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Business Associations - Fall 2022 (Dexter) > General Partnerships > Flashcards

General Partnerships Flashcards

1
Q

General Partnerships

Taxation

A

Income and Losses are allocated and passed through to partners either equally (Default Rules) or according to the partnership agreement

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2
Q

General Partnerships

Allocation of Profits & Losses

A

Profits and Losses are allocated either:
1. Equally (under Default Rules), or
2. In accordance with the Partnership Agreement

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3
Q

General Partnerships

Governing Law

A

Both internal affairs of a partnership and liability of a partner for debt, obligation, or other liability of the partnership are governed:

  1. According to the jurisdiction in which the partnership has its principal officer or
  2. As specified in the partnership agreement
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4
Q

General Partnerships

Partnership Agreement:
When Default Rules Apply

A

State partnership statutes contain default rules that apply when:

  1. The partnership agreement is silent
  2. The partners fail to agree on departures from default rules, or
  3. The matter at issue involves a limited list of non-waivable or non-modifiable rules
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5
Q

General Partnerships

Partnership Agreement:
Prohibited Modifications

A
  1. Vary:
    a. Rights and duties for filing with the state
    b. The power to dissociate (except to require notice)
    c. The right of the court to expel a partner
    d. The wind up requirement
    e. The law applicable to LLPs
  2. Eliminate:
    a. The Duty of Loyalty, except
    …..i. Identifying specific allowed categories of activities
    …..ii. Where sufficient partners authorize a specific act
    b. The obligation of Good Faith and Fair Dealing
  3. Unreasonably Reduce: The Duty of Care
  4. Restrict:
    a. The rights of Third Parties
    b. Unreasonably, partners’ right of access to books and records
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6
Q

General Partnerships

Duty of Loyalty:
Acceptable Modifications

A
  1. Identifying specific exempted categories of activities in the partnership agreement
  2. Where sufficient partners have authorized a specific act as exempt
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7
Q

General Partnerships

Formation

A

General Partnerships may be formed expressly or inadvertently where:

    1. Two or more persons associate and carry on as co-owners of a for-profit business
      AND
  2. The founders do not file paperwork necessary to form a different type of business entity
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8
Q

General Partnerships

Formation:
Inadvertent General Partnerships
Factors to Consider

A
  1. Equal Rights to Manage and Control
  2. Profit Sharing
  3. Loss Sharing
  4. Joint Liability to Creditors
  5. Capital Contributions to the Enterprise
  6. Extensions of Loans

Early People Like Jogging Crazy Lengths

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9
Q

General Partnerships

Types of Partnerships

A
  1. Partnership at Will
  2. Partnership for a Definite Term
  3. Partnership for a Particular Undertaking
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10
Q

General Partnerships

Adding a New Partner

A

Either:
1. Unanimous Consent of existing partners
2. Alternative Methods, per the partnership agreement

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11
Q

General Partnerships

“Pick Your Partner” Principle

A

Default Rule: The consent or all partners is required to become a partner, or to exercise information or management rights, in an existing partnershipa partner

Management rights are nontransferable.

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12
Q

General Partnerships

Partners’ Interest Rights

A
  1. Partnership Status Rights (Management & Voting)
  2. Financial Rights
  3. Other Rights
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13
Q

General Partnerships

Partners’ Rights:
Management Rights

A

Partners have equal rights to participate in management of the partnership, usually exercised through voting

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14
Q

General Partnerships

Partners’ Rights:
Voting

A

Default Rule: Voting is equal/per capital, regardless of unequal contributions

Voting rules may be modified in the partnership agreement

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15
Q

General Partnerships

Voting Rules:
Decisions Requiring Majority Vote

A

Default Rule: Differences concerning matters within the Ordinary Course of Business

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16
Q

General Partnerships

Voting Rules:
Decisions Requiring Unanimous Approval

A

Default Rule:
1. Differences concerning matters outside the Ordinary Course of Business
2. Partnership Agreement Amendments

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17
Q

General Partnerships

Partnership Property v. Separate Property

A

Property acquired with partnership assets is presumed to be partnership property

When it is unclear –> courts rely on the intention of the parties.

18
Q

General Partnerships

Partnership Capital

A

Property or money contributed by each of the partners for the purpose of establishing and carrying on the business of the partnership

Partners may contribute almost anything (cash, real property, office furniture, cars, trademarks, and services) to the partnership (capital contributions)

19
Q

General Partnerships

Capital Account

A

(+) Initial Capital Contributions
(+) Subsequent Capital Contributions
(-) Distributions
= Capital Account

20
Q

General Partnerships

Partner as Agent

A

Partners are agents of the partnership for the purpose of partnership business

They have the power to bind the partnership when acting within their authority

To determine authority –> Consider the *facts *and circumstances

21
Q

General Partnerships

Partner Acting Without Authority:
Response Options

A

If the partnership is aware of a partner acting without authority, they can send written notice stating the partner does not have the authority to bind the partnership

22
Q

General Partnerships

Partners’ Fiduciary Duties

A
  1. Duty of Loyalty
  2. Duty of Care
  3. Obligations of Good Faith and Fair Dealing
23
Q

General Partnerships

Partners’ Fiduciary Duties:
Duty of Loyalty

A
  1. No Usurpation of partnership opportunity
  2. No Competing with the partnership
  3. No Conflicting Interest transactions

Cannot be eliminated, but may be reasonably limited

UCI

24
Q

General Partnerships

Partners’ Fiduciary Duties:
Duty of Care

A
  1. No grossly negligent or reckless conduct
  2. No intentional misconduct
  3. No knowing violations of the law

Cannot be eliminated or unreasonably reduced

25
Q

General Partnerships

Partnership Liability

A

The partnership is liable for:
1. Actionable conduct of a partner
2. Acting:
a. In the ordinary course of business
OR
b. with the authority of the partnership

A partnership may sue and be sued in the name of the partnership

26
Q

General Partnerships

Partner Liability

A

All partners are jointly-and-severally liable for all obligations of the partnership that occured while they were partners.

