Business Associations Flashcards
General Partnership
An association of two or more persons to carry on, as co-owners, a business for profit.
How is a General Partnership formed?
It is formed wherever there is an association of two or more persons carrying on as co-owners of a business for profit.
The Partnership Agreement:
All statutory provisions are merely default rules that can be altered by the agreement of the partners.
Aggregate view of General Partnership
UPA adopts an aggregate view of the partnership and rejects the notion that a partnership is a legal entity.
Entity view of General Partnership
RUPA adopts an entity view of the partnership. “A partnership is an entity distinct from its partners.” Can own property, sue, be sued, and make contracts.
Partnership by Estoppel
A partnership by estoppel can be recognized as to third parties, but that pertains only to liability to the third party.
Management and Operation of General Partnership
In a general partnership, each partner has an equal right in managing the partnership’s business.
Sharing of Profits and Losses in a General Partnership
In the absence of a partnership agreement, it is assumed that partners intend to share equally in the profits and losses of the enterprise, regardless of the amount of money they contributed to the partnership.
Indemnification and Contribution in a General Partnership
UPA § 18(b) provides that, in absence of a contrary agreement, a partnership must indemnify a partner for payments made and liabilities incurred by the partner in the ordinary course of the partnership business.
Liability to Third Parties in a General Partnership
All partners are jointly and severally liable for all obligations of the partnership.
Fiduciary Duties in a General Partnership
partners have a fiduciary duty to each other (the finest loyalty), including sharing in any benefits that result from the parties’ joint venture.
Partnership Property in a General Partnership
UPA effectively treats partnership property as if it were owned by the partnership itself (even though it adopts the aggregate theory of partnership).
Dissolution of a General Partnership
The change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. UPA § 29.
Dissolution of a Term Partnership (UPA)
A partner does not have a legal right to force dissolution of a partnership if the other partner fulfills his or her duties under the partnership agreement.
Dissolution of an At Will Partnership
Can rightfully be dissolved by the express will of any partner
Winding up of a General Partnership
I. Those owing to creditors other than partners,
II. Those owing to partners other than for capital and profits,
III. Those owing to partners in respect of capital,
IV. Those owing to partners in respect of profits.
V. If the proceeds from the partnership’s assets are insufficient to pay the partnership’s liabilities, the partners must contribute in proportion to their loss shares.
Dissociation of a Term Partnership (RUPA)
It is possible for a partner to leave the partnership, to dissociate, without affecting the partnership itself.
Limited Partnership
Comprised of at least one general partner and at least one limited partner.
Benefits of a Limited Partnership
i. A limited partnership provides its owners with pass through tax treatment and structural flexibility, the parties can contractually arrange to run the business largely as they see fit.
ii. The relatively long history of limited partnership use has generated a significant body of common law precedents
Formation of a Limited Partnership
Limited partnerships can only be formed by filing a certificate of limited partnership with the Secretary of State, or equivalent office, of the appropriate jurisdiction.
General Partner in a Limited Partnership
The General Partner has unlimited liability for the obligations of the business. They have the ability to participate in management, the ability to bind the partnership
Limited Liability of the Limited Partner in a Limited Partnership
The Limited Partner has no liability for the debts of the venture beyond the loss of his investment.
Loss of Limited Liability of a Limited Partner
Limited liability can be forfeited if a limited partner participates in the control of the business..
RULPA and ULPA reduce or eliminate this rule.
Financial Rights & Obligations in a Limited Partnership
Unless otherwise agreed in a written partnership agreement, the profits, losses, and distributions of a limited partnership shall be allocated on the basis of the value of the contributions made by each partner.
Limited Partnership: Entity or Aggregate view?
A limited partnership is an entity distinct from its partners
Limited Liability Partnership
A limited liability partnership is typically a general partnership that provides the partners with limited liability for the firm’s tort obligations or for both tort and contract obligations.
Formation of a Limited Liability Partnership
The partnership is formed with or without an effective LLP registration, the filing merely changes the rules regarding the personal liability of the partners.
Limited Liability of a Limited Liability Partnership
A partner in a limited liability partnership is not liable for the obligations and liabilities of the partnership or the other partners.
Limited Liability Company
The LLC is a non-corporate business structure that provides its owners, known as members, with: Limited liability, Pass-through tax treatment, Freedom to contractually arrange the internal operations of the venture.
Formation of a Limited Liability Company
LLCs are formed by filing the articles of organization or certificate of organization, with the Secretary of State or equivalent official.
Operating Agreement of a Limited Liability Company
A nonpublic document which contains specific rights, duties, and obligations of the LLC’s members and managers. The provisions of the operating agreement will displace most, if not all, of the statutory provisions.
A member-managed LLC Structure
Each owner has management rights.
A manager-managed LLC structure
Management is centralized in a small subset of actors.
Agency in an LLC
A member is not an agent of an LLC solely by reason of being a member.
Financial Rights & Obligations in an LLC
LLC statutes tend to provide either a partnership like equal allocation or a corporate like pro rata allocation based on the contributions to the firm.
Piercing the Veil of an LLC
An aggrieved party may pierce the LLC veil in the same manner as it would pierce the corporate veil.
The veil of a limited liability company may be pierced when:
a. The required separateness has ceased to exist due to misuse
b. The facts are such that an adherence to the fiction of its separate existence would, under the particular circumstances, lead to injustice, fundamental unfairness, or inequity.
c. Whether there has been fraud, inadequate capitalization, and the degree to which the business and finances of the company are intermingled with its members.
Fiduciary Duties in an LLC
State LLC statutes often say that members and managers owe fiduciary duties of care and loyalty to the LLC. Some statutes also indicate that those duties run to individual members even if the LLC is manager-managed.
Elimination of Fiduciary Duties in an LLC
The fiduciary duties of an LLC member or manager may be expanded, restricted, or eliminated by the LLC agreement.
The Role of Contract in an LLC
Freedom of contract and the enforcement of the parties’ private arrangements are central to the LLC.
Losses in Winding up of a General Partnership
Each partner’s share of the losses is subtracted from the amount owed to that partner as repayment for capital contributions.
