General Partnerships

Question 1

Overview Form

Question 2

Management

Question 3

Financial Structure

Question 4

Fiduciary and other Duites in Partnership

Question 5

Dissolution v. Disassociation

Question 6

Limited Partnership

Question 7

Partnerships

Answer 7

A partnership is an association of two or more persons or entities carrying on, as co-owners, a business for profit. The co-owners themselves are called partners. This portion of the outline is based upon the Revised Uniform Partnership Act (the RUPA) promulgated by the Uniform Law Commission. However, not all states have adopted the RUPA. [See Revised Uniform Partnership Act § 101(10) (2013); partnership, Black’s Law Dictionary (10th ed. 2014).]

Question 8

General Partnerships

Answer 8

The basic type of partnership is a general partnership. Under the RUPA, a general partnership is considered to be a distinct entity from its partners, at least for some purposes. However, a general partnership is not a juridical person in the same sense as a corporation, so that for some purposes, the law treats the partnership as simply the aggregation of its individual partners. [See Revised Uniform Partnership Act § 201 (1997); partnership, general partnership, Black’s Law Dictionary (10th ed. 2014).]

Question 9

Formation of a General Partnership

Answer 9

If (1) two or more persons come together to carry on, as co-owners, a business for profit, and (2) the legal requirements to form some other type of association (for instance, a corporation) are not satisfied, then a general partnership is formed. This is true regardless of whether the persons subjectively intend for their association to meet the legal definition of a general partnership, and it may be true even if a relevant agreement expressly states that the association is not a general partnership. [See Revised Uniform Partnership Act § 202(a) & cmt. (1997).]

Question 10

Determining Who is a Partner in a General Partnership

Answer 10

In general, the hallmarks of a partner are the rights to (1) receive a share of the profits and (2) participate in managing and controlling the business (that is, the right to participate in
executive decisions affecting the business). Similarly, if a person is obligated to share in the enterprise’s losses or contributes capital to the business, these are strong indications that the person is a partner. Joint or common ownership of property does not establish a partnership by itself, even if the co-owners share profits from the property. The terms of any relevant agreement are afforded weight, but they are by no means controlling. A court may find that a person is or is not a partner despite the terms in any agreement. [Westside Wrecker Svc., Inc. v. Skafi, 361 S.W.3d 153 (Tex. Ct. App. 2011); Revised Uniform Partnership Act § 202 (1997).]

Question 11

Presumption of Partnership under the RUPA

Answer 11

The RUPA establishes a rebuttable presumption that a person who receives a share of the profits is a partner unless the payment is for:
* a debt;
* compensation to an independent contractor or employee;
* rent;
* annuity, retirement, or health benefits to a deceased partner’s representative;
* interest or similar charge for a loan; or
* the sale of property, including the goodwill of a business.
[Revised Uniform Partnership Act § 202 (1997).]

Question 12

Types of General Partnerships

Answer 12

1. partnership at will, the duration of which is not fixed by the terms of a partnership agreement; In a partnership at will, the duration of the partnership is not fixed by the terms of any
   partnership agreement. Consequently, a partner may leave the partnership at any time
   without facing any liability. [See partnership at will, Black’s Law Dictionary (10th ed.
   2014).]
2. partnership for a definite term, the duration of which is fixed by the terms of the partnership agreement; and In a partnership for a definite term, the duration of the partnership is fixed by the
   terms of a partnership agreement and terminates when the period expires. Unless the agreement provides otherwise, a partner who leaves before the term expires faces liability for any damages stemming from her premature departure. Under the RUPA, the partners may expressly or implicitly agree to continue the partnership beyond the
   term with no change in their status. [See partnership for a term, Black’s Law Dictionary
   (10th ed. 2014); Revised Uniform Partnership Act § 406 (1997).]
3. partnership for a particular undertaking, or joint venture, which exists solely to carry out a discrete project. In a partnership for a particular undertaking, also termed a joint venture, the
   partnership exists solely to carry out a discrete project. Generally, the partnership
   terminates upon the completion or cessation of that undertaking. Under the RUPA, the partners may expressly or implicitly agree to continue the partnership even after the undertaking ceases or is completed. [See joint venture, Black’s Law Dictionary (10th ed. 2014); Revised Uniform Partnership Act § 406 (1997).]

