.123 However, he must account to other co-owners for any profits he earns from the licensing or use of the copyright . . . .124 This duty to account does not derive from the copyright laws proscription of infringement. Rather, it comes from . . . general principles of law governing the rights of coowners.125 Inasmuch as these joint tenancy principles are rooted in state law, courts will look to state law for resolution of these issues.126 An interesting aspect of joint authorship is the socalled duality of rights.127 Under this concept, each author obtains an undivided ownership in the whole of the joint work, including any portion thereof.128 Consequently, one joint author thereby obtains the right to use or license that portion of the joint work that was the sole creation of the other joint author.129
P. GOLDSTEIN, supra note 61, 4.2.2; M. NIMMER & D. NIMMER, supra note 67, 6.08.
121 120

Id.

Papas June Music, Inc. v. McLean, 921 F. Supp. 1154, 1158 (S.D. N.Y. 1996).
123

122

See M. NIMMER & D. NIMMER supra note 67, 6.10[A].

Goodman v. Lee, 78 F.3d 1007, 1012 (5th Cir. 1996) (quoting Oddo v. Ries, 743 F.2d 630, 633 (9th Cir. 1984), and citing other cases, including Community for Creative Non-Violence v. Reid, 846 F.2d 1485, 1498 (D.C. Cir.1988) (Joint authors co-owning copyright in a work are deemed to be tenants in common, with each having an independent right to use or license the copyright, subject only to a duty to account to the other co-owner for any profits owned thereby.) (internal quotations omitted), affd on other grounds, 490 U.S. 730 (1989)). Id. (quoting Oddo v. Ries, 743 F.2d at 633 (internal quotes omitted)).
126 125

124

Id. See M. NIMMER & D. NIMMER supra note 67, 6.06[A].

127

Id. See Section III(A) below for a practical application of the doctrine.
129

128

M. NIMMER & D. NIMMER supra note 67, 6.06[A].


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A co-owner of a copyright cannot be liable to another co-owner for infringement of the copyright.130 Rather, as set forth above, a co-authors remedy for non-payment of his share of royalties is an action for an accounting under state law. III. SOME HYPOTHETICAL SCENARIOS Below are discussions of hypothetical situations involving band break-ups and other disputes among collaborators. A. The Jilted Bass Player Your client is a bass player that has just been ousted by his group. Historically, the group has made business decisions collectively and split profits equally. However, after a secret meeting of the other members of the band, the decision was made to terminate the bass player. The ouster comes at a time when the group is in negotiations with a major label. Initial interest from the label was spawned by several demos which were recorded in the bass players studio, and were in fact engineered and mixed by him. The advance under the record deal is purported to be $300,000, which would include purchase of the demos. The bass player comes to you for help. There is no written agreement. 1. a. Discussion Partnership Issues As an initial observation, the band almost certainly constitutes a partnership under Texas law.131 As such, without a written agreement authorizing expulsion, the band has no right to oust the member.132 Moreover, given the circumstances, the bands actions likely violate the duty of loyalty owed by each partner and the partners obligations to share profits.133 Of course the band by majority vote could wind up the partnership, but this would be impractical given the circumstances. Equally impractical would be any attempt to reinsert the bass player into the partnership given the obvious acrimony. One solution might be for the bass player to offer to withdraw, 134 subject to an acceptable redemption of his interest.135 The calculation of the redemption should be predicated
Goodman v. Lee, 78 F.3d at 1012 (quoting Oddo v. Ries, 743 F.2d at 632-33).
131 130

upon the fair value of the partners interest,136 and your client should specifically request an explanation of the bands computation of the estimated payment obligation, and supporting documents (including a statement of partnership property and liabilities from the date of withdrawal, and the most recent partnership balance sheet and income statement).137 Note that after receipt of these items, your client has one year to bring an action to challenge the sufficiency of the tender.138 The same one-year statute of limitations does not apply to claims involving breach of partners duties of loyalty and the like. b. Copyright Issues Inasmuch as the label has expressed an interest in purchasing the sound recordings, special attention should also be given to the bass players rights in the recordings. An important question is whether he is a joint author with ownership rights.139 The facts would indicate that he is, with an independent right to a pro rata share of all income.140 Unless there has been a written assignment of the copyrights to the partnership141unlikelythe bass players rights should be intact. Here, rather than requesting a redemption of interests for the value of the copyrights (as the partner may do with respect to the partnerships property), the bass player should consider maintaining an ongoing interest in the works, or at least using his right to do so as leverage to obtain a favorable settlement. One should also keep in mind that, as co-author, the bass player has an independent right to exploit the recordings, subject only to a duty to account to his coauthors for profits.142 This fact could similarly be used as leverage during negotiations. An interesting question is whether the band may replace the bass players parts on the recordings, thereby avoiding his copyright interest. The answer is no, because each co-author owns an undivided interest in the whole of the joint work.143
135

TBOC 152.602, .604; TRPA art. 6132b-7.01. TBOC 152.602(a); TRPA art. 6132b-7.01(b). TBOC 152.607(c); TRPA art. 6132b-7.01(i). TBOC 152.607(d)(1)(B); TRPA art. 6132b-7.01(j)(1) See supra Section II(C). See supra Section II(D). 17 U.S.C. 204. See supra Section II(D). Id. (discussing duality of rights).
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136

137

138

(B).
139

See supra Section I(B)(3). See supra note 21. TBOC 152.202, .206; TRPA arts. 6132b-4.01(b),

132

140

133

141

-4.04.
142

TBOC 152.501(b)(1), .503(a); TRPA arts. 6132b6.01(b)(1), -6.02(a). 12


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A more difficult issue is the bass players rights in the musical compositions. An argument regarding co-authorship could probably be made either way, the strength of which would likely depend upon the substance of the bass players contributions144 and the intent of the parties at the time the songs were written.145 B. The Troublesome Bandmate A bandleader has financed numerous recordings and essentially managed the band for several years. A percussionist in the band has grown more and more troublesome, is not particularly talented, and nobody likes him. The bandleader wants to expel the member and comes to you for advice. 1. a. Discussion Partnership Issues Careful attention should be paid to the elements determining the existence of a partnership to determine if the band actually constituted such an entity. 146 Important elements to consider are whether the percussionist participated in the control of the business, and whether there was any agreement to share profits and losses. The fact that the bandleader financed recordings may suggest no partnership existed. If the analysis indicates that the band did, in fact, constitute a partnership, then as with the preceding fact scenario, your client has no right to oust the percussionist.147 Likewise, one option would be to wind up the partnership and start anew.148 Given that this particular band is not on the verge of signing a big deal and may have insignificant assets, this may be more feasible than in the earlier example. However, it is certainly worth attempting to negotiate a buyout of the percussionists interests.149 In such case, be sure to include language in the buy-out agreement settling any and all claims arising under the partnership, including claims to determine the terms of redemption,150 claims for breach of the partnership

agreement and/or claims for breach of any duties under the partnership.151 b. Copyright Issues Again, copyright issues should be carefully considered. Given the percussionists limited role, it is doubtful that he would be considered a co-author of the musical compositions;152 however, you should carefully interview your client to gather facts related to that potential claim. A case that may be helpful to your clients cause is BTE v. Bonnecaze153 (denying a drummers claims of authorship rights in a musical groups musical compositions). Regarding the bands sound recordings, although your client financed the recordings, this does not by itself make him the exclusive owner of the copyrights therein. Rather, ownership is vested in the authors of the recordings,154 which presumably would include the percussionist.155 Absent assignment by the percussionist of his co-authorship rights, or a work-forhire agreement, the percussionist likely will have a coauthorship interest in the recordings. That having been said, there is no reason your client could not attempt to buy the percussionists rights in the sound recordings as part of the buy-out of your clients interests in the partnership. Alternatively, your client could offer to account to the percussionist for his share of profits.156 However, a clean break may be desired by both parties at this point. C. The Spurned Angel A friend advances $20,000 to record an album for a talented artist with the hopes of securing a recording contract. Under the deal, the friend will spend a portion of these monies to shop the recordings. If that fails, the parties have agreed to start their own record label and sell the record themselves. The parties have agreed that the angel will be repaid his investment out of any initial advance (in the case of a record deal) or initial proceeds in the event they sell the record themselves. Thereafter, the parties will split proceeds 50/50. The relationship sours, and the artist moves to Los Angeles. Miraculously, he is discovered and signs a record deal. Under that deal, the artist sells the prior
151

144

See supra Section II(C)(3). See supra Section II(C)(4). See supra Section I(B)(2).

145

146

TBOC 152.211; TRPA art. 6132b-4.06. See supra Section II(C). 43 F. Supp. 2d 619 (E.D. La. 1999). 17 U.S.C. 201(a). See BTE v. Bonnecaze, 43 F. Supp. 2d 619 (E.D. La. See supra Section II(D).
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152 147

See supra Section I(C)(2)(h).


153

148

See supra Section I(C)(2)(k).


