Formation of a Partnership Flashcards
What is a partnership?
An association of two or more persons who carry on a for-profit business as co-owners.
Who can create a partnership?
Individuals or companies, as long as there are at least two.
What constitutes a “person?”
Anything that has the legal capacity to contract.
- Includes people and entities
- Excludes incapacitated people.
What kind of intent is required to create a partnership?
None, as far as the intent to create a partnership goes. However, you must have the intent to carry on a for-profit business as co-owners.
How do you officially become a partnership?
Just by existing–no need to file paperwork, etc.
When will a partnership relation be presumed?
When two or more people share profits.
What are the fundamental elements of a partnership?
- Two or more people
- Shared control
- Co-ownership
What is partnership by estoppel?
When a person will be liable to a third party as a partner even if a partnership doesn’t actually exist/the person is not a party to a partnership.
When will partnership by estoppel exist?
- If the person represents himself as a partner OR
- agrees to be held out as a partner.
What are the ramifications of a partnership?
- It creates a distinct entity from each of the partners of the partnership.
- The partners do not have limited liability, but are personally liable for partnership obligations.
- The partnership is not subject to double-taxation.
What is a partnership agreement?
Basically the bylaws of a partnership that is used to supplant state default rules.
Does a partnership agreement need to exist?
No. State laws will rule otherwise.
What does the partnership agreement do?
It dictates the rights of the parties, to the extent that no mandatory state laws conflict with it.
What state laws are mandatory?
- Liability to third parties
- All partners must be granted access to the books and records.
- Fiduciary duties.
