Agency and Partnership Flashcards

Question

General Partnership Profit/Loss Sharing Default Rules

Answer 1

Profits shared equally Losses shared in same manner as profits

Answer 2

Partnership = principal under agency law Partner = Agent under agency law by statute Tort Liable for loss or injury caused to a person by a partner in course of partnership Contract Liable for all contracts entered into by a partner in the scope of partnership business or with actual or apparent authority of the partnership

Answer 3

And usually have apparent authority for whole partnership Cannot waive away 3P rights such as apparent authority

Answer 4

Document filed publicly limiting partner’s authority to transfer real property Gives constructive notice that partners can’t transact with real property, only real property

Answer 5

Each partner is jointly and severally liable for partnership obligations P must exhaust partnership resources before collecting from partners, so partners are guarantors Able to get indemnified by partnership Cannot limit 3Ps rights

Answer 6

Default rule: Unanimous vote Not liable for obligations that arose before becoming partner

Answer 7

Care Loyalty Duty of Disclosure To each other AND partnership Cannot eliminate these duties

Answer 8

Account to partnership for any benefit No taking adverse positions to partnership No competing with partnership

Answer 9

No grossly negligent or reckless conduct

Answer 10

A partner also has a duty to provide complete and accurate information concerning the partnership. Statutory, not fiduciary duty R.U.P.A. provides that each partner and the partnership shall furnish to a partner (1) without demand, any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties; and (2) on demand, any other information concerning the partnership’s business and affairs (except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances) Can eliminate this duty

Answer 11

Belongs to partnership if bought in partnership name or by partner and it is apparent in document they’re acting for the partnership Presumed partnership property if partnership funds used Presumed partner property if bought in their name without partnership funds and no sign of using property for partnership Rights in partnership property Totally unrestricted Partnership owns partnership property Partner right Not a co-owner of partnership property

Answer 12

is the partners ownership stake in the partnership Ownership interest in partnership Management rights Financial rights Rights: No Unilateral Transfer of Management Rights --Unless otherwise agreed, a partner cannot unilaterally transfer his management rights and thereby make the transferee a “partner.” Unilateral Transfer of Financial Rights Permitted --Unless otherwise agreed, a partner can unilaterally transfer his financial rights. Ie: only able to transfer financial rights

Answer 13

Partner’s withdrawal from partnership Methods: (1) oral or written notice of the partner’s express will to withdraw; (2) happening of an agreed event; (3) valid expulsion of the partner; (4) the partner’s bankruptcy or the appointment of a receiver for a partner; (5) the partner’s death or incapacity to perform partnership duties; (6) the decision of a court that the partner is incapable of performing a partner’s duties; or (7) termination of a business entity that is a partner

Answer 14

A partner will be deemed to have wrongfully dissociated if the dissociation is in breach of an express term in the partnership agreement. A dissociation is also wrongful in a term partnership if the partner withdraws, is expelled, or becomes bankrupt before the end of the term. A partner who wrongfully dissociates is liable to the partnership for any damages caused by the dissociation.

Answer 15

No agreement to remain partners (default)

Answer 16

Agreement to remain partners for amount of time or until completion of project

Answer 17

one of two statutory avenues is implicated: Dissolution: Partnership ends, business is wound up, assets are sold off The partnership continues in existence with the dissociated partner becoming entitled to a buyout of their partnership interest

Answer 18

Two circumstances are of particular importance: In general, when a partner dissociates by express will in an at-will partnership, the partnership is dissolved and its business must be wound up. In a term partnership, if one partner dissociates wrongfully, or if a dissociation occurs because of a partner’s death or bankruptcy, dissolution and winding up of the partnership are required only if, within 90 days after the dissociation, at least one-half of the remaining partners agree to wind up the partnership.

Answer 19

Dissociating partner’s right to be paid value of partnership interest by continuing partners

Answer 20

Remains liable for pre dissociation partnership obligations And post-dissociation partnership obligations for 2 years Protect self by letting creditors know directly or Public statement of dissociation In 90 days, constructive notice

Answer 21

A partnership can be bound by an act of a dissociated partner undertaken within two years after dissociation (assuming that dissolution has not occurred) if: (1) the act would have bound the partnership before dissociation, and (2) the other party to the transaction (a) reasonably believed the dissociated partner was still a partner (b) had notice of dissociation

Answer 22

When dissolution and winding up occur, partnership assets must be applied to the discharge of partnership liabilities. If the assets are insufficient, individual partners are required to contribute (“pay in”) in accordance with their loss shares. If there are excess assets, they are distributable to the partners in cash in accordance with their profit shares.

Answer 23

First, to creditors Second, to reimburse partners for capital contributions Third, profits or losses if any

Answer 24

The partnership continues to exist after dissolution until the partnership is wound up. Exam tip: look for partnerships failing to file documents that cut off apparent authority after a partner leaves

Answer 25

Apparent authority exists even after dissolution The partnership can protect itself by notifying creditors directly of the dissolution (effective immediately). In addition, any partner who has not wrongfully dissociated may file a statement of dissolution with the secretary of state; all persons are deemed to have notice of a dissolution 90 days after such a notice is filed.

Answer 26

Any time before the winding up of the partnership business is complete, the partners may decide to waive the dissolution and continue the partnership by unanimous vote of the partners who have not wrongfully dissolved.

