Chapter 37 Flashcards
Partnership
Arises from an agreement, expressed or implied, between two or more persons to carry on a business for a profit
Partnerships are governed by
Common law, statutory law
Uniform partnership act
Governs the operations of partnerships in the absence of express agreement
Elements of a partnerships
- Sharing of profits and losses
- A joint ownership of the business
- An equal right to be involved in the management of the business
Partnership does not exist if shared profits were received as payments of
- Debt by installment or loan interest
- Wages of an employee or the services of an independent contractor
- Rent to a landlord
- Annuity to a surviving spouse
- Sale of the goodwill of a business/property
A partnership is an entity
- can sue and be sued
Pass-through entity
Any entity that does not have its income taxed at the level of the entity; examples are partnerships, S corporations, and limited liability companies
Information return
A tax return submitted by a partnership that reports the income earned by the business. The partnership as an entity does not pay taxes on the income received by the partnership. A partners profit from the partnership is taxed to the individual income to the individual partner
Agreements to form partnership can be be
Oral, written or implied by conduct
- but to transfer interests in real property must be in writing/electronic record
Articles of partnership
A written agreement that sets forth each partners rights and obligations with respect to the partnership
Partnership for a term
Partnership will continue until a designated date or completion of a project
- withdrawal before date constitutes breach of agreement
Partnership at will
No fixed duration is specified, can be dissolved at any time
Partnership by estoppel
A judicially created partnership that may, at the courts discretion, be imposed for purposes of fairness. The court can prevent those who prevent themselves as partners (but who are not) from escaping liability if a third person relies on an alleged partnership in good faith and is harmed as a result
Nonpartner agents
When there is a partnership by estoppel the nonpartner is regarded as an agent whose acts are binding on the partnership
Rights of partners
Management - equal rights
Interest - Agree on proportions
Compensation- depends on partners share in the business
Inspection of the books- must be accessible to all partners
Accounting- required to determine partners shares
Property - partnership of the property not the individual
Charging order
An order granted by a court to a judgement creditor that entitles the creditor to attach profits or assets of a partner on dissolution of the partnership
Duties of partners (agency law)
Fiduciary duties
- duty of loyalty
- liability of partners
Joint liability
Shared liability. Partners incur joint liability for partnership obligations and debts. For example, if a third party sues a partner on a partnership debt, the partner has the right to insist that the other partners can be sued with him or her
Joint and several liability
A doctrine under which a plaintiff may sue, and collect a judgement form, one or more of the partners separately (severally) or all of the partners together (jointly). This is true even if one of th partners sued did not participate in, ratify or know about whatever gave rise to the cause of action
Dissociation
The severance of a relationship between a partner and a partnership when the partner ceases to be associated with the carrying on the partnership business
- although you have the power to, you may not have the right
Ways of dissociation
- Partner voluntarily giving notice of an express will to withdraw
- Occurrence of an event specified in the agreement
- Unanimous vote of other partners
- By order of a court
- Partner declaring bankruptcy
Wrongful dissociation
When the partner has the power but not the right to dissociate
- liable for damages caused by the dissociation
Effects of dissociation
- The right to participate in management terminates
- Duty of loyalty is done
- Their interest must be purchased
- For two years after, if a third party believes the dissociated partner is still there, the partnership is liable
buyout price
The amount payable to a partner on his or her dissociation from a partnership based on what the amount distributable to that partner of the firm were wound up on that date, and offset by any damages for wrongful dissociation
Dissolution
The formal disbanding of a partnership or a corporation
- commencement of the winding up process
Winding up
The second stage in terminating a partnership. Once the firm is dissolved, it continued to exist legally until the process of winding up all business affairs (collecting and distributing the firms assets) is complete
- collecting, liquidating, and distributing the partnership assets
Buy-sell agreement (buyout agreement)
An express agreement made at the time of partnership formation for one or more of the partners to buy out the other should the situation warrant - and thus provide for the smooth dissolution of the partnership
- if a dissociation does not result in dissolution, a buyout is mandatory
Limited liability partnership
A form of partnership that allows professionals to enjoy the tax benefits of a partnership while limiting their personal liability for the malpractice of other partners
Family limited liability partnership
The partners are related to each other
Limited partnership
A partnership consisting of one or more general partners and one of more limited partners
General partner
A partner who assumes responsibility for the management of the partnership and liability for all partnership debts
Limited partner
A partner who contributes capital to the partnership but has no right to participate in the management and operation of the business.
Formation of a limited partnership
- a public and formal proceeding
Certificate of limited partnership
The basic document filed with a designate state official by which a limited partnership is formed
Rights and duties in a limited partnership
- with exception of the right to participate in management, limited partners have the same rights as general partners
Limited partner dissociation
- give 6 months notice
- bankruptcy does NOT dissolve partnership unless it causes bankruptcy of the firm
Limited liability limited partnership
A type of limited partnership.
- the liability of all partners is limited to the amount of their investments in the firm
