Ch. 37 Partnerships and LLPs Flashcards
Partnerships are governed by what laws?
- Common law
- Statutory law
How do agency concepts relate to partnerships?
- Each partner is deemed to be an agent of the other
- There may be an imputation of liability
- Each partner is a fiduciary of the other
What does UPA stand for?
Uniform Partnership Act
The UPA governs the operation of partnerships in the absence of what?
- Express agreement
If a contract does’t specify a term, then what would you refer to for guidance?
UPA
How do partners different from agents?
- Also co-owners and share in profits and losses
When does a partnership exist?
- Created when two or more persons agree to carry on business for profit as co-owners with rights to manage and share profits (UPA)
- Rights to manage and share profits not always equal
What is a key element of a partnership?
Intent (one cannot join a partnership unless all other partners consent)
To determine whether a partnership exists, courts usually look for what three essential elements?
(1) Sharing of profits and losses
(2) Joint ownership of the BA
(3) An equal right to be involved in the management of the business
A court will not presume that a partnership exists if shared profits were received as payment of what?
(1) Debt by installments or interest on a loan
(2) Wages of an employee or for the services of an independent contractor
(3) Rent to a landlord
(4) An annuity to a surviving spouse or rep of a deceased partner
(5) A sale of the goodwill of a business or property
At common law, was the partnership a separate legal entity from its owners?
NO
Today, states and the federal government recognize the partnership as a separate legal entity for what purposes?
- To sue and be sued
- To have judgments collected against its assets and individual partners’ assets
Is the partnership a tax-paying entity?
NO (pass-through entity)
What is a pass through entity?
A business entity that has no tax liability
Are partnerships recognized as separate legal entities?
YES
While partnerships pay no federal income tax, what are they responsible for filing with the IRS?
Information return
Agreements to form a partnership can come in what three forms?
- Oral
- Written
- OR Implied by conduct
What is a partnership agreement also known as?
Articles of partnership
Define partnership for a term.
Partnership that will continue until a designated date or until completion of a particular project
Define partnership at will.
Partnership can be dissolved at any time
Partnership agreements can be oral unless what requires a written agreement?
Statute of Frauds
True or False.
When a partnership by estoppel is deemed to exist, the nonpartner is regarded as an agent whose acts are binding on the partnership.
True
The rights of partners in a partnership relate to what areas?
- Management
- Interest in the partnership
- Compensation
- Inspection of books
- Accounting
- Property
What rule controls decisions on ordinary matters for partnerships?
Majority rule
Decisions that significantly affect the nature of the partnership or that are outside the ordinary course of the partnership business require what?
Unanimous consent of partners in partnership
In a partnership, is unanimous consent likely to be required to admit a new partner?
YES
What is the Statute of Frauds?
Rule that requires certain contracts to be in writing to be enforceable
May corporations be partners in a partnership?
YES
In a partnership, partners usually get no compensation, just a share of profits and losses, unless the partnership contract says they can get what?
Guaranteed payments
Does each partner have a property right?
Yes
What does each partner’s property right include?
1) An interest in the partnership
2) A right in specific partnership property
3) A right to participate in the management of the partnership
In a partnership, partners have joint liability for contracts. If a partner is sued for partnership debt, what does that partner have the right to insist?
That the other partners be sued with him or her
Partners have joint and several liability for torts. What does that mean?
- 3rd party can sue either one or all partners
- 3rd partner may collect against personal assets of all partners
Does a newly admitted partner have personal liability for existing partnership debts and obligations?
NO
How does a partnership terminate?
- Dissolution
- Winding up
When does dissociation occur in a partnership?
When one partner ceases to be associated in the partnership business
What three events can cause the dissociation of a partner?
1) Notice (“Hey, I quit”)
2) Triggering Event (“Partners until reach certain level of sales”)
3) Unanimous vote
In a partnership, what are four ways of dissolution by operation of law?
- death of a partner
- bankruptcy of a partner
- bankruptcy of partnership
- illegality
In a partnership, what are ways of dissolution by judicial decree?
- insanity
- incapacity
- business impracticality
- improper conduct
- personal dissension
- deadlock (equal # partners with equal voting authority cannot decide)
Partnership obligations are paid in what order?
1) 3rd party creditors
2) partner loans to partnership
3) return of capital contributions
4) distribution of balance, if any, to partners
In a partnership, if liabilities are greater than assets, how do the partners bear the losses?
Bear losses in proportion in which they share profits, unless otherwise agreed in partnership agreement
What is an LLP?
- creature of state statute
- designed for professional service providers
- who normally do business as a partnership
- like lawyers, accountants, and medical professionals
What is the advantage of an LLP?
- Allows partnership to limit personal liability of partners but allows pass through tax advantages
Partnership law makes all partners jointly and severally liable for another partner’s tort, including personal assets. The LLP allows professionals to avoid what?
Personal liability for the malpractice of other partners
In an LLP, who is liable for acts of subordinates (via normal agency law principals)?
Supervising Partner
What type of entity is a limited partnership?
entity that limits the liability of some of its owners (namely the limited partners)
Are limited partnerships creatures of statute?
Yes (must file certificate with secretary of state)
A limited partnership is an agreement between whom to carry on a business for profit?
b/w at least one GP and one LP
In a limited partnership, only who can manage (but they have a fiduciary obligation to LPs)?
General Partners
In a limited partnership, LPs enjoy limited liability as long as they do not engage in what?
Management activities
In a limited partnership, an LP will be liable to a 3rd party if what?
If 3rd party believes, based on conduct, that the LP is a general partner
In a limited partnership, the general partner assumes what rights and liabilities?
Assumes all management rights and personal liability
In a limited partnership, the limited partner assumes what rights and liabilities?
- contributes cash but has no management rights
- liability is limited to the amount of investment
- limited partner can forfeit this veil of immunity by taking part in the management of the limited partnership
In a limited partnership, general partners are personally liable to 3rd parties for what?
- Breach of contract
- Tort liablity
In a limited partnership, limited partners have the right to do what/
Right to inspect LP’s books and be informed of the LP’s busienss
On dissolution of the limited partnership, the limited partner is entitled to what?
Return on capital contributions
In a limited partnership, LP interests are considered securities and regulated by what laws?
By both federal and state securities laws
