Formation of Partnership Flashcards
Language in Exam Essay
If the essay explicitly say that there is a “partnership’ or that parties are “partners” the issue of partnership formation is taken off the table. However, if an essay refers only to a “business” or describes multiple parties doing business without identifying them as partners, then whether this entity is a partnership is a threshold issue that must be addressed.
Formation of GP
GP is formed by obj agreement between two or more persons to co-own an ongoing business for profit. Can be made expressly (oral or written agreement) or implicitly (conduct). There are no other formal statutory requirements.
Sharing of Profits (RUPA)
Under the Revised Uniform Partnership Act, the sharing of profits is generally treated as prima facie evidence that a partnership exists. Therefore, one who receives a share of profits of a business is presumed to be a partner in the business (but this can be rebutted)
Things that are Excluded from a “Sharing of Profits”
- Payment of a loan
- Collecting rent
- Earning a salary
- Collecting an annuity or other retirement or health benefit
- Sale of the goodwill of a business or other property by installments or otherwise
Rebutting the Sharing of Profits Presumption
The presumption can be rebutted if, for example, there were evidence that losses are not also shared or that the management of the business is not shared.
Control
Partners, as co-owners of the business, must have the power of ultimate control. If a person shares in the profits, but lacks any power to control, he is probably an agent.
Formation of a Limited Partnership (ULPA)
According to the Uniform Limited Partnership Act (ULPA), the formation of a limited partnership requires compliance with statutory req. including the filing of a certificate of limited partnership with the secretary of state’s office
Filing the Certificate of LP
To comply with ULPA, the certificate must be signed by all general partners listed in the certificate of limited partnership. The name of the limited partnership must also contain the phrase “limited partnership” or “LP”
What Happens if Parties Fail to Create a Limited Partnership?
Then the parties will likely have formed or continued as a GP.
Formation of LLP: Eligibility
GPs but not LPs are eligible to become a LLP.
Converting GP into an LLP
Is accomplished by vote of the partners holding a majority interest in the partnership (unless a different vote is req. by the partnership agreement)
Formation of LLP: Registration
To become a registered LLP, a partnership must comply with the statutory requirements including filing with the secretary of state’s office as well as the payment of the req. fee. The name of the LLP must contain as the last words or letters “Registered Limited Liability Partnership”, “Limited Liability Partnership”, “R.L.L.P.”, “RLLP”, “L.L.P.”, or “LLP”
LLP Assurances
An LLP must ensure that it can meet its obligations for any liability taken on by providing security on any claims against by either:
- providing insurance
- maintaining an escrow account or similar interests as security for payment of liabilities
- having each partner guarantee payments; or
- confirm that the LLPs net worth is above a specified amount
What Happens if Parties Fail to Create a LLP?
They likely formed or continued as a GP.
Partnership by Estoppel
Even if a voluntary partnership does not exist, liability may be imposed on a person who has let it appear that he is in a partnership if a creditor is thereby misled
