Creation of Partnerships

Question 1

General Partnership

Answer 1

A general partnership is a type of partnership that has NO limited personal liability (i.e, general partners remain personally, jointly and severally liable for ALL debts of the partnership).

Question 2

General partnership formation

Answer 2

A general partnership is formed when:

(1) two or more persons;
(2) Associate as co-owners
(3) To carry on a business for profit

Question 3

Determining whether a general partnership exists

Answer 3

It is irrelevant whether the parties intended to form a partnership. However, the courts may consider the following:

(1) sharing of profits: A person who receives a share of the profits of a business is presumed to be a partner in the business unless the partner receives the pouts as payment of debt, rent, wages or for services rendered.
(2) Joint ownership: Joint ownership tends to show that the parties associated as co-owner; However, it does not necessarily establish a partnership in and of itself.
(3) Sharing of control: Sharing of control, capital investment, and labour tends to show that the parties associated as co-owners

Question 4

limited partnership (LP)

Answer 4

A limited partnership consists of one or more general partners and one or more limited partners. General partners remain personally, jointly and severally liable for All debts of the limited partnership, while limited partners are personally liable for debts ONLY to the extent of their investment in the limited partnership

Question 5

Limited Partnership formation (LLP)

Answer 5

Any partnership may become an LLP upon:

(1) approval by the same vote that is necessary to amend the partnership agreement
(2) by filing a statement of Qualification with the Secretary of state

The statement of qualification must include:

(i) the name and address of the partnership
(ii) a statement that the partnership elects to become an LLP
(iii) A deferred effective date, if any.

Question 6

Contractual liability of the Partnership

Answer 6

Each partner is an agent of the partnership. Therefore, the actions of every partner that are made within the ordinary course of business to carry on the partnership’s business bind the partnership

Question 7

when is a partner not bound by a control

Answer 7

(1) Has no Authority to act on behalf of the partnership; AND
(2) The other side has knowledge or notice that the partner lacks authority.

Question 8

Contract liability of the Partners

Answer 8

General partners are jointly and severally liable for all debts and obligations of the partnership

Limited partners: Limited partners are personally liable for the debts of the limited partnership ONLY to the extent of their investment in the limited partnership. However limited partners are always liable for their OWN misconduct

Question 9

Transferability of Partner’s interest

Answer 9

absent of an agreement to the country, a partner may transfer his interest in the profits and losses of the partnership to a third party. The transferee does NOT automatically become a partner not does the partnership terminate or dissolve

Question 10

Liability during dissolution

Answer 10

Dissolution of a partnership does NOT immediately terminate the partnership. Rather the partnership enters a “winding up” phase, which continues until the winding up of the partnership is completed.

Question 11

Limited Liability partnership (LLP)

Answer 11

A limited liability partnership (LLP) is one in which all partners have limited personal liability

Question 12

Authority to bind a partnership after dissolution

Answer 12

• After dissolution, a partner’s actual authority to bind the partnership is limited only to those acts appropriate for winding up the partnership business.
• However a partner has apparent authority to bind the partnership even after dissolution if
  (1) the partner’s acts would have normally bound the partnership, And
  (2) the third party did not have notice of the dissolution

Question 13

incoming partners liability

Answer 13

incoming partner admitted into an existing partnership are not liable for obligations incurred prior to their admission, even if the incoming partner has notice of a claim

Question 14

judgement enforcement against a partner’s personal assets

Answer 14

Generally, a judgment creditor cannot levy execution of the judgment against a partner’s personal assets for a partnership debt UNLESS:

(1) A judgment has been rendered against the partner; AND
(2) the partnership assets have been exhausted or are insufficient