154 155

Although not specifically provided under the partnership statutes, the parties could agree to a buyout as a matter of contract law.
150

149

1999).
156

TBOC 152.609; TRPA art. 6132b-7.01(l). 13

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recordings to a record company under a deal that will entitle him to a continuing royalty interest in the recordings after recoupment by the record company of the purchase price. The artist refuses to share proceeds of the sale with the angel. The angel comes to you for advice. There is no written agreement. 1. a. Discussion Partnership Issues This would appear to be a classic partnership scenario.157 Because the partnership was formed in Texas and operated in Texas, your client should be able to bring suit here if necessarya decided advantage given the artists location. Initially, your client should tender demand for an accounting under the partnership and/or a right of audit,158 and payment of his share of any proceeds.159 If that is ignored or refused, your client has the right to bring an action against the artist for breach of the partnership agreement, an accounting, and/or breach of the partners duties.160 As an alternative and/or fallback, you may wish to initiate negotiations for withdrawal and redemption of your clients interests.161 If no agreement is reached, your client may wish to initiate an action to determine the terms of the redemption.162 Remember that you have only one year to bring such a claim after the artist has tendered his proposed redemption and supporting documentation.163 b. Copyright Issues On the surface, your client would appear to have no claim under copyright law. As set forth above, ownership vests initially in the author(s) of a work.164 In the case of the musical compositions, there are no facts indicating that your client participated in the authorship thereof. With respect to the sound recordings, the result may be different. Again, the artist would presumptively have authorship rights in the recordings
157

by virtue of his recorded performance.165 However, you should query your client as to his relationship with any of the other participants in the recording process. For instance, assume that the angel is also a studio owner and engineer. If he participated in the creation of the masters (e.g. as producer or engineer), then he may have a claim of co-authorship.166 Even if he did not engineer or produce the recordings, if one of his studio employees did, the angel may have rights by virtue of work for hire.167 Another theory under which he may have acquired rights by work for hire is if he personally contracted the producer, engineers, side musicians, etc., and secured written work for hire agreements with them.168 In summary, a thorough interview of your client will be necessary in order to determine if he has any rights in the sound recordings. If it turns out that your client does in fact have colorable claims as a co-author, then the artist has even bigger problems. The artist has no right to assign the copyright in the sound recordings to the record company or to grant any exclusive licenses with respect to them without the permission of your client.169 Moreover, as co-author, the angel would have the independent right to exploit the recordings, subject only to the duty to account to the artist for his share of proceeds.170 This may provide you with the means to negotiate directly with the record company in the likely event the record company wants to ensure its exclusive rights in the recordings. Finally, in addition to your clients right to profits and accountings under Texas partnership law, your client will have a corresponding right as co-owner of the copyright for an equal share of profits and an accounting.171 As a final consideration: suppose the artist successfully mounts a challenge to your clients coauthorship rights, arguing, for instance, that the parties did not share the requisite mutual intent to be coauthors.172 In such a case, provided your clients contributions were nonetheless independently
Id. See also H.R.REP. NO. 94-1476, cited and discussed supra at n. 63.
166 165

See supra Section I(B)(2). TBOC 152.212-.213; TRPA art. 6132b-4.03(a)TBOC 152.202(a)(2); TRPA art. 6132b-4.01(b). TBOC 152.211; TRPA art. 6132b-4.06. TBOC 152.601-.608; TRPA art. 6132b-7.01. TBOC 152.609; TRPA art. 6132b-7.01(l). TBOC 152.607(d)(1)(B). 17 U.S.C. 201(a). 14

17 U.S.C. 201(a).

158

(c).
159

17 U.S.C. 101 (definition of work made for hire). See also supra Section II(B)(1).
168

167

17 U.S.C. 101.

160

161

169 See M. NIMMER & D. NIMMER , supra note 67, 6.10[A]. To the contrary, his rights to deal in the copyright are limited to non-exclusive licenses. 170

162

See supra Section II(D). Id. See supra Section II(C)(3).


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163

171

164

172

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copyrightable, he may have a cause of action for copyright infringement, related to the unauthorized use of his contributions!173 Considering the trouble the artist has put the angel to, that would certainly be just desserts.

This intriguing prospect is discussed in Thomas v. Larson, 147 F.3d 195, 206 (2d Cir. 1998), and Johnson v. Arista Holding, Inc., 2006 WL 3511894 (S.D.N.Y. 2006). Neither court actually reached the issue, but nevertheless acknowledged the possibility. 15
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BUSINESS ORGANIZATIONS CODE (TITLE 4. PARTNERSHIPS)


As amended through September 1, 2007

CHAPTER 152. GENERAL PARTNERSHIPS


SUBCHAPTER A. GENERAL PROVISIONS
Sec. 152.001. DEFINITIONS. In this chapter: (1) Event of withdrawal or withdrawal means an event specified by Section 152.501(b). (2) Event requiring a winding up means an event specified by Section 11.051 or 11.057. (3) Foreign limited liability partnership means a partnership that: (A) is foreign; and (B) has the status of a limited liability partnership pursuant to the laws of the jurisdiction of formation. (4) Other partnership provisions means the provisions of Chapters 151 and 154 and Title 1 to the extent applicable to partnerships. (5) Transfer includes: (A) an assignment; (B) a conveyance; (C) a lease; (D) a mortgage; (E) a deed; (F) an encumbrance; and (G) the creation of a security interest. (6) Withdrawn partner means a partner with respect to whom an event of withdrawal has occurred. Sec. 152.002. EFFECT OF PARTNERSHIP AGREEMENT; NONWAIVABLE AND VARIABLE PROVISIONS. (a) Except as provided by Subsection (b), a partnership agreement governs the relations of the partners and between the partners and the partnership. To the extent that the partnership agreement does not otherwise provide, this chapter and the other partnership provisions govern the relationship of the partners and between the partners and the partnership. (b) A partnership agreement or the partners may not: (1) unreasonably restrict a partners right of access to books and records under Section 152.212; (2) eliminate the duty of loyalty under Section 152.205, except that the partners by agreement may identify specific types of activities or categories of activities that do not violate the duty of loyalty if the types or categories are not manifestly unreasonable; (3) eliminate the duty of care under Section 152.206, except that the partners by agreement may determine the standards by which the performance of the obligation is to be measured if the standards are not manifestly unreasonable; (4) eliminate the obligation of good faith under Section 152.204(b), except that the partners by agreement may determine the standards by which the performance of the obligation is to be measured if the standards are not manifestly unreasonable; (5) vary the power to withdraw as a partner under Section 152.501(b)(1), (7), or (8), except for the requirement that notice be in writing; (6) vary the right to expel a partner by a court in an event specified by Section 152.501(b)(5); (7) restrict rights of a third party under this chapter or the other partnership provisions, except for a limitation on an individual partners liability in a limited liability partnership as provided by this chapter; (8) select a governing law not permitted under Sections 1.103 and 1.002(43)(C); or (9) except as provided in Subsections (c) and (d), waive or modify the following provisions of Title 1:
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CHAPTER 151. GENERAL PROVISIONS


Sec. 151.001. DEFINITIONS. In this title: (1) Capital account means the amount computed by: (A) adding the amount of a partners original and additional contributions of cash to a partnership, the agreed value of any other property that that partner originally or additionally contributed to the partnership, and allocations of partnership profits to that partner; and (B) subtracting the amount of distributions to that partner and allocations of partnership losses to that partner. (2) Distribution means a transfer of property, including cash, from a partnership to a partner in the partners capacity as a partner or the partners transferee. (3) Foreign limited partnership means a partnership formed under the laws of another state that has one or more general partners and one or more limited partners. (4) Majority-in-interest, with respect to all or a specified group of partners, means partners who own more than 50 percent of the current percentage or other interest in the profits of the partnership that is owned by all of the partners or by the partners in the specified group, as appropriate. (5) Partnership agreement means any agreement, written or oral, of the partners concerning a partnership. Sec. 151.002. KNOWLEDGE OF FACT. For purposes of this title, a person has knowledge of a fact only if the person has actual knowledge of the fact. Sec. 151.003. NOTICE OF FACT. (a) For purposes of this title, a person has notice of a fact if the person: (1) has knowledge of the fact; (2) has received a communication of the fact as provided by Subsection (c); or (3) reasonably should have concluded, from all facts then known to that person, that the fact exists. (b) A person notifies or gives notice to another person of a fact by taking actions reasonably required to inform the other person of the fact in the ordinary course of business, regardless of whether the other person actually has knowledge of the fact. (c) A person is notified or receives notice of a fact when the fact is communicated to: (1) the person; (2) the persons place of business; or (3) another place held out by the person as the place for receipt of communications. (d) Receipt of notice by a partner of a fact relating to the partnership is effective immediately as notice to the partnership unless fraud against the partnership is committed by or with the consent of the partner receiving the notice.

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(A) Chapter 1, if the provision is used to interpret a provision or to define a word or phrase contained in a section listed in this subsection; (B) Chapter 2, other than Sections 2.104(c)(2), 2.104(c) (3), and 2.113; (C) Chapter 3, other than Subchapters C and E of that chapter; or (D) Chapters 4, 5, 10, 11, and 12, other than Sections 11.057(a), (b), (c)(1), (c)(3), and (d). (c) A provision listed in Subsection (b)(9) may be waived or modified in a partnership agreement if the provision that is waived or modified authorizes the partnership to waive or modify the provision in the partnerships governing documents. (d) A provision listed in Subsection (b)(9) may be waived or modified in a partnership agreement if the provision that is modified specifies: (1) the person or group of persons entitled to approve a modification; or (2) the vote or other method by which a modification is required to be approved. Sec. 152.003. SUPPLEMENTAL PRINCIPLES OF LAW. The principles of law and equity and the other partnership provisions supplement this chapter unless otherwise provided by this chapter or the other partnership provisions. Sec. 152.004. RULE OF STATUTORY CONSTRUCTION NOT APPLICABLE. The rule that a statute in derogation of the common law is to be strictly construed does not apply to this chapter or the other partnership provisions. Sec. 152.005. APPLICABLE INTEREST RATE. If an obligation to pay interest arises under this chapter and the rate is not specified, the interest rate is the rate specified by Section 302.002, Finance Code.

