Chapter 2: Property Rights of a Partner Flashcards
What are the three property rights of a partner?
- His rights in specific partnership property
- His interest in the partnership
- His rights to participate in the management
The partner’s contribution is owned by the partnership the moment it is delivered, but the partners have co-ownership over these properties
Rights in specific partnership property
A partner has the right to participate in the management of the partnership, unless the partnership agreement states otherwise
Rights to participate in the management
The transfer of rights or property
Assignment
What is a partner’s right to use partnership assets?
Every partner has the right to use the partnership’s assets (like equipment or vehicles), but only for activities that benefit the partnership. Personal use requires permission from the other partners.
Can partners use partnership assets for personal use?
Personal use requires permission from the other partners.
Can a partner assign their interest in specific partnership property?
No, a partner cannot transfer or sell their interest in specific partnership property unless all partners collectively agree to assign their rights in that property.
Can personal creditors of the partners claim a partnership property to settle their debts?
Specific partnership property is protected from the personal creditors of a partner; they cannot claim it to settle the partner’s personal debts. The property can only be used to pay debts owed by the partnership itself.
Can the partners personal property also be used to settle the partnership debts?
If the partnership owes money, the specific partnership property can be used to settle those debts, and individual partners cannot claim personal exemptions from such obligations if the partnership’s property is not sufficient to settle those debts.
Can a partner avail themselves personal exemption rights to protect specific partnership assets from being used to settle the partnership’s debts?
A partner cannot avail themselves of exemption laws concerning specific partnership property; for instance, creditors can claim assets like buildings or equipment owned by the partnership.
Is a partner’s interest in specific partnership property subject to legal claims for family support?
No, a partner’s interest in specific partnership property cannot be claimed for legal support obligations, such as alimony or child support. The property remains off-limits for those claims.
The remaining assets of the partnership after all the debts and liabilities have been paid.
Surplus
Revenue minus expenses
Profit
What are the limitations on a partner’s rights in specific partnership property?
A partner’s right in specific partnership property cannot be assigned, cannot be attached, and is not subject to legal support.
What rights does a partner have regarding their interest in the partnership?
A partner’s interest in the partnership can be assigned to another person, attached by creditors, and is subject to legal support claims.
The voluntary transfer of a right or of property
Conveyance
What is the primary effect of a partner conveying his whole interest in the partnership?
The primary effect is that it does not dissolve the partnership by itself, and the assignee is not entitled to interfere in the management or administration of the partnership business.
What is the general rule regarding the existence of a partnership after a partner conveys their interest?
The partnership continues to exist, the business goes on as usual with the remaining partners.
Under what circumstance can a partnership be dissolved after a partner’s conveyance of interest?
The partnership can be dissolved if the remaining partners decide they do not want to continue the business without the transferring partner.
What are the actions that the assignee cannot take concerning the partnership business?
- The assignee cannot interfere in the management of the partnership business
- Cannot require information or accounting of partnership transactions
- Cannot inspect the partnership books.
Whom the right is legally transferred
Assignee
The one who transferred the rights to another person
Assignor
What are rights of the assignee?
- Receive the profits to which the assigning partner would otherwise be entitled
- In case of fraud, the assignee may avail himself of the usual remedies provided by law
- In case of dissolution, to receive the assignor’s interest
- May require an account from the date only of the last account ageed by all the partners
Allows a judgment creditor (a person or entity that has won a court judgment against a partner for a debt) to secure payment of the debt from the partner’s interest in the partnership.
Charging Order
What happens if a court grants a charging order against a debtor-partner?
If granted, the charging order directs that any income or distributions that would typically go to the debtor-partner are instead used to pay off the judgment debt.
A person or entity that has won a court judgment against a partner for a debt
Judgement Creditor
An amount of money that a court has ordered a person or entity to pay to another party as a result of a legal judgment.
Judgement Debt
How do preferred rights of partnership creditors impact a charging order?
The charging order is subject to the preferred rights of partnership creditors. If the partnership itself has outstanding debts, the partnership’s creditors have a legal right to be paid first from the partnership’s assets and profits before any funds are used to satisfy the charging order.
A legal process used by a creditor to take possession of property from a debtor who has failed to meet their debt obligations.
Foreclosure
Can a debtor-partner redeem their interest charged before foreclosure, and how?
Yes, a debtor-partner can redeem their interest charged at any time before foreclosure by paying off the debt, allowing them to regain full control of their share in the partnership.
What are the options available for partners to purchase the charged interest after foreclosure?
After foreclosure, when a partner’s interest in the partnership is sold to pay off a debt, the remaining partners have a couple of options to buy that interest. They can use their own separate, personal money to make the purchase, or they can use the partnership’s money. However, if they choose to use partnership funds, all partners whose shares were not affected by the foreclosure must agree to it.
The extinguishment of the charge or attachment on the partner’s interest in the profits.
Redemption
Right of a partner under exemption laws
- A partner has some protection under exemption laws for their overall interest in the partnership. This protection means that a partner’s personal share in the partnership might be shielded from creditors to some extent.
- However, exemption laws do not apply to specific partnership assets like equipment or buildings. Partners cannot protect these assets from creditors.