Answer 27

Partnership with at least one limited member Formed by: A certificate of limited partnership must be filed with the secretary of state Records Office Agent for Service of Process Name

Answer 28

must be filed with the secretary of state Needs: (1) the name of the partnership, (2) the names and addresses of the agent for service of process, and (3) the names and addresses of each general partner

Answer 29

A limited partnership must maintain in its state of organization an office with records of the certificate, any partnership agreements, and the partnership’s tax returns for the three most recent years.

Answer 30

A limited partnership must maintain in the state an agent for the service of process.

Answer 31

Name must contain “limited partnership” or LP Must alert public to limited liability nature of the business

Answer 32

The real detail on the operation and governance of a LP is typically found in a partnership agreement. It can be written, oral, or implied.

Answer 33

Each general partner has equal rights in the management and conduct of the LP’s activities. Generally, any matter relating to the limited partnership’s ordinary business activities may be exclusively decided by the general partner or, if there is more than one general partner, by a majority of the general partners.

Answer 34

Usually no management rights but financial rights That said, unless otherwise agreed, the vote of all partners (general and limited) is necessary for certain extraordinary activities

Answer 35

The Uniform Limited Partnership Act’s (U.L.P.A.’s) provisions for distributions are very similar to the distribution provisions for corporations. Unless otherwise agreed, distributions from an LP are made on the basis of the partners’ contributions

Answer 36

General partners liable Limited partners have limited liability Only lose value of investments Always liable for own torts

Answer 37

Limited partners have no fiduciary duties No management power

Answer 38

General partnership where all partners have limited liability Limited Liability Limited Partnership: limited partnership rules but everyone has limited liability Formation: File a statement of qualification with the secretary of state Name Liability

Answer 39

Requires: Name and address of partnership Statement partnership wants to be an LLP A deferred effective date, if any. When filed, become LLP or day in statement

Answer 40

The name of a limited liability partnership must end with the words “Registered Limited Liability Partnership” or “Limited Liability Partnership” or one of the abbreviations “L.L.P.,” “LLP,” “R.L.L.P.,” or “RLLP.”

Answer 41

A partner in an LLP is not personally liable (directly, indirectly, or by way of contribution) for the obligations of the LLP, whether arising in tort, contract, or otherwise If partnership assets are insufficient to indemnify them for an obligation they incurred on behalf of the LLP, they forfeit the right to receive contributions from other partners in exchange for being relieved of the obligation to contribute to their personal liability. Remember, no liability for co-partner torts but look to see if engaged in it

Answer 42

Limited liability company Hybrid of corporation and partnership where owners have limited liability and partnership tax treatment NOT corporation or partnership, something separate

Answer 43

Name for owners of an LLC

Answer 44

Certificate of LLC Filing that must be made to form

Answer 45

Needs: (1) the name of the LLC, (2) address of the LLC (3) the names and addresses of the agent for service of process

Answer 46

Needs LLC in it

Answer 47

Private doc for how business runs

Answer 48

All of the members Or can have it “manager managed” Member managed: members manage it themselves Manager managed: LLC where managers, who may or may not be members, handle management

Answer 49

Manager vote for regular decision Unanimous for extraordinary

Answer 50

Profits and losses split based on contribution

Answer 51

Members not personally liable for LLC

Answer 52

Always with those who have management power

Answer 53

Members (or managers if manager-managed) must act with the care that a person in a like position would exercise under similar circumstances, in a manner reasonably believed to be in the best interests of the LLC BJR exists

Answer 54

No conflicts of interest

Answer 55

Same as partnership: financial rights can be transferred, management cannot

Answer 56

A person has the power to dissociate as a member of an LLC at any time, rightfully or wrongfully, by expressly withdrawing as a member. Generally, the events that cause dissociation of a partner in a partnership will also cause dissociation of a member of an LLC. A wrongfully dissociating member may be liable to the LLC for damages

Answer 57

An LLC will be dissolved when any of the following events occurs: (1) an event or circumstance that the operating agreement states causes dissolution; (2) the consent of all the members; or (3) the passage of 90 consecutive days during which the LLC has no members

Answer 58

Court may grant dissolution if: The conduct of all or substantially all of the LLC’s activities is unlawful. It is not reasonably practicable to carry on the company’s activities in conformity with the certificate of organization and the operating agreement. The controlling members have acted, are acting, or will act in a manner that is illegal or fraudulent. The controlling members have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the member applying for dissolution.

Answer 59

Partnerships and LLCs are taxed on a “pass-through” basis. There is no entity-level tax; instead, business income is passed-through to the owners and reported on the owners’ individual tax returns (regardless of whether that business income is actually distributed to the partners). By contrast, a corporation is subject to “double taxation.” The corporation pays taxes on its income, and the shareholders pay taxes on that income again when and if it is distributed to them. In today’s tax climate, pass-through treatment usually results in less taxes paid.

Answer 60

Business entity does not pay taxes as an entity–instead, owners pay tax Still must declare income even if not passed out through dividends

Answer 61

LLPs and LLCs are generally the best vehicles for closely held businesses. They protect all of the owners from liability for the obligations of the business; they allow the owners to contract around almost all of the statutory provisions (so that the business can be run as the owners desire); they allow all of the owners to participate in the management of the business; and they provide pass-through income tax treatment.