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Sec. 152.052. RULES FOR DETERMINING IF PARTNERSHIP IS CREATED. (a) Factors indicating that persons have created a partnership include the persons: (1) receipt or right to receive a share of profits of the business; (2) expression of an intent to be partners in the business; (3) participation or right to participate in control of the business; (4) agreement to share or sharing: (A) losses of the business; or (B) liability for claims by third parties against the business; and (5) agreement to contribute or contributing money or property to the business. (b) One of the following circumstances, by itself, does not indicate that a person is a partner in the business: (1) the receipt or right to receive a share of profits as payment: (A) of a debt, including repayment by installments; (B) of wages or other compensation to an employee or independent contractor; (C) of rent; (D) to a former partner, surviving spouse or representative of a deceased or disabled partner, or transferee of a partnership interest; (E) of interest or other charge on a loan, regardless of whether the amount varies with the profits of the business, including a direct or indirect present or future ownership interest in collateral or rights to income, proceeds, or increase in value derived from collateral; or (F) of consideration for the sale of a business or other property, including payment by installments; (2) co-ownership of property, regardless of whether the coownership: (A) is a joint tenancy, tenancy in common, tenancy by the entirety, joint property, community property, or part ownership; or (B) is combined with sharing of profits from the property; (3) the right to share or sharing gross returns or revenues, regardless of whether the persons sharing the gross returns or revenues have a common or joint interest in the property from which the returns or revenues are derived; or (4) ownership of mineral property under a joint operating agreement. (c) An agreement by the owners of a business to share losses is not necessary to create a partnership. Sec. 152.053. QUALIFICATIONS TO BE PARTNER; NONPARTNERS LIABILITY TO THIRD PERSON. (a) A person may be a partner unless the person lacks capacity apart from this chapter. (b) Except as provided by Section 152.307, a person who is not a partner in a partnership under Section 152.051 is not a partner as to a third person and is not liable to a third person under this chapter. Sec. 152.054. FALSE REPRESENTATION OF PARTNERSHIP OR PARTNER. (a) A false representation or other conduct falsely indicating that a person is a partner with another person does not of itself create a partnership. (b) A representation or other conduct indicating that a person is a partner in an existing partnership, if that is not the case, does not of itself make that person a partner in the partnership.

SUBCHAPTER B. NATURE AND CREATION OF PARTNERSHIP


Sec. 152.051. PARTNERSHIP DEFINED. (a) In this section, association does not have the meaning of the term association under Section 1.002. (b) Except as provided by Subsection (c) and Section 152.053(a), an association of two or more persons to carry on a business for profit as owners creates a partnership, regardless of whether: (1) the persons intend to create a partnership; or (2) the association is called a partnership, joint venture, or other name. (c) An association or organization is not a partnership if it was created under a statute other than: (1) this title and the provisions of Title 1 applicable to partnerships and limited partnerships; (2) a predecessor to a statute referred to in Subdivision (1); or (3) a comparable statute of another jurisdiction. (d) The provisions of this chapter govern limited partnerships only to the extent provided by Sections 153.003 and 153.152 and Subchapter H, Chapter 153.

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Sec. 152.055. AUTHORITY OF CERTAIN PROFESSIONALS TO CREATE PARTNERSHIP. (a) Persons licensed as doctors of medicine and persons licensed as doctors of osteopathy by the Texas State Board of Medical Examiners and persons licensed as podiatrists by the Texas State Board of Podiatric Medical Examiners may create a partnership that is jointly owned by those practitioners to perform a professional service that falls within the scope of practice of those practitioners. (b) When doctors of medicine, osteopathy, and podiatry create a partnership that is jointly owned by those practitioners, the authority of each of the practitioners is limited by the scope of practice of the respective practitioners and none can exercise control over the others clinical authority granted by their respective licenses, either through agreements, bylaws, directives, financial incentives, or other arrangements that would assert control over treatment decisions made by the practitioner. (c) The Texas State Board of Medical Examiners and the Texas State Board of Podiatric Medical Examiners continue to exercise regulatory authority over their respective licenses. Sec. 152.056. PARTNERSHIP AS ENTITY. A partnership is an entity distinct from its partners.

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Sec. 152.201. ADMISSION AS PARTNER. A person may become a partner only with the consent of all partners. Sec. 152.202. CREDITS OF AND CHARGES TO PARTNER. (a) Each partner is credited with an amount equal to: (1) the cash and the value of property the partner contributes to a partnership; and (2) the partners share of the partnerships profits. (b) Each partner is charged with an amount equal to: (1) the cash and the value of other property distributed by the partnership to the partner; and (2) the partners share of the partnerships losses. (c) Each partner is entitled to be credited with an equal share of the partnerships profits and is chargeable with a share of the partnerships capital or operating losses in proportion to the partners share of the profits. Sec. 152.203. RIGHTS AND DUTIES OF PARTNER. (a) Each partner has equal rights in the management and conduct of the business of a partnership. A partners right to participate in the management and conduct of the business is not community property. (b) A partner may use or possess partnership property only on behalf of the partnership. (c) A partner is not entitled to receive compensation for services performed for a partnership other than reasonable compensation for services rendered in winding up the business of the partnership. (d) A partner who, in the proper conduct of the business of the partnership or for the preservation of its business or property, reasonably makes a payment or advance beyond the amount the partner agreed to contribute, or who reasonably incurs a liability, is entitled to be repaid and to receive interest from the date of the: (1) payment or advance; or (2) incurrence of the liability. Sec. 152.204. GENERAL STANDARDS OF PARTNERS CONDUCT. (a) A partner owes to the partnership, the other partners, and a transferee of a deceased partners partnership interest as designated in Section 152.406(a)(2): (1) a duty of loyalty; and (2) a duty of care. (b) A partner shall discharge the partners duties to the partnership and the other partners under this code or under the partnership agreement and exercise any rights and powers in the conduct or winding up of the partnership business: (1) in good faith; and (2) in a manner the partner reasonably believes to be in the best interest of the partnership. (c) A partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the partners conduct furthers the partners own interest. (d) A partner, in the partners capacity as partner, is not a trustee and is not held to the standards of a trustee. Sec. 152.205. PARTNERS DUTY OF LOYALTY. A partners duty of loyalty includes: (1) accounting to and holding for the partnership property, profit, or benefit derived by the partner: (A) in the conduct and winding up of the partnership business; or

SUBCHAPTER C. PARTNERSHIP PROPERTY


Sec. 152.101. NATURE OF PARTNERSHIP PROPERTY. Partnership property is not property of the partners. A partner or a partners spouse does not have an interest in partnership property. Sec. 152.102. CLASSIFICATION AS PARTNERSHIP PROPERTY. (a) Property is partnership property if acquired in the name of: (1) the partnership; or (2) one or more partners, regardless of whether the name of the partnership is indicated, if the instrument transferring title to the property indicates: (A) the persons capacity as a partner; or (B) the existence of a partnership. (b) Property is presumed to be partnership property if acquired with partnership property, regardless of whether the property is acquired as provided by Subsection (a). (c) Property acquired in the name of one or more partners is presumed to be the partners property, regardless of whether the property is used for partnership purposes, if the instrument transferring title to the property does not indicate the persons capacity as a partner or the existence of a partnership, and if the property is not acquired with partnership property. (d) For purposes of this section, property is acquired in the name of the partnership by a transfer to: (1) the partnership in its name; or (2) one or more partners in the partners capacity as partners in the partnership, if the name of the partnership is indicated in the instrument transferring title to the property.

SUBCHAPTER D. RELATIONSHIP BETWEEN PARTNERS AND BETWEEN PARTNERS AND PARTNERSHIPS


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(B) from use by the partner of partnership property; (2) refraining from dealing with the partnership on behalf of a person who has an interest adverse to the partnership; and (3) refraining from competing or dealing with the partnership in a manner adverse to the partnership. Sec. 152.206. PARTNERS DUTY OF CARE. (a) A partners duty of care to the partnership and the other partners is to act in the conduct and winding up of the partnership business with the care an ordinarily prudent person would exercise in similar circumstances. (b) An error in judgment does not by itself constitute a breach of the duty of care. (c) A partner is presumed to satisfy the duty of care if the partner acts on an informed basis and in compliance with Section 152.204(b). Sec. 152.207. STANDARDS OF CONDUCT APPLICABLE TO PERSON WINDING UP PARTNERSHIP BUSINESS. Sections 152.204-152.206 apply to a person winding up the partnership business as the personal or legal representative of the last surviving partner to the same extent that those sections apply to a partner. Sec. 152.208. AMENDMENT TO PARTNERSHIP AGREEMENT. A partnership agreement may be amended only with the consent of all partners. Sec. 152.209. DECISION-MAKING REQUIREMENT. (a) A difference arising in a matter in the ordinary course of the partnership business may be decided by a majority-ininterest of the partners. (b) An act outside the ordinary course of business of a partnership may be undertaken only with the consent of all partners. Sec. 152.210. PARTNERS LIABILITY TO PARTNERSHIP AND OTHER PARTNERS. A partner is liable to a partnership and the other partners for: (1) a breach of the partnership agreement; or (2) a violation of a duty to the partnership or other partners under this chapter that causes harm to the partnership or the other partners. Sec. 152.211. REMEDIES OF PARTNERSHIP AND PARTNERS. (a) A partnership may maintain an action against a partner for a breach of the partnership agreement or for the violation of a duty to the partnership causing harm to the partnership. (b) A partner may maintain an action against the partnership or another partner for legal or equitable relief, including an accounting of partnership business, to: (1) enforce a right under the partnership agreement; (2) enforce a right under this chapter, including: (A) the partners rights under Sections 152.201-152.209, 152.212, and 152.213; (B) the partners right on withdrawal to have the partners interest in the partnership redeemed under Subchapter H or to enforce any other right under Subchapters G and H; and

