Business Associations

Question 1

General Partnership

Answer 1

An association of two or more persons to carry on, as co-owners, a business for profit.

Question 2

How is a General Partnership formed?

Answer 2

It is formed wherever there is an association of two or more persons carrying on as co-owners of a business for profit.

Question 3

The Partnership Agreement:

Answer 3

All statutory provisions are merely default rules that can be altered by the agreement of the partners.

Question 4

Aggregate view of General Partnership

Answer 4

UPA adopts an aggregate view of the partnership and rejects the notion that a partnership is a legal entity.

Question 5

Entity view of General Partnership

Answer 5

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.

Question 6

Partnership by Estoppel

Answer 6

A partnership by estoppel can be recognized as to third parties, but that pertains only to liability to the third party.

Question 7

Management and Operation of General Partnership

Answer 7

In a general partnership, each partner has an equal right in managing the partnership’s business.

Question 8

Sharing of Profits and Losses in a General Partnership

Answer 8

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.

Question 9

Indemnification and Contribution in a General Partnership

Answer 9

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.

Question 10

Liability to Third Parties in a General Partnership

Answer 10

All partners are jointly and severally liable for all obligations of the partnership.

Question 11

Fiduciary Duties in a General Partnership

Answer 11

partners have a fiduciary duty to each other (the finest loyalty), including sharing in any benefits that result from the parties’ joint venture.

Question 12

Partnership Property in a General Partnership

Answer 12

UPA effectively treats partnership property as if it were owned by the partnership itself (even though it adopts the aggregate theory of partnership).

Question 13

Dissolution of a General Partnership

Answer 13

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.

Question 14

Dissolution of a Term Partnership (UPA)

Answer 14

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.

Question 15

Dissolution of an At Will Partnership

Answer 15

Can rightfully be dissolved by the express will of any partner

Question 16

Winding up of a General Partnership

Answer 16

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.

Question 17

Dissociation of a Term Partnership (RUPA)

Answer 17

It is possible for a partner to leave the partnership, to dissociate, without affecting the partnership itself.

Question 18

Limited Partnership

Answer 18

Comprised of at least one general partner and at least one limited partner.

Question 19

Benefits of a Limited Partnership

Answer 19

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

Question 20

Formation of a Limited Partnership

Answer 20

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.

Question 21

General Partner in a Limited Partnership

Answer 21

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

Question 22

Limited Liability of the Limited Partner in a Limited Partnership

Answer 22

The Limited Partner has no liability for the debts of the venture beyond the loss of his investment.

Question 23

Loss of Limited Liability of a Limited Partner

Answer 23

Limited liability can be forfeited if a limited partner participates in the control of the business..
RULPA and ULPA reduce or eliminate this rule.

Question 24

Financial Rights & Obligations in a Limited Partnership

Answer 24

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.

Question 25

Limited Partnership: Entity or Aggregate view?

Answer 25

A limited partnership is an entity distinct from its partners

Question 26

Limited Liability Partnership

Answer 26

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.

Question 27

Formation of a Limited Liability Partnership

Answer 27

The partnership is formed with or without an effective LLP registration, the filing merely changes the rules regarding the personal liability of the partners.

Question 28

Limited Liability of a Limited Liability Partnership

Answer 28

A partner in a limited liability partnership is not liable for the obligations and liabilities of the partnership or the other partners.

Question 29

Limited Liability Company

Answer 29

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.

Question 30

Formation of a Limited Liability Company

Answer 30

LLCs are formed by filing the articles of organization or certificate of organization, with the Secretary of State or equivalent official.

Question 31

Operating Agreement of a Limited Liability Company

Answer 31

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.

Question 32

A member-managed LLC Structure

Answer 32

Each owner has management rights.

Question 33

A manager-managed LLC structure

Answer 33

Management is centralized in a small subset of actors.

Question 34

Agency in an LLC

Answer 34

A member is not an agent of an LLC solely by reason of being a member.

Question 35

Financial Rights & Obligations in an LLC

Answer 35

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.

Question 36

Piercing the Veil of an LLC

Answer 36

An aggrieved party may pierce the LLC veil in the same manner as it would pierce the corporate veil.

Question 37

The veil of a limited liability company may be pierced when:

Answer 37

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.

Question 38

Fiduciary Duties in an LLC

Answer 38

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.

Question 39

Elimination of Fiduciary Duties in an LLC

Answer 39

The fiduciary duties of an LLC member or manager may be expanded, restricted, or eliminated by the LLC agreement.

Question 40

The Role of Contract in an LLC

Answer 40

Freedom of contract and the enforcement of the parties’ private arrangements are central to the LLC.

Question 41

Losses in Winding up of a General Partnership

Answer 41

Each partner’s share of the losses is subtracted from the amount owed to that partner as repayment for capital contributions.