From MEE

Question 1

Partnership definition

Answer 1

Association of two or more people who carry on business for profit as co-owners
No need for specific intent to create a partnership
partnership does not exist between persons when one person receives profits in payment of a debt.

Question 2

Partnership property

Answer 2

Property titled in name of individual partner is property of partnership when instrument indicates either named person’s capacity as partner or existence of partnership
Property purchased with partnership assets or by using partnership credit to obtain financing presumed to be partnership property
Partner may use or possess partnership property on on behalf of the partnership

Question 3

Partner by estoppel

Answer 3

When person represents himself as partner, will be liable to 3rd parties if 3rd party reasonably relied on representation and suffered damages as a result

Question 4

Liability

Answer 4

Partners are personally liable for partnership’s obligations
No limited liability
Partner is jointly and severally liable for all partnership obligations

Question 5

Partnership agreement

Answer 5

Need not be written
If no agreement, state law will govern
A partner may pursue a legal action against a partner for breach of partnership agreement or for violating duty owed to partnership that caused harm

Question 6

Duties in general

Answer 6

Each partner is a fiduciary of the partnership, owes fiduciary duties of loyalty and care to the partnership

Question 7

Duty of loyalty

Answer 7

Partners must not
compete with partnership business
advance an interest that is adverse to partnership
usurp a partnership opportunity
prohibited from using partnership property or business to derive a personal benefit without notifying the partnership
Safe harbor - if partner makes full disclosure of all material facts, then certain percentage of other partners may authorize or ratify the transaction

Question 8

Duty of care

Answer 8

Partners must not
engage in grossly negligent or reckless conduct
engage in intentional misconduct
engage in a knowing violation of the law

Question 9

Profits and losses

Answer 9

Division of profits and losses is generally dictated or determined by agreement
Division of profits and losses need not be the same
Financial contributions/capital contributions need not have an effect on division of profits and losses
When there is no agreement, profits are divided evenly and losses follow profits

Question 10

Distributions

Answer 10

Default is that partners do not have right to demand distribution
Partners can agree in advance to allow distributions to be made according to partnership agreement

Question 11

Transfer of partnership interest

Answer 11

Default - a partner DOES have the right to transfer their interest
Can transfer right to share in profits and losses and to receive distributions
Transfer creates in transferee a right to receive distributions to which the transferor would otherwise be entitled
Transfer of interest does not make transferee a partner unless other partners consent to making the transferee a partner

Question 12

New partner

Answer 12

Default is that all current partners must approve new partner

Question 13

Managing/governing relationships

Answer 13

Default - every partner has equal rights to management and control of partnership but can be changed by agreement
Ordinary business requires vote of majority of partners
Extraordinary business requires vote of all partners

Question 14

Dissociation

Answer 14

When partner ceases to be associated with partnership
Voluntary - partner gives notice
Involuntary - expelled, bankrupt, incapacitated, etc
Consequences
If partner is dissociated, partnership does not necessarily dissolve
Former partner has no right to participate in management of partnership, no longer has duty to partnership
If partnership continues, must buy out dissociated partner’s interest

Question 15

Liabilities

Answer 15

Every partner is an agent of the partnership, may be liable for partner’s contract and tort liabilities
Partner personally liable for debts or obligations of partnership
Jointly and severally liable for all partnership obligations
Can go after any partner for entire sum owed
Generally creditor must exhaust partnership’s funds before going after partners’ personal assets

Question 16

Contracts

Answer 16

Express authority
Implied authority
Apparent authority

Question 17

Tort

Answer 17

Partnership liable for torts committed by partners acting within scope of partnership

Question 18

Terminating a partnership

Answer 18

Dissolution + winding up

Question 19

Dissolution

Answer 19

Triggered by occurrence of an event
Can be brought about by partner or operation of law
A partner has the power to dissociate from the partnership at any time, even if the dissociation is wrongful.
A partnership agreement cannot prevent a partner from withdrawing from the partnership, but it can require that the partner’s notice of withdrawal be in writing.

Question 20

Winding up

Answer 20

Any partner that has not been wrongfully dissociated can do it
Person winding up may dispose of and transfer partnership property and discharge partnership liabilities
Creditors prioritized, then partners

The partnership is not terminated until the partnership business is wound up. After dissolution, the partnership is bound by a partner’s act that is appropriate for winding up the partnership. Each partner is liable to the other partners for his share of partnership liability incurred by such post-dissolution acts.