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(C) the partners rights under Subchapter I; (3) enforce the rights and otherwise protect the interests of the partner, including rights and interests arising independently of the partnership relationship; or (4) enforce a right under Chapter 11. (c) The accrual of and a time limitation on a right of action for a remedy under this section is governed by other applicable law. (d) A right to an accounting does not revive a claim barred by law. Sec. 152.212. BOOKS AND RECORDS OF PARTNERSHIP. (a) In this section, access includes the opportunity to inspect and copy books and records during ordinary business hours. (b) A partnership shall keep its books and records, if any, at its chief executive office. (c) A partnership shall provide access to its books and records to a partner or an agent or attorney of a partner. (d) The partnership shall provide a former partner or an agent or attorney of a former partner access to books and records pertaining to the period during which the former partner was a partner or for any other proper purpose with respect to another period. (e) A partnership may impose a reasonable charge, covering the costs of labor and material, for copies of documents furnished under this section. Sec. 152.213. INFORMATION REGARDING PARTNERSHIP. (a) On request and to the extent just and reasonable, each partner and the partnership shall furnish complete and accurate information concerning the partnership to: (1) a partner; (2) the legal representative of a deceased partner or a partner who has a legal disability; or (3) an assignee. (b) A legal representative of a deceased partner or a partner who has a legal disability and an assignee are subject to the duties of a partner with respect to information made available. Sec. 152.214. CERTAIN THIRD-PARTY OBLIGATIONS NOT AFFECTED. Sections 152. 203, 152.208, and 152.209 do not limit a partnerships obligations to another person under Sections 152.301 and 152.302.

SUBCHAPTER E. RELATIONSHIP BETWEEN PARTNERS AND OTHER PERSONS


Sec. 152.301. PARTNER AS AGENT. Each partner is an agent of the partnership for the purpose of its business. Sec. 152.302. BINDING EFFECT OF PARTNERS ACTION. (a) Unless a partner does not have authority to act for the partnership in a particular matter and the person with whom the partner is dealing knows that the partner lacks authority, an act of a partner, including the execution of an instrument in the partnership name, binds the partnership if the act is apparently for carrying on in the ordinary course: (1) the partnership business; or (2) business of the kind carried on by the partnership.

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(b) An act of a partner that is not apparently for carrying on in the ordinary course a business described by Subsection (a) binds the partnership only if authorized by the other partners. (c) A conveyance of real property by a partner on behalf of the partnership not otherwise binding on the partnership binds the partnership if the property has been conveyed by the grantee or a person claiming through the grantee to a holder for value without knowledge that the partner exceeded that partners authority in making the conveyance. Sec. 152.303. LIABILITY OF PARTNERSHIP FOR CONDUCT OF PARTNER. (a) A partnership is liable for loss or injury to a person, including a partner, or for a penalty caused by or incurred as a result of a wrongful act or omission or other actionable conduct of a partner acting: (1) in the ordinary course of business of the partnership; or (2) with the authority of the partnership. (b) A partnership is liable for the loss of money or property of a person who is not a partner that is: (1) received in the course of the partnerships business; and (2) misapplied by a partner while in the custody of the partnership. Sec. 152.304. NATURE OF PARTNERS LIABILITY. (a) Except as provided by Subsection (b) or Section 152.801(a), all partners are liable jointly and severally for a debt or obligation of the partnership unless otherwise: (1) agreed by the claimant; or (2) provided by law. (b) A person who is admitted as a partner into an existing partnership does not have personal liability under Subsection (a) for an obligation of the partnership that: (1) arises before the partners admission to the partnership; (2) relates to an action taken or omission occurring before the partners admission to the partnership; or (3) arises before or after the partners admission to the partnership under a contract or commitment entered into before the partners admission. Sec. 152.305. REMEDY. An action may be brought against a partnership and any or all of the partners in the same action or in separate actions. Sec. 152.306. ENFORCEMENT OF REMEDY. (a) A judgment against a partnership is not by itself a judgment against a partner. A judgment may be entered against a partner who has been served with process in a suit against the partnership. (b) Except as provided by Subsection (c), a creditor may proceed against one or more partners or the property of the partners to satisfy a judgment based on a claim against the partnership only if a judgment: (1) is also obtained against the partner; and (2) based on the same claim: (A) is obtained against the partnership; (B) has not been reversed or vacated; and (C) remains unsatisfied for 90 days after: (i) the date on which the judgment is entered; or

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(ii) the date on which the stay expires, if the judgment is contested by appropriate proceedings and execution on the judgment is stayed. (c) Subsection (b) does not prohibit a creditor from proceeding directly against one or more partners or the property of the partners without first seeking satisfaction from partnership property if: (1) the partnership is a debtor in bankruptcy; (2) the creditor and the partnership agreed that the creditor is not required to comply with Subsection (b); (3) a court orders otherwise, based on a finding that partnership property subject to execution in the state is clearly insufficient to satisfy the judgment or that compliance with Subsection (b) is excessively burdensome; or (4) liability is imposed on the partner by law independently of the persons status as a partner. (d) This section does not limit the effect of Section 152.801 with respect to a limited liability partnership. Sec. 152.307. EXTENSION OF CREDIT IN RELIANCE ON FALSE REPRESENTATION. (a) The rights of a person extending credit in reliance on a representation described by Section 152.054 are determined by applicable law other than this chapter and the other partnership provisions, including the law of estoppel, agency, negligence, fraud, and unjust enrichment. (b) The rights and duties of a person held liable under Subsection (a) are also determined by law other than the law described by Subsection (a).

SUBCHAPTER F. TRANSFER OF PARTNERSHIP INTERESTS


Sec. 152.401. TRANSFER OF PARTNERSHIP INTEREST. A partner may transfer all or part of the partners partnership interest. Sec. 152.402. GENERAL EFFECT OF TRANSFER. A transfer of all or part of a partners partnership interest: (1) is not an event of withdrawal; (2) does not by itself cause a winding up of the partnership business; and (3) against the other partners or the partnership, does not entitle the transferee, during the continuance of the partnership, to participate in the management or conduct of the partnership business. Sec. 152.403. EFFECT OF TRANSFER ON TRANSFEROR. After transfer, the transferor continues to have the rights and duties of a partner other than the interest transferred. Sec. 152.404. RIGHTS AND DUTIES OF TRANSFEREE. (a) A transferee of a partners partnership interest is entitled to receive, to the extent transferred, distributions to which the transferor otherwise would be entitled. (b) If an event requires a winding up of partnership business under Subchapter I, a transferee is entitled to receive, to the extent transferred, the net amount otherwise distributable to the transferor. (c) Until a transferee becomes a partner, the transferee does not have liability as a partner solely as a result of the transfer. (d) For a proper purpose the transferee may require reasonable information or an account of a partnership transaction

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and make reasonable inspection of the partnership books. In a winding up of partnership business, a transferee may require an accounting only from the date of the latest account agreed to by all of the partners. (e) Until receipt of notice of a transfer, a partnership is not required to give effect to a transferees rights under this section and Sections 152.401-152.403. Sec. 152.405. POWER TO EFFECT TRANSFER OR GRANT OF SECURITY INTEREST. A partnership is not required to give effect to a transfer prohibited by a partnership agreement. Sec. 152.406. EFFECT OF DEATH OR DIVORCE ON PARTNERSHIP INTEREST. (a) For purposes of this code: (1) on the divorce of a partner, the partners spouse, to the extent of the spouses partnership interest, is a transferee of the partnership interest from the partner; (2) on the death of a partner, the partners surviving spouse, if any, and an heir, legatee, or personal representative of the partner, to the extent of their respective partnership interest, is a transferee of the partnership interest from the partner; and (3) on the death of a partners spouse, an heir, legatee, or personal representative of the spouse, to the extent of their respective partnership interest, is a transferee of the partnership interest from the partner. (b) An event of the type described by Section 152.501 occurring with respect to a partners spouse is not an event of withdrawal. (c) This chapter does not impair an agreement for the purchase or sale of a partnership interest at any time, including the death of an owner of the partnership interest.

