Agency & Partnership

Question 1

Agency Formation

Answer 1

Generally, an agency relationship is created when one person (the principal) manifests an intent that another person (the agent) act on his behalf and both parties consent to the agreement.

Question 2

Partnership Formation

Answer 2

A partnership is formed when two or more people associate to carry on as co-owners a business for profit.

Question 3

Limited Partnership

Answer 3

A limited partnership is comprised of at least one general partner and at least one limited partner. A certificate of limited partnership must be filed with the secretary of state and must be signed by all general partners.

Question 4

Principal Liability

Answer 4

A principal is contractually bound to the acts of the agent if the agent acted with actual or apparent authority.

Question 5

Actual Authority

Answer 5

Actual authority is authority that the agent reasonably thinks he posses based on the principal’s dealings with him. Actual authority can be express (i.e., contained within the agreement between the parties) or implied from the actions of the principal.

Question 6

Apparent Authority

Answer 6

Apparent authority arises when the principal “holds out” the agent as having certain authority, causing third parties to reasonably believe the agent has such authority.

Question 7

Partner as Agent

Answer 7

Each partner is an agent of the partnership for the purpose of its business. A partnership can be bound on a contract entered into by a partner with actual or apparent authority. The act of any partner apparently carrying on in the ordinary course of the partnership business or business of the kind carried out by the partnership will bind the partnership unless the partner had no authority to act for the partnership and the third party with whom the partner dealt knew that the partner lacked authority.

Question 8

Actual Authority in Partnership

Answer 8

Actual authority to enter into transactions regarding matters within the ordinary course of business requires a majority vote of the partners, and actual authority to enter into matters outside the ordinary course of business requires unanimous consent of all partners.

Question 9

Apparent Authority in Patnership

Answer 9

Apparent authority is the authority that a third party would reasonably believe a partner has based on his being held out by the partnership as a partner.

Question 10

Partnership Liability

Answer 10

All partners are jointly and severally liable for all obligations of a general partnership, which means that each partner is personally liable for the entire amount of such obligations.

Question 11

Partnership Debt

Answer 11

Where one partner pays the whole of partnership debt, she may require the other partner to contribute his pro rata share of the payment.

Question 12

Lack of Authority in Partnership

Answer 12

When a partner enters a contract he had no authority to enter on behalf of the partnership, the partnership is not bound by the contract.

Question 13

Limited Partner Liability

Answer 13

Generally, a limited partner is not liable beyond her contribution for the obligations of the limited partnership. However, a limited partner may be liable beyond her contribution if she participates in control of the business. Dissolving a partnership, voting for a sale of partnership assets, and removing a general partner and appointing a new general partner are all extraordinary partnership affairs that limited partners may participate in without exposure to unlimited liability.

Question 14

General Partner Liability

Answer 14

Where a limited partnership is properly formed, limited partners will not be personally liable in a cause of action, but general partners will be.

Question 15

Partners in Ordinary Course of Business

Answer 15

Partners have an equal right to manage the business of the partnership, absent an agreement to the contrary. A particular act within the ordinary course of partnership business must be approved by majority vote of the partners, while unanimous consent is required to authorize certain acts.

Question 16

Partnership Fiduciary Duty

Answer 16

A partner owes the partnership and other partners a fiduciary duty to exercise its partnership powers for the benefit of the partnership and not for itself alone. This duty includes a duty of a general partner to disclose to other partners relevant matters that would affect the partnership and other partners.

Question 17

Partnership Duty of Loyalty

Answer 17

Each partner owes a duty of loyalty to the partnership. A partner must account for profits, property, opportunities, or other benefits derived by the partner in conjunction with the partnership business, and must refrain from competing with the business.

Question 18

Partnership Transferability

Answer 18

A partner has a transferable interest in the profits and losses of the partnership and in the right to receive distributions.

Question 19

Partnership Property

Answer 19

A partner is not a co-owner in partnership property. A partner has a right to use partnership property only for partnership purposes.

Question 20

Partnership Dissociation

Answer 20

Dissociation is a change in the relationship of the partners caused by any partner ceasing to be associated with the carrying on of the business. A partner is dissociated from the partnership upon notice of his express will to withdraw as a partner.

Question 21

Partnership Dissolution

Answer 21

A partnership is dissolved and its business must be wound up when a partner at will in a partnership notifies the partnership of his intent to withdraw.