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MEE Partnerships > Formation > Flashcards

Formation Flashcards

1
Q

What is a partnership?

A

An association of two or more legal persons who carry on a for-profit business as co-owners

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2
Q

Who can form a partnership?

A

Anyone or anything that has legal capacity to contract

Note: Includes legal entities

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3
Q

Who cannot form a partnership?

A

Humans

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4
Q

What intent is required for a partnership?

A
  • To carry on as co-owners
  • For profit

Note: No specific intent to form a partnership is required

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5
Q

When is there a presumption of a partnership relationship?

A

When two or more persons share profits

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6
Q

When does the presumption of a partnership relationship not apply?

A
  • Payment of a debt
  • Interest payments
  • Rent
  • Wages
  • Goodwill
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7
Q

Can a partnership hold property?

A

Yes

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8
Q

Can a partnership sue and be sued in its own name?

A

Yes

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9
Q

Are partners personally liable for the partnership’s obligations?

A

Yes

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10
Q

Do partnerships have entity-level taxation?

A

No

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11
Q

Does there need to a written partnership agreement?

A

No

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12
Q

What law governs partnerships?

A
  • The partnership agreement, if a written one exists
  • Otherwise, state law

Exception: When state law is mandatory

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13
Q

Which state laws are mandatory in governing partnerships?

A
  • Liability to third parties
  • Right to access books and records
  • Fiduciary duties
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14
Q

What duties do partners owe?

A
  • Fiduciary duty
  • Duty of loyalty
  • Duty of care
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15
Q

Is every partner a fiduciary of the partnership?

A

Yes

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16
Q

What does the duty of loyalty entail?

A

Partners must not:

  • Compete with the partnership business
  • Advance an adverse interest
  • Usurp a partnership opportunity
17
Q

Can a partnership limit the duty of loyalty?

A

Yes, as long as it is not manifestly unreasonable

18
Q

Can a partnership eliminate the duty of loyalty?

A

No

19
Q

What is the safe harbor option for something that may be considered disloyal?

A

If a partner makes full disclosure of all material facts, then a certain percentage of the other partners may authorize or ratify the transaction

20
Q

What does the duty of care entail?

A

Partners must not engage in:

  • Grossly negligent or reckless conduct
  • Intentional misconduct
  • Knowing violations of the law
21
Q

Can a partnership reduce the duty of care?

A

Yes, as long as it’s not unreasonable

22
Q

Who does the duty of loyalty and duty of care apply to?

A

Current partners

Note: NOT former or prospective partners

23
Q

How is the division of profits and losses generally determined?

A

By the partnership agreement

24
Q

Do the division of profits and losses need to be the same?

A

No

25
Q

Must financial/capital contributions affect the division of profits and losses?

A

No

26
Q

When there is no partnership agreement on it, how are profits divided?

A

Evenly

27
Q

When there is no partnership agreement on it, how are losses divided?

A

Losses follow profits

28
Q

What is the default rule for distributions in a partnership?

A

Partners do not have the right to demand a distribution

29
Q

What can partners do to allow for distributions?

A

Agree to allow distributions to be made according to the partnership agreement

30
Q

What is the default rule for transferring partnership interests?

A

A partner does not have the right to transfer their partnership interest

31
Q

Can partners change the default transfer rule?

A

Yes, by a majority vote of the partners

32
Q

What is the default rule for new partners?

A

All existing partners must consent to the new partner

33
Q

What is the default rule for division of management and control in a partnership?

A

Every partner has equal rights in the management and control of the partnership

34
Q

Can parties agree to a different division of management and control in a partnership?

A

Yes

35
Q

By default, ordinary business requires a vote of ____________ of partners

A

the majority

36
Q

By default, extraordinary business requires a vote of _______ partners

A

all

37
Q

What is the default rule for quorum for partnership voting?

A

No default rule

38
Q

Who must be provided access to records?

A

Partners and their agents

MEE Partnerships (4 decks)

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