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suspended by the jurisdiction of its formation, if the certificate of termination or the equivalent is not revoked or its existence, charter, or right to conduct business is not reinstated; or (D) an event requiring a winding up has occurred with respect to a nonfiling entity or foreign nonfiling entity that is a partner; (5) the partners expulsion by judicial decree, on application by the partnership or another partner, if the judicial decree determines that the partner: (A) engaged in wrongful conduct that adversely and materially affected the partnership business; (B) wilfully or persistently committed a material breach of: (i) the partnership agreement; or (ii) a duty owed to the partnership or the other partners under Sections 152.204-152.206; or (C) engaged in conduct relating to the partnership business that made it not reasonably practicable to carry on the business in partnership with that partner; (6) the partners: (A) becoming a debtor in bankruptcy; (B) executing an assignment for the benefit of a creditor; (C) seeking, consenting to, or acquiescing in the appointment of a trustee, receiver, or liquidator of that partner or of all or substantially all of that partners property; or (D) failing, not later than the 90th day after the appointment, to have vacated or stayed the appointment of a trustee, receiver, or liquidator of the partner or of all or substantially all of the partners property obtained without the partners consent or acquiescence, or not later than the 90th day after the date of expiration of a stay, failing to have the appointment vacated; (7) if a partner is an individual: (A) the partners death; (B) the appointment of a guardian or general conservator for the partner; or (C) a judicial determination that the partner has otherwise become incapable of performing the partners duties under the partnership agreement; (8) termination of a partners existence; (9) if a partner has transferred all of the partners partnership interest, redemption of the transferees interest under Section 152.611; (10) an agreement to continue the partnership under Section 11.057(d) if the partnership has received a notice from the partner under Section 11.057(d) requesting that the partnership be wound up. (c) A withdrawal of a partner under the circumstances described in Subsection (b)(11) is effective immediately before the effective date of the conversion and is not considered a wrongful withdrawal under Section 152.503. Sec. 152.502. EFFECT OF EVENT OF WITHDRAWAL ON PARTNERSHIP AND OTHER PARTNERS. A partnership continues after an event of withdrawal. The event of withdrawal affects the relationships among the withdrawn partner, the partnership, and the continuing partners as provided by Sections 152.503-152.506 and Subchapter H. Sec. 152.503. WRONGFUL WITHDRAWAL; LIABILITY. (a) At any time before the occurrence of an event requiring a winding up of partnership business, a partner may withdraw from the partnership and cease to be a partner as provided by Section 152.501. (b) A partners withdrawal is wrongful only if: (1) the withdrawal breaches an express provision of the partnership agreement;

SUBCHAPTER G. WITHDRAWAL OF PARTNER


Sec. 152.501. EVENTS OF WITHDRAWAL. (a) A person ceases to be a partner on the occurrence of an event of withdrawal. (b) An event of withdrawal of a partner occurs on: (1) receipt by the partnership of notice of the partners express will to withdraw as a partner on: (A) the date on which the notice is received; or (B) a later date specified by the notice; (2) an event specified in the partnership agreement as causing the partners withdrawal; (3) the partners expulsion as provided by the partnership agreement; (4) the partners expulsion by vote of a majority-ininterest of the other partners if: (A) it is unlawful to carry on the partnership business with that partner; (B) there has been a transfer of all or substantially all of that partners partnership interest, other than: (i) a transfer for security purposes that has not been foreclosed; or (ii) the substitution of a successor trustee or successor personal representative; (C) not later than the 90th day after the date on which the partnership notifies an entity partner, other than a nonfiling entity or foreign nonfiling entity partner, that it will be expelled because it has filed a certificate of termination or the equivalent, its existence has been involuntarily terminated or its charter has been revoked, or its right to conduct business has been terminated or

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(2) in the case of a partnership that has a period of duration, is for a particular undertaking, or is required under its partnership agreement to wind up the partnership on occurrence of a specified event, before the expiration of the period of duration, the completion of the undertaking, or the occurrence of the event, as appropriate: (A) the partner withdraws by express will; (B) the partner withdraws by becoming a debtor in bankruptcy; or (C) in the case of a partner that is not an individual, a trust other than a business trust, or an estate, the partner is expelled or otherwise withdraws because the partner wilfully dissolved or terminated; or (3) the partner is expelled by judicial decree under Section 152.501(b)(5). (c) In addition to other liability of the partner to the partnership or to the other partners, a wrongfully withdrawing partner is liable to the partnership and to the other partners for damages caused by the withdrawal. Sec. 152.504. WITHDRAWN PARTNERS POWER TO BIND PARTNERSHIP. (a) The action of a withdrawn partner occurring not later than the first anniversary of the date of the persons withdrawal binds the partnership if the transaction would bind the partnership before the persons withdrawal and the other party to the transaction: (1) does not have notice of the persons withdrawal as a partner; (2) had done business with the partnership within one year preceding the date of withdrawal; and (3) reasonably believed that the withdrawn partner was a partner at the time of the transaction. (b) A withdrawn partner is liable to the partnership for loss caused to the partnership arising from an obligation incurred by the withdrawn partner after the withdrawal date and for which the partnership is liable under Subsection (a). Sec. 152.505. EFFECT OF WITHDRAWAL ON PARTNERS EXISTING LIABILITY. (a) Withdrawal of a partner does not by itself discharge the partners liability for an obligation of the partnership incurred before the date of withdrawal. (b) The estate of a deceased partner is liable for an obligation of the partnership incurred while the deceased was a partner to the same extent that a withdrawn partner is liable for an obligation of the partnership incurred before the date of withdrawal. (c) A withdrawn partner is discharged from liability incurred before the date of withdrawal by an agreement to that effect between the partner and a partnership creditor. (d) If a creditor of a partnership has notice of a partners withdrawal and without the consent of the withdrawn partner agrees to a material alteration in the nature or time of payment of an obligation of the partnership incurred before the date of withdrawal, the withdrawn partner is discharged from the obligation. Sec. 152.506. LIABILITY OF WITHDRAWN PARTNER TO THIRD PARTY. A person who withdraws as a partner in a circumstance that is not an event requiring a winding up of partnership business under Section 11.051 or 11.057 is liable to another party as a partner in a transaction entered into by the partnership or a surviving partnership under Section 10.001 not later than the

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second anniversary of the date of the partners withdrawal only if the other party to the transaction: (1) does not have notice of the partners withdrawal; and (2) reasonably believed that the withdrawn partner was a partner at the time of the transaction.

SUBCHAPTER H. REDEMPTION OF WITHDRAWING PARTNERS OR TRANSFEREES INTEREST


Sec. 152.601. REDEMPTION IF PARTNERSHIP NOT WOUND UP. The partnership interest of a withdrawn partner automatically is redeemed by the partnership as of the date of withdrawal in accordance with this subchapter if: (1) the event of withdrawal occurs under Sections 152.501(b)(1)-(9) and an event requiring a winding up of partnership business does not occur before the 61st day after the date of the withdrawal; or (2) the event of a withdrawal occurs under Section 152.501(b)(10). Sec. 152.602. REDEMPTION PRICE. (a) Except as provided by Subsection (b), the redemption price of a withdrawn partners partnership interest is the fair value of the interest on the date of withdrawal. (b) The redemption price of the partnership interest of a partner who wrongfully withdraws before the expiration of the partnerships period of duration, the completion of a particular undertaking, or the occurrence of a specified event requiring a winding up of partnership business is the lesser of: (1) the fair value of the withdrawn partners partnership interest on the date of withdrawal; or (2) the amount that the withdrawn partner would have received if an event requiring a winding up of partnership business had occurred at the time of the partners withdrawal. (c) Interest is payable on the amount owed under this section. Sec. 152.603. CONTRIBUTION OBLIGATION. If a wrongfully withdrawing partner would have been required to make contributions to the partnership under Section 152.707 or 152.708 if an event requiring winding up of the partnership business had occurred at the time of withdrawal, the withdrawn partner is liable to the partnership to make contributions to the partnership in that amount and pay interest on the amount owed. Sec. 152.604. SETOFF FOR CERTAIN DAMAGES. The partnership may set off against the redemption price payable to the withdrawn partner the damages for wrongful withdrawal under Section 152.503(b) and all other amounts owed by the withdrawn partner to the partnership, whether currently due, including interest. Sec. 152.605. ACCRUAL OF INTEREST. Interest payable under Sections 152.602-152.604 accrues from the date of the withdrawal to the date of payment. Sec. 152.606. INDEMNIFICATION FOR CERTAIN LIABILITY.

