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Regulation > 14.2 - General Partnership > Flashcards

14.2 - General Partnership Flashcards

1
Q

Define a general partnership

A
  • Entity distinct from its ownership
  • Two or more persons carrying on as co-owners of a business for profit
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2
Q

Define the main 3 responsibilities of each partner in a partnership

A
  • Each is a fiduciary
  • Each is an agent
  • Not a party to partnership litigation
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3
Q

Identify the 3 main aspects of a partnership

A
  • Lacks continuity of existence
  • Duration limited to will of partners
  • Each partner must be admitted by all other partners
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4
Q

True or False >>>

Partnership debts are personal debts of the partners

A

True

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5
Q

True or False >>>

Partnerships are subject to regular federal income tax

A

False - partnership is not subject to federal income tax

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6
Q

What is RUPA and what does it cover?

A
  • Revised Uniform Partnership Act
  • a series of default rules that govern matters not addressed by the partnership agreement
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7
Q

What is the purpose of the partnership agreement?

A

to establish relationships between the partners

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8
Q

True or False >>>

The law recognizes the supremacy of the partnership agreement in most situations

A

True

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9
Q

Identify 8 (restrictions) or things the partnership agreement cannot do

A
  • Unreasonably restrict access to books / records
  • Eliminate duty of loyalty / good faith obligation
  • Unreasonably reduce duty of care
  • Vary power to dissociate
  • Waive right to seek court expulsion
  • Vary law applying to LLP
  • Vary right to dissolution
  • Restrict 3rd party rights
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10
Q

What is the formation for partnership agreements?

A
  • No formalities necessary
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11
Q

Are partnership agreements required to be in writing?

A
  • Partnership agreement may be written or oral
  • If partnership exists for a definite period > 1 year, must be written
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12
Q

What are the requirements to form a partnership?

A
  • Intention to form and make a profit
  • Partnership by estoppel may be recognized
    • Example: no actual partnership exists, but I mention in a business conversation that Trina is my business partner. The other party relies on that information and incur damages; I am therefore liable
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13
Q

How does capitalization impact the partnership and the selling of shares?

A
  • General partnership has advantage of multiple capital contribution sources
  • General partnership cannot raise equity by selling shares
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14
Q

How are profits, losses and distributions treated in a partnership?

A
  • RUPA says to share profits and losses equally unless otherwise stated in the partnership contract
  • Must contribute in proportion to share of profits towards any losses of partnership unless otherwise stated in the partnership contract
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15
Q

Identify partner liability in the case of losses and debts of the business

A
  • Each partner has unlimited personal liability for all losses and debts of business
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16
Q

Define a partnership distribution

A
  • Transfer of partnership property from the partnership to a partner
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17
Q

What forms might a partnership distribution take?

A
  • May take various forms:
    • Share of profits
    • Compensation for services
    • Reimbursements
    • Indemnification of liability
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18
Q

True or False >>>

  • Unless otherwise agreed, the right to compensation for services is generally a right to receive a share of the profits, not to be paid for services
A

True

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19
Q

What does a partnership interest consist of?

A
  • Consists of:
    • Partner’s share of profits and losses
    • Right to receive distributions
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20
Q

Are partners allowed to transfer / assign their interests without loss of rights or dissolution of partnership?

A

Yes

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21
Q

What are assignees entitled to under “Assignee Rights”?

A
  • Entitled only to the profits assignor would normally receive
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22
Q

Does an assignee automatically become a partner or receive rights to participate in management?

A

No

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23
Q

Is a partner allowed to transfer ownership to a family member during his or her life or through inheritance?

A

No - the ability to transfer financial interest but not ownership is a disadvantage of the partnership

24
Q

How does the death of a partner affect the partnership?

A
  • Partner’s interest become personal property
  • Heirs become assignees, not partners
  • Death does not dissolve the partnership if the other partners choose to continue
25
Q

What form must partnerships file for tax purposes and how often?

A
  • Must file form 1065 annually
26
Q

How do taxes impact a partnership?

A
  • Partnership is not a taxable entity
  • Profits and losses pass through to partners
27
Q

Identify the (5) rights of partners

A
  • Equal participation in management
  • Right to access partnership records
    • Copy and inspect books
  • Unanimous vote required to amend partnership, admit a new partner, determine other non-routine matters
  • Right to possess / use partnership property
  • Right to choose associates
28
Q

Identify the powers of partners and how are they governed?

