Essay Answers

Question 1

forming

Answer 1

A partnership is created by the association of two or more persons to carry on as co-owners of a business for profit. No formalities are required to form a partnership. Contract rules govern the formation of partnerships because the partnership results from an agreement to work together. A written agreement is not required.

Question 2

taxation

Answer 2

a general partnership operates as a pass-through tax entity. This means that profits and losses flow through the entity and are taxed as profits and losses of the owners. A partnership thus avoids double taxation.

Question 3

liability-general partnerships

Answer 3

• partners in a general partnership are subject to personal liability for partnership obligations, including contracts that the partnership enters into in the course of partnership business.
• All partners are also subject to personal liability for tort obligations of the partnership. -They are vicariously liable for such obligations by virtue of their status as partners.
• Because partners are severally (as well as jointly) liable for partnership obligations, every partner is personally and individually liable for the entire amount of all partnership obligations

Question 4

modifying liab-general partnership

Answer 4

• Partners may-though they are not required to-agree to rules for the government of their partnership through a partnership agreement.
• Although a partnership agreement can modify some of the statutory provisions for a general partnership, one of the things that a partnership agreement may not do is restrict the rights of third parties.
• Limiting personal liability would be a restriction of the rights of third parties, and therefore such an agreement would be invalid.

Question 5

partnership interest

Answer 5

• Partnership interest includes the partners’ share of profits and losses or similar items and the right to receive distributions.
• A partner’s interest in the partnership is considered personal property for all purposes.

Question 6

transfer partnership interest

Answer 6

• If the partnership agreement does not restrict the partner’s right to do so, a partner may voluntarily transfer his partnership interest to a third party at any time.
• A partner also might involuntarily transfer his partnership interest, such as to a creditor of the partner.
• A partner’s transfer of her partnership interest is not an event of withdrawal and does not cause the winding up of the partnership.

Question 7

LLC

Answer 7

The limited liability company (“LLC”) is neither a partnership nor a corporation, although it combines features of both. The owners of an LLC are called “members.” The members of an LLC are not personally liable for the obligations of the LLC, unless the corporate veil is pierced.

Question 8

LLC-taxation

Answer 8

Unless a Texas LLC elects to be treated for federal tax purposes as a corporation, the LLC itself is not subject to federal income taxation. If the LLC has two or more members, the default rule is that it is treated for federal tax purposes as a partnership. This means that profits and losses flow through the entity and are taxed as profits and losses of the owners. If a Texas LLC has only a single member, the default rule is that it is disregarded for federal tax purposes. In either case, each individual member reports his profits or losses on his personal income tax return.

Question 9

transfer of rights- LLC

Answer 9

A member of an LLC may transfer or assign his interest unless prevented from doing so by the certificate of formation or the company agreement.