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(a) A partnership shall indemnify a withdrawn partner against a partnership liability incurred before the date of withdrawal, except for a liability: (1) that is unknown to the partnership at the time; or (2) incurred by an act of the withdrawn partner under Section 152.504. (b) For purposes of this section, a liability is unknown to the partnership if it is not known to a partner other than the withdrawn partner. Sec. 152.607. DEMAND OR PAYMENT OF ESTIMATED REDEMPTION. (a) If a deferred payment is not authorized under Section 152.608 and an agreement on the redemption price of a withdrawn partners interest is not reached before the 121st day after the date a written demand for payment is made by either party, not later than the 30th day after the expiration of the period, the partnership shall: (1) pay to the withdrawn partner in cash the amount the partnership estimates to be the redemption price and any accrued interest, reduced by any setoffs and accrued interest under Section 152.604; or (2) make written demand for payment of its estimate of the amount owed by the withdrawn partner to the partnership, minus any amount owed to the withdrawn partner by the partnership. (b) If a deferred payment is authorized under Section 152.608 or a contribution or other amount is owed by the withdrawn partner to the partnership, the partnership may offer in writing to pay, or deliver a written statement of demand for, the amount it estimates to be the net amount owed, stating the amount and other terms of the obligation. (c) On request of the other party, the payment, tender, offer, or demand required or allowed by Subsection (a) or (b) must be accompanied or followed promptly by: (1) if payment, tender, offer, or demand is made or delivered by the partnership, a statement of partnership property and liabilities from the date of the partners withdrawal and the most recent available partnership balance sheet and income statement, if any; and (2) an explanation of the computation of the estimated payment obligation. (d) The terms of a payment, tender, offer, or demand under Subsection (a) or (b) govern a redemption if: (1) accompanied by written notice that: (A) the payment or tendered amount, if made, fully satisfies a partys obligations relating to the redemption of the withdrawn partners partnership interest; and (B) an action to determine the redemption price, a contribution obligation or setoff under Section 152.603 or 152.604, or other terms of the redemption obligation must be commenced not later than the first anniversary of the later of: (i) the date on which the written notice is given; or (ii) the date on which the information required by Subsection (c) is delivered; and (2) the party receiving the payment, tender, offer, or demand does not commence an action in the period described by Subdivision (1)(B). Sec. 152.608. DEFERRED PAYMENT ON WRONGFUL WITHDRAWAL. (a) A partner who wrongfully withdraws before the expiration of the partnerships period of duration, the completion of a particular undertaking, or the occurrence of a specified event requiring a winding up of partnership business is not entitled to receive any portion of the redemption price until the expiration of

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the period, the completion of the undertaking, or the occurrence of the specified event, as appropriate, unless the partner establishes to the satisfaction of a court that earlier payment will not cause undue hardship to the partnership. (b) A deferred payment accrues interest. (c) The withdrawn partner may seek to demonstrate to the satisfaction of the court that security for a deferred payment is appropriate. Sec. 152.609. ACTION TO DETERMINE TERMS OF REDEMPTION. (a) A withdrawn partner or the partnership may maintain an action against the other party under Section 152.211 to determine: (1) the terms of redemption of that partners interest, including a contribution obligation or setoff under Section 152.603 or 152.604; or (2) other terms of the redemption obligations of either party. (b) The action must be commenced not later than the first anniversary of the later of: (1) the date of delivery of information required by Section 152.607(c); or (2) the date written notice is given under Section 152.607(d). (c) The court shall determine the terms of the redemption of the withdrawn partners interest, any contribution obligation or setoff due under Section 152.603 or 152.604, and accrued interest and shall enter judgment for an additional payment or refund. (d) If deferred payment is authorized under Section 152.608, the court shall also determine the security for payment if requested to consider whether security is appropriate. (e) If the court finds that a party failed to tender payment or make an offer to pay or to comply with the requirements of Section 152.607(c) or otherwise acted arbitrarily, vexatiously, or not in good faith, the court may assess damages against the party, including, if appropriate, in an amount the court finds equitable: (1) a share of the profits of the continuing business; (2) reasonable attorneys fees; and (3) fees and expenses of appraisers or other experts for a party to the action. Sec. 152.610. DEFERRED PAYMENT ON WINDING UP PARTNERSHIP. If a partner withdraws under Section 152.501 and not later than the 60th day after the date of withdrawal an event requiring winding up occurs under Section 11.051 or 11.057: (1) the partnership may defer paying the redemption price to the withdrawn partner until the partnership makes a winding up distribution to the remaining partners; and (2) the redemption price or contribution obligation is the amount the withdrawn partner would have received or contributed if the event requiring winding up had occurred at the time of the partners withdrawal. Sec. 152.611. REDEMPTION OF TRANSFEREES PARTNERSHIP INTEREST. (a) A partnership must redeem the partnership interest of a transferee for its fair value if: (1) the interest was transferred when: (A) the partnership had a period of duration that had not yet expired; (B) the partnership was for a particular undertaking not yet completed; or (C) the partnership agreement provided for winding up of the partnership business on a specified event that had not yet occurred;

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(2) the partnerships period of duration has expired, the particular undertaking has been completed, or the specified event has occurred; and (3) the transferee makes a written demand for redemption. (b) If an agreement for the redemption price of a transferees interest is not reached before the 121st day after the date a written demand for redemption is made, the partnership must pay to the transferee in cash the amount the partnership estimates to be the redemption price and any accrued interest from the date of demand not later than the 30th day after the expiration of the period. (c) On request of the transferee, the payment required by Subsection (b) must be accompanied or followed by: (1) a statement of partnership property and liabilities from the date of the demand for redemption; (2) the most recent available partnership balance sheet and income statement, if any; and (3) an explanation of the computation of the estimated payment obligation. (d) If the payment required by Subsection (b) is accompanied by written notice that the payment is in full satisfaction of the partnerships obligations relating to the redemption of the transferees interest, the payment, less interest, is the redemption price unless the transferee, not later than the first anniversary of the written notice, commences an action to determine the redemption price. Sec. 152.612. ACTION TO DETERMINE TRANSFEREES REDEMPTION PRICE. (a) A transferee may maintain an action against a partnership to determine the redemption price of the transferees interest. (b) The court shall determine the redemption price of the transferees interest and accrued interest and enter judgment for payment or refund. (c) If the court finds that the partnership failed to make payment or otherwise acted arbitrarily, vexatiously, or not in good faith, the court may assess against the partnership in an amount the court finds equitable: (1) reasonable attorneys fees; and (2) fees and expenses of appraisers or other experts for a party to the action. (d) The redemption of a transferees interest under Sections 152.611(a) and (b) may be deferred as determined by the court if the partnership establishes to the satisfaction of the court that failure to defer redemption will cause undue hardship to the partnership business.

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(1) the partners who have not withdrawn; (2) the legal representative of the last surviving partner; or (3) a person appointed by the court to carry out the winding up under Subsection (b). (b) On application of a partner, a partners legal representative or transferee, or a withdrawn partner whose interest is not redeemed under Section 152.608, a court, for good cause, may appoint a person to carry out the winding up and may make an order, direction, or inquiry that the circumstances require. Sec. 152.703. RIGHTS AND DUTIES OF PERSON WINDING UP PARTNERSHIP BUSINESS. (a) To the extent appropriate for winding up, as soon as reasonably practicable, and in the name of and for and on behalf of the partnership, a person winding up a partnerships business may take the actions specified in Sections 11.052, 11.053, and 11.055. (b) Section 11.052(a)(2) shall not be applicable to a partnership. Sec. 152.704. BINDING EFFECT OF PARTNERS ACTION AFTER EVENT REQUIRING WINDING UP. After the occurrence of an event requiring winding up of the partnership business, a partnership is bound by a partners act that: (1) is appropriate for winding up; or (2) would bind the partnership under Sections 152.301 and 152.302 before the occurrence of the event requiring winding up, if the other party to the transaction does not have notice that an event requiring winding up has occurred. Sec. 152.705. PARTNERS LIABILITY TO OTHER PARTNERS AFTER EVENT REQUIRING WINDING UP. (a) Except as provided by Subsection (b), after the occurrence of an event requiring winding up of the partnership business, the losses with respect to which a partner must contribute under Section 152.708(a) include losses from a liability incurred under Section 152.704. (b) A partner who incurs, with notice that an event requiring a winding up of the partnership business has occurred, a partnership liability under Section 152.704(2) by an act that is not appropriate for winding up is liable to the partnership for a loss caused to the partnership arising from that liability. Sec. 152.706. DISPOSITION OF ASSETS. (a) In winding up the partnership business, the property of the partnership, including any required contributions of the partners under Sections 152.707 and 152.708, shall be applied to discharge its obligations to creditors, including partners who are creditors other than in the partners capacities as partners. (b) A surplus shall be applied to pay in cash the net amount distributable to partners in accordance with their right to distributions under Section 152.707. Sec. 152.707. SETTLEMENT OF ACCOUNTS. (a) Each partner is entitled to a settlement of all partnership accounts on winding up the partnership business. (b) In settling accounts among the partners, the partnership interest of a withdrawn partner that is not redeemed under Subchapter H is credited with a share of any profits for the period after the partners withdrawal but is charged with a share of losses for that period only to the extent of profits credited for that period. (c) The profits and losses that result from the liquidation of the partnership property must be credited and charged to the partners capital accounts.