A
  • Governed by law and specific terms of agreement
  • Each partner consents to be both a principal and agent of the partnership
29
Q

Define actual / apparent authority

A
  • Right to act as an agent in any legal transaction
30
Q

Is the partnership bound by actual / apparent authority?

A
  • Partnership is bound even if partner had no actual authority if 3rd party did not know or receive notification of lack of authority
31
Q

How can partnerships avoid apparent authority issues?

A

file a notice of limitations to avoid apparent authority issues

32
Q

What are the duties of partners?

A
  • Fiduciary duty of loyalty and care
33
Q

What is the duty of loyalty limited to?

A
  • Not competing with partnership
  • Not dealing with adverse interest to partnership
  • Not exploiting partnership opportunities for personal gain
34
Q

What does it mean for a partner or partnership to exercise duty of care?

A
  • Not engaging in:
    • Knowing violations of law
    • Intentional wrongdoing
    • Gross negligence
    • Reckless behavior
35
Q

What character traits or actions must a partner possess in exercising good faith?

A
  • Must be honest in fact & meet reasonable standards of fair dealing
36
Q

Is good faith violated because partners choose to act in own interest?

A

No

37
Q

Subsequent admission of a partner into the partnership means that the new partner will assume responsibility for???

A
  • Results in liability for partnership obligations
  • Preadmission obligations
  • Withdrawing partner’s liability
  • Termination of partnership
38
Q

How can a partnership terminate?

A
  • Partners may limit duration to definite term or completion of particular act
  • partnership may also be at will
39
Q

What provisions does RUPA (revised uniform protection act) provide in the case of terminating a partnership?

A
  • RUPA provisions
    • Dissociation
    • Dissolution
    • Winding up AKA liquidation
    • Termination
40
Q

Define dissociation in the case of a partnership

A
  • Legal effect of a partner’s ceasing to be associated in carrying o the business of the partnership
41
Q

When can a partner dissociate and how does dissociation effect them?

A
  • Partner has power to dissociate at any time
  • Partner’s management rights terminate
42
Q

What happens to the business if a partner chooses to dissociate?

A
  • Business either continues or dissolves
43
Q

Identify 8 acts that could result in possible dissociation

A
  • Notice to partnership of partner’s will to withdraw
  • Event specified in agreement
  • Expulsion of partner under terms of agreement
  • Expulsion by unanimous partner vote
  • Court order
  • Incapacity
  • Death
  • Insolvency
44
Q

Who is required to file the dissociation statement in a partnership?

A
  • May be filed by partnership or dissociated partner
45
Q

How does a statement of dissociation liabilities and apparent authority?

A

Partner’s apparent authority is terminated and his / her liability for the partnership’s post-dissociation obligations

46
Q

How long does apparent authority extend if filed dissociation notice is not provided to partners within 90 days after filing?

A

2 years

47
Q

What does a partnership do if a partner dissociates and the business is not wound up?

A
  • partnership must purchase dissociated interest
48
Q

Identify the 3 actions that will result in dissolution

A
  • Results from:
    • Notice of will to withdraw
    • Operation of law
    • Court order
49
Q

How is authority effected in a dissolution?

A
  • Actual terminates on dissolution
  • Apparent may continue unless notice is given
  • Fiduciary duties remain in effect
    • Except duty not to compete
50
Q

What actions may be taken by person winding up partnership?

A
  • Continue the business as a going concern for a reasonable time
  • Take judicial actions
  • Settle and close the business
  • Dispose of and transfer property
  • Discharge liabilities
  • Distribute assets
  • Settle disputes by mediation / arbitration
  • Perform other necessary acts
51
Q

Define winding up

A
  • Administrative process of settling partnership affairs
52
Q

Can the partnership continue after dissolution? If so, explain

A
  • All parties may waive right to winding up
  • Continues business as if dissolution did not occur
53
Q

How does negative capital impact partners?

A
  • Partner liable to contribute balance
  • Other partners must pay the difference in same proportion as losses
  • Partner making excess contributions may recover from other partners
54
Q

How are joint ventures formed and treated for financial purposes?

A
  • Easily formed
  • Common in international commerce
  • Formed to accomplish specific purpose
  • Treated as a partnership in most cases
55
Q

Identify 2 disadvantages of joint ventures

A
  • Lack of continuity of existence
  • Interests not readily transferable

Regulation (67 decks)

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