Drills 1-25

Question 1

A partnership is an association of two or more persons to carry out a for-profit business as co-owners. Is it possible to form a partnership between a corporation and another partnership? Why or why not?

Answer 1

For the purpose of forming a partnership, a “person” is an individual, corporation, LLC, trust, estate, government entity, or another partnership. Therefore, a partnership can be formed between a partnership and a corporation. For example, Partnership X and Corporation Y can form Partnership Z.

Question 2

What kind of intent is necessary to form a partnership?

Answer 2

To form a partnership, there needs to be at least two “persons” with intent to carry on a business for profit as co-owners. Specific intent is not required to form a partnership; the agreement can be express or implied through conduct of the parties.

Question 3

The sharing of profits from a business does not create a rebuttable presumption that the arrangement is a partnership if the sharing is actually payment of:

(i) ___________________________________
(ii) ______________________________
(iii) Rent;
(iv) Wages or other compensation paid to an employee or independent contractor;
(v) _____________________________________________________________________________
(vi) Annuities (or other retirement or health benefits) paid to a surviving spouse or beneficiary, representative, or designee of a deceased or retired partner.

Answer 3

(i) A debt (including installment payments);
(ii) Interest on a loan;
(v) Goodwill payments stemming from the sale of a business (including installment payments);

Question 4

When will a person be characterized as a partner by estoppel and be liable to third parties?

Answer 4

When a person represents himself either orally, in writing, or implied by conduct as a partner (or consents to or allows another to represent himself as a partner), he will be a partner by estoppel, and he will be liable to third parties if the third party reasonably relied on the representation and suffered damages as a result.

Question 5

Generally, a person who is held out by another as a partner (without consent) is not under a duty to deny that representation. When is it not a defense that the purported partner was unaware that she was being represented as a partner?

Answer 5

It is not a defense that the purported partner was unaware that she had been held out as a partner to a specific third party if the representation was made in a public manner.

Question 6

What two fiduciary duties does a partner owe to the partnership and to the other partners?

Answer 6

A partner owes the partnership and the other partners the duty of loyalty and the duty of care.

Question 7

Is a written agreement required to form a partnership?

Answer 7

A written agreement is not required to form a partnership unless the agreement cannot be performed within a year (because a partnership agreement is subject to the Statute of Frauds).

Question 8

When is a partner entitled to remuneration for services rendered to the partnership?

Answer 8

Absent an agreement to the contrary, a partner is not entitled to remuneration for services rendered to the partnership.
Exceptions:
1. When the partner renders services in winding up
2. When the partners agree to pay a partner for her efforts

Question 9

A partnership must indemnify partners that incur personal liabilities in the ordinary course of conducting partnership business OR in order to __________ the partnership’s ____________ or _____________

Answer 9

preserve
business or property.

Question 10

A partnership can be contractually bound when a partner acts with either actual or apparent authority. How can a partnership escape liability when a partner acts with apparent authority?

Answer 10

For a partnership to escape liability, the third party generally must possess actual knowledge of the partner’s lack of actual authority.

Question 11

What is the rule regarding use of partnership property?

Answer 11

A partner may use or possess partnership property only on behalf of the partnership. A partner who uses partnership property for personal benefit must compensate the partnership.

Question 12

What rights does a partner have with respect to access to records and information of the partnership’s business?

Answer 12

Partners and their agents (including attorneys) have the right to access, inspect, and copy partnership records and books. Upon demand, partners must furnish any and all information affecting the partnership.

Question 13

Does a partnership agreement govern a partnership or does RUPA?

Answer 13

Although a formal agreement is not required to create a partnership, if the partners have entered into such an agreement, then the agreement, rather than RUPA, governs the relations among the partners and between the partners and the partnership.

Question 14

Under what circumstances might a judicial expulsion of a partner occur?

Answer 14

An expulsion of a partner by a court order may occur because the partner has either:

(i) engaged in misconduct that adversely and materially affected the partnership business;
(ii) willfully and persistently caused a material breach of the partnership agreement; or
(iii) breached a duty owed to the partnership or other partners.

Question 15

When a partner dissociates from a partnership and that partner’s interest is purchased by the partnership, does the partner remain responsible for partnership obligations that occurred prior to dissociation?

Answer 15

When a partnership purchases a dissociated partner’s interest, the partnership must generally indemnify the partner against all partnership liabilities, whether the liabilities were incurred before or after the dissociation. An exception exists for liabilities incurred by the partnership due to the dissociated partner’s post-dissociation actions.

Question 16

What does a statement of dissociation filed with the state do?

Answer 16

A statement of dissociation:

(i) Constitutes a limit on the dissociated partner’s authority;
(ii) Gives third parties notice of the dissociation as of 90 days after the statement is filed; and
(iii) Reduces the window of partnership liability for a dissociated partner’s actions from two years to 90 days.

Question 17

Under the duty of loyalty, what is a partner required to refrain from doing?

Answer 17

Under the duty of loyalty, a partner is required to refrain from:

(i) Competing with the partnership;
(ii) Advancing an interest adverse to the partnership; and
(iii) Usurping a partnership opportunity (or otherwise using partnership property or business to derive a personal benefit) without notifying the partnership.

Question 18

What does a partner’s duty of care entail?

Answer 18

Under the duty of care, a partner is required to refrain from engaging in:

(i) Grossly negligent or reckless conduct;
(ii) Intentional misconduct; or
(iii) Knowingly violating the law.

Question 19

When is titled property in the name of an individual partner actually the property of the partnership?

Answer 19

Property titled in the name of an individual partner is partnership property when the instrument indicates either the named person’s capacity as a partner or the existence of the partnership. [Property purchased with partnership assets or by using partnership credit to obtain financing is presumed to be partnership property.]

Question 20

How is a judgment for a third party against a partnership usually satisfied?

Answer 20

A partnership creditor generally must first exhaust the partnership’s assets before levying on a partner’s personal assets.

Question 21

When a partner dissociates from the partnership, but the partnership is not dissolved, what happens to the partner’s interest?

Answer 21

When a partner is dissociated and the partnership is not dissolved, the partnership must buy out that partner’s interest. The dissociated partner’s interest is valued as if the partnership business was wound up on the date of dissociation. (The partnership is valued as the greater of the liquidation value of its assets or the value of the partnership as a going concern.)

Question 22

What are the procedures for converting a limited partnership into a partnership?

Answer 22

To convert a limited partnership into a partnership, all of the general and limited partners must approve the conversion. Once approved, the limited partnership must cancel its limited partnership certificate. The conversion takes effect upon the cancellation of that certificate.

Question 23

Which partners can make decisions as to matters in the ordinary course of business? Which partners can make decisions as to matters outside the ordinary course of business?

Answer 23

Absent a partnership agreement to the contrary, all partners have equal rights in the management and conduct of the partnership.

A majority of the partners can make a decision as to a matter in the ordinary course of business, but a decision as to matters outside the ordinary course of business requires the consent of all partners.

Question 24

What happens when there is a partnership agreement that addresses the division of partnership profits, but it is silent on the division of partnership losses?

Answer 24

In general, if there is no agreement or the agreement is silent as to the division of profits and losses, each partner is entitled to an equal share of the partnership profits and losses. When the agreement addresses only the division of profits, then losses are to be shared in the same manner (same percentage as division of profits).

Question 25

When is a partnership liable for a partner’s tortious acts, including fraud?

Answer 25

A partnership is liable for a partner’s tortious acts, including fraud, when the partner commits the tortious acts in the ordinary course of the partnership business or with partnership authority, whether actual or apparent. (The partnership will not be liable when the fraudulent act occurs outside of the scope of partnership business.)