SUBCHAPTER I. SUPPLEMENTAL WINDING UP AND TERMINATION PROVISIONS


Sec. 152.701. EFFECT OF EVENT REQUIRING WINDING UP. On the occurrence of an event requiring winding up of a partnership business under Section 11.051 or 11.057: (1) the partnership continues until the winding up of its business is completed, at which time the partnership is terminated; and (2) the relationship among the partners is changed as provided by this subchapter. Sec. 152.702. PERSONS ELIGIBLE TO WIND UP PARTNERSHIP BUSINESS. (a) After the occurrence of an event requiring a winding up of a partnership business, the partnership business may be wound up by:

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(d) The partnership shall make a distribution to a partner in an amount equal to that partners positive balance in the partners capital account. Except as provided by Section 152.304(b) or 152.801, a partner shall contribute to the partnership an amount equal to that partners negative balance in the partners capital account. Sec. 152.708. CONTRIBUTIONS TO DISCHARGE OBLIGATIONS. (a) Except as provided by Sections 152.304(b) and 152.801, to the extent not taken into account in settling the accounts among partners under Section 152.707: (1) each partner shall contribute, in the proportion in which the partner shares partnership losses, the amount necessary to satisfy partnership obligations, excluding liabilities that creditors have agreed may be satisfied only with partnership property without recourse to individual partners; (2) if a partner fails to contribute, the other partners shall contribute the additional amount necessary to satisfy the partnership obligations in the proportions in which the partners share partnership losses; and (3) a partner or partners legal representative may enforce or recover from the other partners, or from the estate of a deceased partner, contributions the partner or estate makes to the extent the amount contributed exceeds that partners or the estates share of the partnership obligations. (b) The estate of a deceased partner is liable for the partners obligation to contribute to the partnership. (c) The following persons may enforce the obligation of a partner or the estate of a deceased partner to contribute to a partnership: (1) the partnership; (2) an assignee for the benefit of creditors of a partnership or a partner; or (3) a person appointed by a court to represent creditors of a partnership or a partner. Sec. 152.709. CANCELLATION OR REVOCATION OF EVENT REQUIRING WINDING UP; CONTINUATION OF PARTNERSHIP. (a) If a partnership has a period of duration, is for a particular undertaking, or is required under its partnership agreement to wind up the partnership on occurrence of a specified event, all of the partners in the partnership may cancel under Section 11.152 an event requiring a winding up specified in Section 11.051(1) or (3), or Section 11.057(c)(1), by agreeing to continue the partnership business notwithstanding the expiration of the partnerships period of duration, the completion of the undertaking, or the occurrence of the event, as appropriate, other than the withdrawal of a partner. On reaching that agreement, the event requiring a winding up is canceled, the partnership is continued, and the partnership agreement is considered amended to provide that the expiration, the completion, or the occurrence of the event did not result in an event requiring winding up of the partnership. (b) A continuation of the business for 90 days by the partners or those who habitually acted in the business during the partnerships period of duration or the undertaking or preceding the event, without a settlement or liquidation of the partnership business and without objection from a partner, is prima facie evidence of agreement by all partners to continue the business under Subsection (a). (c) All of the partners of a partnership, by agreeing to continue the partnership, may cancel under Section 11.152 an event requiring winding up specified in Section 11.057(d) that arises from a request to wind up from a partner.

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(d) To approve a revocation under Section 11.151 by a partnership of a voluntary decision to wind up pursuant to the express will of all the partners as specified in Section 11.057(b), prior to completion of the winding up process, all the partners must agree in writing to revoke the voluntary decision to wind up and to continue the business of the partnership. (e) To approve a revocation under Section 11.151 by a partnership of a voluntary decision to wind up pursuant to the express will of a majority-in-interest of the partners as specified in Section 11.057(a), prior to completion of the winding up process, a majority-in-interest of the partners must agree in writing to revoke the voluntary decision to wind up and to continue the business of the partnership. (f) All of the partners of a partnership, by agreeing to continue the partnership, may cancel under Section 11.152 an event requiring winding up specified in Section 11.057(c)(3) that arises from the sale of all or substantially all of the property of the partnership. Sec. 152.710. REINSTATEMENT. To approve a reinstatement of a partnership under Section 11.202, all remaining partners, or another group or percentage of partners as specified by the partnership agreement, must agree in writing to reinstate and continue the business of the partnership.

SUBCHAPTER J. LIMITED LIABILITY PARTNERSHIPS


Sec. 152.801. LIABILITY OF PARTNER. (a) Except as provided by Subsection (b), a partner in a limited liability partnership is not personally liable, directly or indirectly, by contribution, indemnity, or otherwise, for a debt or obligation of the partnership incurred while the partnership is a limited liability partnership. (b) A partner in a limited liability partnership is not personally liable for a debt or obligation of the partnership arising from an error, omission, negligence, incompetence, or malfeasance committed by another partner or representative of the partnership while the partnership is a limited liability partnership and in the course of the partnership business unless the first partner: (1) was supervising or directing the other partner or representative when the error, omission, negligence, incompetence, or malfeasance was committed by the other partner or representative; (2) was directly involved in the specific activity in which the error, omission, negligence, incompetence, or malfeasance was committed by the other partner or representative; or (3) had notice or knowledge of the error, omission, negligence, incompetence, or malfeasance by the other partner or representative at the time of the occurrence and then failed to take reasonable action to prevent or cure the error, omission, negligence, incompetence, or malfeasance. (c) Sections 2.101(1), 152.305, and 152.306 do not limit the effect of Subsection (a) in a limited liability partnership. (d) In this section, representative includes an agent, servant, or employee of a limited liability partnership. (e) Subsections (a) and (b) do not affect: (1) the liability of a partnership to pay its debts and obligations from partnership property; (2) the liability of a partner, if any, imposed by law or contract independently of the partners status as a partner; or (3) the manner in which service of citation or other civil process may be served in an action against a partnership. (f) This section controls over the other parts of this chapter and the other partnership provisions regarding the liability of

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partners of a limited liability partnership, the chargeability of the partners for the debts and obligations of the partnership, and the obligations of the partners regarding contributions and indemnity. Sec. 152.802. REGISTRATION. (a) In addition to complying with Sections 152.803 and 152.804, a partnership, to become a limited liability partnership, must file an application with the secretary of state in accordance with Chapter 4 and this section. The application must: (1) set out: (A) the name of the partnership; (B) the federal tax identification number of the partnership; (C) the street address of the partnerships principal office in this state or outside of this state, as applicable; and (D) the number of partners at the date of application; and (2) contain a brief statement of the partnerships business. (b) The application must be signed by: (1) a majority-in-interest of the partners; or (2) one or more partners authorized by a majority-ininterest of the partners. (c) A partnership is registered as a limited liability partnership by the secretary of state on: (1) the date on which a completed initial or renewal application is filed in accordance with Chapter 4; or (2) a later date specified in the application. (d) A registration is not affected by subsequent changes in the partners of the partnership. (e) The registration of a limited liability partnership is effective until the first anniversary of the date of registration or a later effective date, unless the application is: (1) withdrawn or revoked at an earlier time; or (2) renewed in accordance with Subsection (g). (f) A registration may be withdrawn by filing a withdrawal notice with the secretary of state in accordance with Chapter 4. A withdrawal notice terminates the status of the partnership as a limited liability partnership from the date on which the notice is filed or a later date specified in the notice, but not later than the expiration date under Subsection (e). A withdrawal notice must: (1) contain: (A) the name of the partnership; (B) the federal tax identification number of the partnership; (C) the date of registration of the partnerships last application under this subchapter; and (D) the current street address of the partnerships principal office in this state and outside this state, if applicable; and (2) be signed by: (A) a majority-in-interest of the partners; or (B) one or more partners authorized by a majority-ininterest of the partners. (g) An effective registration may be renewed before its expiration by filing an application with the secretary of state in accordance with Chapter 4. A renewal application filed under this subsection continues an effective registration for one year after the date the registration would otherwise expire. The renewal application must contain: (1) current information required for an initial application; and (2) the most recent date of registration of the partnership. (h) The secretary of state may remove from its active records the registration of a partnership the registration of which has: (1) been withdrawn or revoked; or (2) expired and not been renewed.

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(i) The secretary of state is not responsible for determining whether a partnership is in compliance with the requirements of Section 152.804(a). (j) A document filed under this subchapter may be amended by filing an application for amendment of registration with the secretary of state in accordance with Chapter 4 and this subsection. The application for amendment must: (1) contain: (A) the name of the partnership; (B) the tax identification number of the partnership; (C) the identity of the document being amended; (D) the date on which the document being amended was filed; (E) a reference to the part of the document being amended; and (F) the amendment or correction; and (2) be signed by: (A) a majority-in-interest of the partners; or (B) one or more partners authorized by a majority-in-interest of the partners. Sec. 152.803. NAME. The name of a limited liability partnership must comply with Section 5.063. Sec. 152.804. INSURANCE OR FINANCIAL RESPONSIBILITY. (a) A limited liability partnership must: (1) carry at least $100,000 of liability insurance of a kind that is designed to cover the kind of error, omission, negligence, incompetence, or malfeasance for which liability is limited by Section 152.801(b); or (2) provide $100,000 specifically designated and segregated for the satisfaction of judgments against the partnership for the kind of error, omission, negligence, incompetence, or malfeasance for which liability is limited by Section 152.801(b) by: (A) deposit of cash, bank certificates of deposit, or United States Treasury obligations in trust or bank escrow; (B) a bank letter of credit; or (C) insurance company bond. (b) If the limited liability partnership is in compliance with Subsection (a), the requirements of this section may not be admissible or be made known to the jury in determining an issue of liability for or extent of: (1) the debt or obligation in question; or (2) damages in question. (c) If compliance with Subsection (a) is disputed: (1) compliance must be determined separately from the trial or proceeding to determine: (A) the partnership debt or obligation in question; (B) the amount of the debt or obligation; or (C) partner liability for the debt or obligation; and (2) the burden of proof of compliance is on the person claiming limitation of liability under Section 152.801(b). Sec. 152.805. LIMITED PARTNERSHIP. A limited partnership may become a limited liability partnership by complying with applicable provisions of Chapter 153.

SUBCHAPTER K. FOREIGN LIMITED LIABILITY PARTNERSHIPS


Sec. 152.901. GENERAL.

