Chapter 37 - Partnerships

Question 1

Agency of Partnerships

Answer 1

In a partnership, each partner is deemed the agent of the other partners, and of the business.

Question 2

3 Elements of a Partnership

Answer 2

1) Joint ownership of the business
2) A sharing of profits and losses
3) An equal right to be involved in the management of the business

Question 3

Tax Treatment of Partnerships

Answer 3

1) Partnerships serve as a pass through entity. Each owner pays individual taxes
2) Each partner’s share of the profit, whether they got that money or not, is taxed as individual income.

Question 4

Partnership for a term vs Partnership at will

Answer 4

For a term: Partnership that specifies the date it will end
At will: Partnership with no fixed duration

Question 5

Rights of Partners

Answer 5

1) Management
2) Interest in the partnership
3) Compensation
4) Inspection of Books
5) Accounting
6) Property Rights

Question 6

Partners right to Management

Answer 6

1) All partners have equal rights in managing the partnership and have equal votes unless agreed otherwise.
2) Decisions that significantly change the nature of the business require unanimous consent

Question 7

Partners right to an Interest in the Partnership

Answer 7

Each partner is entitled to their specified proportion of profits and losses. If not specified, then P&L’s are split evenly

Question 8

Partners right to Compensation

Answer 8

Partners earn a share of the partnerships profits, not a salary.

Question 9

Partners right to Property Rights

Answer 9

1) Property acquired through the partnership is the property of the partnership, not of the individual partners.
2) Partnership property includes any land originally contributed to the partnership and any property bought by the partnership.

Question 10

Partnership liability

Answer 10

1. Every act/contract of a partner
2. All partners are personally liable for the debts of the partnership. Unlimited liability.

Question 11

Partnership fiduciary duties

Answer 11

Duty of care and Duty of loyalty

Question 12

Duty of care

Answer 12

Can’t act carelessly, and partners can’t sue other partners for mistakes.

Question 13

Partnership liability in the course of business

Answer 13

All partners are liable for the negligence of one partner while conducting business, but not at other times.

Question 14

Partnership termination

Answer 14

1. Dissolution (dissolved by partnership agreement or court order)
2. Winding up (last days of partnership, cannot take any new obligations)

Question 15

Partnership buy/sell agreement

Answer 15

express agreement made at formation of the partnership for the means of one of the partners to buy out the others.