General Partnerships

Question 1

When is a partnership formed?

Answer 1

A partnership is formed when two or more people associate to carry on as co-owners a business for profit.

Question 2

Who is presumed to be a partner?

Answer 2

A person who receives a share of the profits is presumed to be a partner.

Question 3

Can partners bind the partnership on a contract?

Answer 3

Partners are agents of the partnership and can therefore bind the partnership to a contract.

Question 4

When do partners bind the partnership?

Answer 4

A partnership can be bound on a contract entered into by a partner with actual or apparent authority.

Question 5

Actual authority of partners - general rule

Answer 5

Actual authority is authority that a partner reasonably believes he has based on his communications with the partnership. Actual authority can take the form of express authority or implied authority through custom, necessity, or prior acquiescence.

Question 6

Apparent authority of partners - general rule

Answer 6

The act of any partner apparently carrying on in the ordinary course of the partnership business or business of the kind carried out by the partnership will bind the partnership unless the partner had no authority to act for the partnership and the third party with whom the partner dealt with knew that the partner lacked authority.

Question 7

What is required for actual authority to enter into matters outside the ordinary course of business of the partnership?

Answer 7

Actual authority to enter into matters outside the ordinary course of business of the partnership requires unanimous consent of all partners.

Question 8

Are individual partners personally liable for contracts entered into on behalf of the partnership?

Answer 8

Each partner is jointly and severally liable for partnership obligations, which means that each partner is personally liable for the full amount

Question 9

What happens when a partner enters a contract he had no authority to enter on behalf of the partnership?

Answer 9

When a partner enters a contract he had no authority to enter into on behalf of the partnership, the partnership is not bound by the contract.

Question 10

Dissociation - general rule

Answer 10

Dissociation is caused by a partner ceasing to be associated with the carrying on of the business

Question 11

When is a partner dissociated from the partnership?

Answer 11

A partner is dissociated from the partnership upon notice of his express will to withdraw as a partner.

Question 12

What is the effect of dissociation of a partnership at will?

Answer 12

A partnership at will is dissolved and its business must be wound up when a partner notifies the partnership of his intent to withdraw. However, if the dissociating partners (excluding any wrongfully dissolving partners) and the remaining partners unanimously vote to continue the partnership business, then the dissolution is retroactively nullified.

Question 13

Does a partner’s postdissolution act bind the partnership?

Answer 13

A partnership will be bound by a partner’s postdissolution act if the act was appropriate for winding up the business. A partner will be bound by a partner’s postdissolution act even if it was not appropriate for winding up the business if the third party with whom the partner dealt did not have notice of the dissolution and the act would have bound the partnership before dissolution (through apparent or actual authority)

Question 14

May a partner who pays entire amount of a partnership debt collect from another partner?

Answer 14

Each partner is jointly and severally liable for the partnership obligations. Where one partner pays the entire amount of a partnership debt, she may require the other partner to contribute his pro rata share of the payment

Question 15

How are profits and losses split in a partnership?

Answer 15

Absent agreement otherwise, partners share profits equally, and losses are split in the same ratio as profits.

Question 16

What is required for actual authority for a partner to enter into matters within the ordinary course of business?

Answer 16

A partner has actual authority to enter into matters within the ordinary course of business by a majority vote of the partners.

Question 17

When will a judgment against the partnership not personally bind a partner?

Answer 17

A judgment will not personally bind a partner who has not been served.

Question 18

What must a judgment creditor do to seek satisfaction from a partnership?

Answer 18

A judgment creditor must first seek satisfaction of any judgment from the partnership, and then from the partners personally to the extent not covered by partnership assets

Question 19

How is management distributed in a partnership?

Answer 19

Partners have an equal right to manage the business of the partnership, absent an agreement otherwise.

Question 20

Do partners owe duties to the partnership?

Answer 20

Each partner owes a fiduciary duty to the partnership.

Question 21

Duty of loyalty to the partnership

Answer 21

A partner must:

1. account to the partnership for any benefit derived by the partner in conducting the partnership business, using the partnership’s property, or appropriating a partnership opportunity
2. to refrain from dealing with the partnership in the conduct of its business as (or on behalf of) a party having an interest adverse to the partnership; and
3. to refrain from competing with the partnership in the conduct of its business.

Question 22

Duty of care to the partnership

Answer 22

Each partner must refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law

Question 23

What is a partnership at will?

Answer 23

A partnership at will is created when no definite term or particular understanding is specified.

Question 24

What happens if the partnership business continues after a partner dissociates?

Answer 24

If the partnership business continues after a partner dissociates, the partnership must buy out the dissociated partner’s interest

Question 25

What happens to the authority of a partner after dissolution of the partnership?

Answer 25

Absent an agreement to the contrary, dissolution terminates the authority of any partner to act as an agent for the partnership except for the purpose of winding up.

Question 26

Can a partnership enter into new contracts during winding up?

Answer 26

New contracts are considered new business and are not appropriate for winding up

Question 27

Is a partner who acts for the partnership after dissolution, other than for the purpose of winding up, entitled to copartner contribution?

Answer 27

A partner who acts for the partnership after dissolution, other than for the purpose of winding up, is not entitled to copartner contribution for a liability arising from the act, if the acting partner had notice of the dissolution at the time of the act

Question 28

When will a partnership be bound by a partner’s postdissolution act if it was not appropriate for winding up?

Answer 28

A partnership will be bound by a partner’s postdissolution act even if it was not appropriate for winding up the business, if the third party with whom the partner dealt did not have notice of the dissolution and the contract was made with actual or apparent authority; thus, the partnership may be bound to new contracts regardless of the dissolution if the third party does not receive notice