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(a) A foreign limited liability partnership is subject to Section 2.101 with respect to its activities in this state to the same extent as a domestic limited liability partnership. (b) A foreign limited liability partnership may not be denied registration because of a difference between the laws of the jursidiction under which the partnership is formed and the laws of this state. Sec. 152.902. NAME. The name of a foreign limited liability partnership must: (1) satisfy the requirements of the jurisdiction of formation; and (2) comply with Section 5.063. Sec. 152.903. ACTIVITIES NOT CONSTITUTING TRANSACTING BUSINESS. Without excluding other activities that do not constitute transacting business in this state, a foreign limited liability partnership is not considered to be transacting business in this state for purposes of this code because it carries on in this state one or more of the activities listed by Section 9.251. Sec. 152.904. REGISTERED AGENT AND REGISTERED OFFICE. A foreign limited liability partnership subject to this chapter shall maintain a registered office and registered agent in this state in the same manner and to the same extent as if the partnership were a foreign filing entity. Subchapters E and F, Chapter 5, apply to a foreign limited liability partnership to the same extent those subchapters apply to a foreign filing entity. Sec. 152.905. REGISTRATION PROCEDURE.

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(B) the date of effectiveness of the partnerships last application for registration under this subchapter; and (2) be signed by: (A) a majority-in-interest of the partners; or (B) one or more partners authorized by a majority-in-interest of the partners. Sec. 152.907. EFFECT OF CERTIFICATE OF WITHDRAWAL. A certificate of withdrawal terminates the registration of the partnership as a foreign limited liability partnership as of the date on which the notice is filed or a later date specified in the notice, but not later than the expiration date under Section 152.905(e). Sec. 152.908. RENEWAL OF REGISTRATION. (a) An effective registration may be renewed before its expiration by filing a renewal application for registration with the secretary of state in accordance with Chapter 4. (b) The renewal application must contain: (1) current information required for an initial application for registration; and (2) the most recent date of registration of the partnership. (c) An application for registration filed under this section continues an effective registration for one year after the date the registration would otherwise expire. Sec. 152.909. ACTION BY SECRETARY OF STATE. The secretary of state may remove from its active records the registration of a foreign limited liability partnership the registration of which has: (1) been withdrawn or revoked; or (2) expired and not been renewed. Sec. 152.910. EFFECT OF FAILURE TO REGISTER.

(a) Before transacting business in this state, a foreign limited liability partnership must file an application for registration in accordance with this section and Chapters 4 and 9. (b) The application must be signed by: (1) a majority-in-interest of the partners; or (2) one or more partners authorized by a majority-ininterest of the partners. (c) A partnership is registered as a foreign limited liability partnership on: (1) the date on which a completed initial or renewal application for registration is filed with the secretary of state in accordance with Chapter 4; or (2) a later date specified in the application. (d) A registration is not affected by subsequent changes in the partners of the partnership. (e) The registration of a foreign limited liability partnership is effective until the first anniversary of the date after the date of registration or a later effective date, unless the registration is: (1) withdrawn or revoked at an earlier time; or (2) renewed in accordance with Section 152.908. Sec. 152.906. WITHDRAWAL OF REGISTRATION. (a) A registration may be voluntarily withdrawn by filing a certificate of withdrawal in accordance with this section and Section 9.011. (b) In addition to the information required by Section 9.011, the certificate of withdrawal must: (1) contain: (A) the federal tax identification number of the partnership; and

(a) A foreign limited liability partnership that transacts business in this state without being registered is subject to Subchapter B, Chapter 9, to the same extent as a foreign filing entity. (b) A partner of a foreign limited liability partnership is not liable for a debt or obligation of the partnership solely because the partnership transacted business in this state without being registered. Sec. 152.911. AMENDMENT. (a) A document filed under this subchapter or an application for registration filed under Section 9.007 may be amended by filing with the secretary of state an application for amendment of registration in accordance with Chapter 4. (b) The application for amendment must contain: (1) the name of the partnership; (2) the tax identification number of the partnership; (3) the identity of the document being amended; (4) a reference to the date on which the document being amended was filed; (5) the part of the document being amended; and (6) the amendment or correction. Sec. 152.912. EXECUTION OF APPLICATION FOR AMENDMENT. The application for amendment must be signed by: (1) a majority-in-interest of the partners; or (2) one or more partners authorized by a majority-in-interest of the partners.

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Sec. 152.913. EXECUTION OF STATEMENT OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT. A statement filed by a foreign limited liability partnership in accordance with Section 5.202 must be signed by: (1) a majority-in-interest of the partners; or (2) one or more partners authorized by a majority-ininterest of the partners. Sec. 152.914. REVOCATION OF REGISTRATION BY SECRETARY OF STATE. (a) The secretary of state may revoke the registration of a foreign limited liability partnership for the partnerships failure to: (1) file a report within the period required by law or pay a fee or penalty prescribed by law when due and payable; (2) maintain a registered agent or registered office address in this state as required by law; or (3) pay a fee required in connection with a filing, or payment of the fee was dishonored when presented by the state for payment. (b) If it appears to the secretary of state that, with respect to a foreign limited liability partnership, a circumstance described by Subsection (a) exists, the secretary of state shall provide notice to the partnership in the same manner and to the same extent as notice is required to be provided to a foreign filing entity under Sections 9.101 and 9.102. (c) The secretary of state shall reinstate the registration of a foreign limited liability partnership if the partnership files an application for reinstatement in accordance with Subsection (e), accompanied by each amendment of the partnerships registration that is required by intervening events, and: (1) the foreign limited liability partnership has corrected the circumstances that led to the revocation and any other circumstances described by Subsection (a) that may exist, including the payment of fees, interest, or penalties; or (2) the secretary of state finds that the circumstances that led to the revocation did not exist at the time of revocation. (d) A foreign limited liability partnership, to have its registration reinstated, must comply with the requirements of this section not later than the date the registration would have expired under Section 152.905(e) had the registration not been revoked under this section. (e) The foreign limited liability partnership shall file a certificate of reinstatement in accordance with Chapter 4. The certificate of reinstatement must contain: (1) the name of the partnership; (2) the filing number assigned by the filing officer to the partnership; (3) the effective date of the revocation of the partnerships registration; and (4) the name of the partnerships registered agent and the address of the partnerships registered office.

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SUBCHAPTER A. PARTNERSHIP INTERESTS


Sec. 154.001. NATURE OF PARTNERS PARTNERSHIP INTEREST. (a) A partners partnership interest is personal property for all purposes. (b) A partners partnership interest may be community property under applicable law. (c) A partner is not a co-owner of partnership property. Sec. 154.002. TRANSFER OF INTEREST IN PARTNERSHIP PROPERTY PROHIBITED. A partner does not have an interest that can be transferred, voluntarily or involuntarily, in partnership property.

SUBCHAPTER B. PARTNERSHIP AGREEMENT


Sec. 154.101. CLASS OR GROUP OF PARTNERS. (a) A written partnership agreement may establish or provide for the future creation of additional classes or groups of one or more partners that have certain express relative rights, powers, and duties, including voting rights. The future creation of additional classes or groups may be expressed in the partnership agreement or at the time of creation of the class or group. (b) The rights, powers, or duties of a class or group of partners may be senior to those partners of an existing class or group. Sec. 154.102. PROVISIONS RELATING TO VOTING. A written partnership agreement that grants or provides for granting a right to vote to a partner may contain a provision relating to: (1) giving notice of the time, place, or purpose of a meeting at which a matter is to be voted on by the partners; (2) waiver of notice; (3) action by consent without a meeting; (4) the establishment of a record date; (5) quorum requirements; (6) voting in person or by proxy; or (7) other matters relating to the exercise of the right to vote. Sec. 154.103. NOTICE OF ACTION BY CONSENT WITHOUT A MEETING. (a) Prompt notice of the taking of an action under a partnership agreement that may be taken without a meeting by consent of fewer than all of the partners shall be given to a partner who has not given written consent to the action. (b) For purposes of this section, the taking of an action includes: (1) amending the partnership agreement; or (2) creating under the partnership agreement a class of partners that did not previously exist.

CHAPTER 153. LIMITED PARTNERSHIPS


(OMITTED)

CHAPTER 154. PROVISIONS APPLICABLE TO BOTH GENERAL & LIMITED PARTNERSHIPS


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SUBCHAPTER C. PARTNERSHIP TRANSACTIONS AND RELATIONSHIPS

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Breaking Up Is Hard To Do
Sec. 154.201. BUSINESS TRANSACTIONS BETWEEN PARTNER AND PARTNERSHIP. Except as otherwise provided by the partnership agreement, a partner may lend money to and transact other business with the partnership. Subject to other applicable law, a partner has the same rights and obligations with respect to those matters as a person who is not a partner. Sec. 154.202. EFFECT OF PARTNER CHANGE ON RELATIONSHIP BETWEEN PARTNERSHIP AND CREDITORS. The relationships between a partnership and its creditors are not affected by the: (1) withdrawal of a partner; or (2) addition of a new partner. Sec. 154.203. DISTRIBUTIONS IN KIND. (a) Except as provided by the partnership agreement, a partner, regardless of the nature of the partners contribution, is not entitled to demand or receive from a partnership a distribution in any form other than cash. (b) Except as provided by the partnership agreement, a partner may not be compelled to accept a disproportionate distribution of an asset in kind from a partnership to the extent that the percentage portion of assets distributed to the partner exceeds the percentage of those assets that equals the percentage in which the partner shares in distributions from the partnership.

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