Formation Flashcards
What is a partnership?
An association of two or more persons to carry on a for-profit business as co-owners.
Are the parties required to have the specific intent to form a partnership?
No. The intent to carry on a business for profit as co-owners is sufficient. The subjective intent to NOT form a partnership does not prevent the association from forming.
What is the key test to determine whether a business arrangement is a partnership?
Whether there is a sharing of profits from the business. If so, persons who share in profits are partners.
What are the exceptions to the key rule about profit sharing?
6 circumstances where sharing of profits does not make a recipient a partner:
(1) Debt payments;
(2) Interest or other loan charges;
(3) Rent;
(4) Wages or other compensation paid to employees or ICs;
(5) Goodwill payments from sale of business; and
(6) Annuities or other retirement/health benefits.
Is a formal partnership agreement required to create a partnership?
No, but if the partners have an agreement, then the agreement controls, rather than the RUPA.
Is a partner an agent for the partnership?
Yes, for business purposes. As an agent, the partner can commit the partnership to binding contracts with third parties.
When do the duties of loyalty and care apply?
General Rule: applies only to partners
Prospective Partners: not subject to these duties
Partnership Disassociation/Dissolution: duties do not apply unless partner is engaged in winding up the partnership business
What is the default rule for division of profits and losses?
Each partner is entitled to an equal share of the partnership profits and losses. If there is an agreement which addresses only the division of profits, partnership losses are shared in the same manner.
Ex: If X gets 70% of the profits, the X is liable for 70% of the losses.
Can a partner demand a distribution of partnership profits?
No, but they are entitled to have a their partnership account credits with a share of the profits.
Can a partner transfer his partnership interest to a third-party?
Yes. This does not trigger a dissolution of or a disassociation from the partnership. Transferor retains all rights and duties of a partner, and transferee has right to receive distributions.
How is ownership of property acquired by the partnership determined?
All property acquired by a partnership, whether by contribution from a partner or by purchase or other transfer from a partner or a third-party, is partnership property and belongs to the partnership, not individual partners.
Can a partner transfer an ownership interest in partnership property?
Yes, regardless of if it is voluntary or involuntary.
How can a person become a new partner?
By obtaining consent from all the existing partners.
When does a partner have actual authority to act individually?
A partner has actual authority to commit the partnership to usual and customary matters, unless the partnership has reason to know that: (1) other partners might disagree; or (2) for some other reason consultation with fellow partners is appropriate.
How many partners can make a decision as to a matter in the ordinary course of the partnership’s business?
A majority.