Question 21

LLP

Answer 21

Limited liability partnership
a partnership in which a partner’s personal liability for obligations of the partnership is eliminated
The filing of a statement of qualification, which transforms a partnership into an LLP, does not create a new partnership
Limited partners not personally liable for obligations of LLP, just their own personal misconduct or negligence
limited liability partnership status is generally only effective on the date that the statement of qualification is filed with the state and not before.

A partnership may be converted into a limited liability partnership. Unless the partnership agreement specifies otherwise, the conversion must be approved by all of the partners of the general partnership. Once the conversion is approved, the partnership must file the articles of qualification with the state. A general partner who becomes a limited partner as a consequence of a conversion remains liable for any obligation incurred by the partnership before the conversion.

Question 22

LP

Answer 22

Limited partnership
Formed by two or more people, has at least one general partner and one limited partner
Limited partner has limited liability, general partner has personal liability

Question 23

Access to records

Answer 23

A partnership must provide its partners and their agents with access to all its records but a transferee is not entitled to participate in the management or conduct of the partnership business or access partnership records.

Question 24

Partnership property

Answer 24

A partner may use or possess partnership property only on behalf of the partnership.

Question 25

New partner

Answer 25

A person admitted as a partner into an existing partnership is not personally liable for any prior partnership obligations. However, any capital contribution made by an incoming partner to the partnership is at risk for the satisfaction of such partnership obligations.

Question 26

Authority

Answer 26

Express authority can arise from the partnership agreement itself, an authorization of the partners, or a statement of authority filed with the state.

Apparent authority - not authorized by partnership
For apparent authority to apply, the partner must perform the unauthorized act in the ordinary course of apparently carrying on either the partnership business or business of a kind carried on by the partnership.

Question 27

At will partnership

Answer 27

a partnership at will is an open-ended partnership that does not have a fixed termination based on a period of time or particular undertaking.

Question 28

Once dissolved

Answer 28

Once a partnership has been dissolved, but before the winding up of its business is complete, the partnership may resume carrying on its business as if dissolution had never occurred.
To do so, all partners (including any properly dissociated partners) must agree to waive the right to terminate the partnership

Question 29

Buying out interest

Answer 29

When a partner dissociates from the partnership but the partnership is not dissolved, the partnership must buy out the dissociated partner’s partnership interest.
A dissociated partner may maintain an action against the partnership to determine the buyout price and to compel the partnership to pay that amount to the partner.
If there is no agreement to NOT dissolve, then dissolves and can only continue on as partnership if buy out other person

Question 30

Wrongful dissociation

Answer 30

A partner has the power to dissociate from the partnership at any time, even if the dissociation is wrongful. For a partnership that is unlimited by time or undertaking, a partner’s dissociation is wrongful only when it is in breach of an express provision of the partnership agreement.

A partner who wrongfully dissociates is liable to the partnership and the other partners for damages caused by the dissociation. In addition, a dissociated partner generally does not have the right to participate in the management or conduct of the partnership business and cannot participate in winding up the business.

Question 31

Wrongful dissociation & dissolution

Answer 31

Wrongful dissociation creates a possibility of dissolution, if, within 90 days of dissociation, a majority of the remaining partners express a will to wind up the business. If the partnership does not dissolve and wind up, the wrongfully dissociated partner is not entitled to payment of any portion of the payout until the expiration of the term or completion of the undertaking, unless the partner proves to the court that earlier payment will not cause undue hardship to the business of the partnership.

Ex: If they decide to continue the business, they could buy out Adam’s interest, less any damages caused by his wrongful dissociation, and continue the business as is. Further, payout to Adam would wait until the end of the original term, and the burden would be on Adam to prove that early payout is not unduly burdensome on the partnership.

Question 32

Partner not wrongfully dissociated

Answer 32

Any partner who has not wrongfully dissociated may participate in winding up the partnership’s business. He may also may dispose of and transfer partnership property and may discharge the partnership’s liabilities.

Question 33

Partner as agent, tortious acts

Answer 33

Because a partner is an agent of the partnership, the partnership is liable for a partner’s tortious acts, including fraud, committed in the ordinary course of the partnership’s business or with the partnership’s authority, whether actual or apparent. Unless there is also a judgment against the partner, a judgment against a partnership cannot be satisfied from a partner’s assets, only from the partnership’s assets. Even though a partner is personally liable for a partnership obligation, a partnership creditor generally must exhaust the partnership’s assets before levying on the partners’ personal assets.