Any or all partners may be sued, BUT a partner must recieve a judgment against themselves to be held liable for the partnership.

27
Q

General Partnerships

Partner Liability:
Reaching a Partner’s Assets

A
  1. Judgment against the partnership
  2. Judgment against the partner, and
  3. At least one of the following:
    a. A writ of execution stating partnership assets insufficient
    b. The partnership is in bankruptcy
    c. The partner agrees
    d. The court grants permission when there has been a reasonable showing that the partnership cannot repay
    e. The partner is also liable under tort law, independent of the partnership
28
Q

General Partnerships

Partners’ Rights:
Financial Rights

A

Default Rule: Each partner is entitled to an equal share of profits and losses (allocation)

Partners do not have a right to recieve distributions unless stated in the partnership agreement

Financial rights are transferrable, and their transfer does not automatically cause dissociation/dissolution

29
Q

General Partnerships

Transferred Financial Rights:
Partner & Transferee’s Rights

A

Transferee: Distribution Rights of the Partner
Partner: Management & Control Rights + **Personal Liability **for Partnership Obligations

30
Q

General Partnerships

Partners’ Rights:
Information & Accounting

A

Partners have a right of access to the partnership’s books and records.

31
Q

General Partnerships

End Game Timeline

A

Dissociation –> Dissolution –> Winding Up –> Termination –> Partnership No Longer Exists

OR

Dissociation –> No Dissolution –> Partnership Continues

32
Q

General Partnerships

Events Resulting in Partner Dissociation

A
  1. Partnership has notice of a partner’s express will to withdraw
  2. The occurrence of and agreed upon event
  3. The partner’s expulsion
    a. Under the partnership agreement
    b. By unanimous vote
    c. By judicial determination
  4. The partner’s
    a. Becoming a debtor in bankruptcy
    b. Executing an assignment for creditors
    c. Appointment of a trustee, receiver, or liquidator of all or substantially all the partner’s property
    d. Failing to remove such trustee within 90 days of appointment
  5. When the partner is an individual
    a. Their** death **
    b. The appointment of a guardian or general conservator
    c. A** judicial determination** of partner’s incapability of performing
  6. Termination of a partner who is not an individual, partnership, corporation, trust, or estate
33
Q

General Partnerships

Dissolution

A

A partnership dissolves in a sense that it no longer exists to generate profits as a business and now exists for the purposes of winding up the partnership business.

At any time after dissolution and before winding up, all of the partners, including any dissociating partners **not wrongfully **dissociated may waive the right to wind up and terminate after dissolution.

34
Q

General Partnerships

Events Causing Dissolution:
Generally

A
  1. Occurence of event that dictates winding up in the partnership agreement
  2. Subject to cure, an event causing illegality of the partnership business
  3. Certain judicial determinations
35
Q

General Partnerships

Events Causing Dissolution:
Partnership At Will

A

Upon notice to the partnership of a partner’s express will to withdraw (dissociate)
RUPA 801(1)

36
Q

General Partnerships

Partner Dissociation Events:
Partnership for a Definite Term/Undertaking

A
  1. Completion of the term/undertaking
  2. Unanimous decision to wind up
  3. 50% of remaining partners seek to wind up within 90 days of certain dissociation events
37
Q

General Partnerships

Where Partner Dissociation Does Not Cause Dissolution:
Effect on Rights, Liabilities, & Authority of Partners

A

Dissociated Partner
1. Ended Rights & Duties
a. Partnership Status Rights
b. Fiduciary Duties
2. Lingering Rights & Duties (2 years)
a. Authority (Apparent)
b. Liability (For apparent authority)
3. May have a right to buyout

Remaining Partners
1. Have a right to buyout the dissociating partner
2. May file a statement of dissociation

38
Q

General Partnerships

Winding Up

A

A partnership winds up when it:
1. Completes its work,
2. Sells its assets,
3. Pays its obligations (including Partner Accounts), and
4. Settles internal financial matters.

39
Q

General Partnerships

Partner Accounts

A

Upon dissolution, Partner Accounts become partnership liabilty

After liquidation, all profits/losses must be allocated to each Partner Account

Partner Accounts must be addressed in the partnership agreeemnt

A partnership account includes the sum of:

(+) Partner’s Contributions (Money & value of Property)
(+) Share of the partnership’s profits
(-) Money Received (distributions & Profits)
(-) Value of Property Received
(-) Share of the partnership’s losses

40
Q

General Partnerships

Winding Up:
Remaining Debts

A

If the partnership has more obligations than assets in the partnership and partnership accounts, then the partners must contribute the difference, proportionately.

If one partner fails to pay, the other partners must proportionately pay his share and then they can recover their contribution from that partner.

Business Associations - Fall 2022 (Dexter) (13 decks)

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