Creation of General Partnerships Flashcards
What is a general partnership?
A general partnership is an association of two or more persons to carry on as co-owners of a business for profit.
How is a general partnership formed?
A PS is based on an agreement between the partners. There are no particular formalities or statutory requirements for formation.
A PS contract may be oral and may be inferred from the conduct of the parties. No written agreement is required.
A PS may be formed:
- for a specific undertaking;
- for a term; or
- at will.
What is the difference between a PS and JV?
JV are similar to PS. As a general rule, a JV may be described as an association contemplating a single transaction or related series of transactions, as compared to a PS, which is generally said to be carrying on a business. The parties intention or own understanding is not relevant.
What is the capacity requirement to form a PS?
Any person who has the capacity to enter into a contract can enter into a PS agreement.
PS, societies, and other associations also may enter into PS with other persons or entities.
A corporation may be a partner in any business enterprise hat the corporation would have power to conduct by itself, so long as the enterprise is appropriate under the corporation’s articles and bylaws.
A minor can enter into a PS, but he may void the PS agreement on the basis of infancy. However, his investment in the business is subject to claims of creditors.
What is the proof of association between two or more people?
The key test of whether a PS has been formed is the intent of the parties to enter into a relationship.
An express agreement is the best proof of intent, but he PS may exist despite the absence of a written agreement.
If the PS agreement was implied, however, other factors must be considered.
The court may consider such evidence as the sharing of profits, the management practices of the entity, the amount and type of services rendered by the parties, and the records title to any real or personal property used by the entity.
What is the sharing of profits?
The receipt by a person of a share of the profits is prima facie evidence that he is a partner in the business.
However, no such inference may be draw if the profits were received in payment of the following:
- debt;
- services as an independent contractor, of wages, or other compensation to an employee;
- rent;
- an annuity or other retirement or health benefit to a beneficiary, representative, or designee of a deceased or retired partner;
- interest other charge of a loan, even if the amount of payment varies with the profits of the business; or
- the sale of the goodwill of a business or other property by installments or otherwise.
There is no requirement for a sharing of the losses. However, it is the default rule is the partners share in the losses in proportion to their share of the profits.
What is the sharing of gross returns?
The sharing of gross returns does not of itself establish a PS, whether or not the persons sharing them have a joint or common right or interest in nay property from which the returns are derived.
What is common property?
Joint tenancy, tenancy in common, tenancy by the entirety, joint property, common property, or part ownership does not of itself establish a PS, regardless of whether the owners share any profits made by the use of the property.
What is PS by estoppel?
Even if a voluntary PS does not exist, liability may be imposed on one who has let it appear that he is in a PS if a creditor is thereby misled.
When a person, by words or conduct, represents himself or has consented to be represented as a partner in an existing PS or with one or more persons not actually partners, he is liable to anyone who has extended credit in reliance on the representation of PS.
If the representation is made privately, it may be relied upon only by those to whom it was made.
if the representation is made in a public manner, the purported partner is liable to anyone who has knowledge of it and relied upon it.
The particular way in which the representation came to the third party’s attention need not have been with the purported partner’s consent, as long as he made or consented to some sort of public representation.
If a PS liability results, the apparent partner is liable as though he were a partner. If no PS liability results, he is liable jointly with the others consenting to the representation, or is otherwise separately liable.
How is an agency with a PS created by holding out?
When a person has been represented to be a partner in an existing PS or with others in a nonexistent PS, he is an agent of those consenting to the representation, and he can bind them as if he were in fact a partner.
If all the members of the PS consent to the representation, any liability is a PS obligation; otherwise, the person acting and the partners consenting to the representation are jointly and severally liable.