Question 13

Partnership Agreement

[Genreal Partnership]

Answer 13

The partners may enter into a partnership agreement—a written, oral, or implied contract that governs the partners and the partnership. Although no formalities are typically required, some partnership agreements may need to be in a signed writing under the statute of frauds. A partnership agreement is not necessary to form a partnership but may be invaluable to clarify the partners’ rights and obligations to one another and the partnership. The partnership agreement generally governs any aspect of the partnership that it addresses. Most of the rules in the RUPA are mere default rules tha t apply absent contrary terms in a partnership agreement. [See Revised Uniform Partnership Act §§
101(7), 103 (1997).]

Question 14

Partnership Agreement

[Genreal Partnership]

Answer 14

The partners may enter into a partnership agreement—a written, oral, or implied contract that governs the partners and the partnership. A partnership agreement is not always necessary to form a partnership.

Question 15

Consequences of creating a General Partnership.

Answer 15

1. Liabilties: Each partner is jointly and severally liable for the debts of the partnership. In addtion, each partner has the power to create obligation and liabilties for the partnership. This feature of genreal partnership means that if the partneship’s assets are not sufficient to cover a debt, the partners are personally liable for that debt.
2. Control: Each partner has the ability to participate in the control and management of the poartnership. Inder the Uniform Partership Act of 1997 (RUPA) each partner is entitiled to one vote, regardless of how much capital he or she contributed Alternative voting standards may be established by agreement amoung the partners.
3. Profits/Returns: In a partnershipi profits are shared equallty among partners. Therefore, when a partnership is dissvoled the moany is divided up amoung the partners. Most states provide that profits are allocated amoung partners equally (per captita) regardless of how much money was contributed by each partner. The partners can also change this feature by an agreement to allocate profits based on the amount contributed to the partership or using some other measure they might determeine appropraite.
4. Taxation: Partnerships are not taxed on their income. Instaed the tax responsibilty (or credit as the case may be) for the profits or losses of the partnership is “passed through” to the partners to include on theri respective “Personal” tax returns.
5. Fiduciary duites: Partner owe fiduciary duites to each other ands to eachj other and to the partnership.
6. Distinct enity: A partnership is treated as a distinct entity separate from its partners. It may enter into contracts own property and hold rights under the law.

Question 16

Things that a partnership agreement can not do.

Answer 16

Question 17

Partners’ Fiduciary Obligations

[What partners must not do]

Answer 17

1: deal with the partnership as an adverse party,
2: use or exploit the partnership’s confidential information,
3: compete with the partnership in the conduct of its business, or
4: appropriate a partnership opportunity.

Question 18

Partners’ Fiduciary Obligations

[Partners’ Duites of Care]

Answer 18

Each partner must refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law related to partnership business. A partnership agreement may not eliminate the duties of loyalty, care, or good faith and fair dealing, though it may modify these duties in appropriate cases.

Gross Negligence or Recklessness:
Gross negligence is more than mere failure to exercise reasonable care under the circumstances; it is closer to failure to exercise any appreciable care at all, even the care of an inattentive and generally incapable person. Recklessness, on the
other hand, amounts to conscious disregard of a high and unjustified risk that a particular result will flow from a partner’s conduct. [See gross negligence, Black’s Law Dictionary (10th ed. 2014).]

Question 19

Partners’ Fiduciary Obligations
[Partners’ Management Rights and Compensation]

Answer 19

Each partner has equal rights in the management and conduct of the partnership business. If a difference arises on a matter in the ordinary course of the partnership’s business, then a simple majority of the partners may decide the matter. The partners must agree unanimously to any act or transaction falling outside the ordinary course of the partnership’s business. These rules are, of course, subject to any contrary provisions in the partnership agreement. [See Revised Uniform Partnership Act §
401(f), (i)-(j) (1997).]

Question 20

Partners’ Fiduciary Obligations
[Partners’ Share of Profits and Losses]

Answer 20

Subject to the partnership agreement, each partner is entitled to an equal share of the partnership profits and has the right to receive distributions from the partnership. Each partner must share in partnership losses in proportion to her share of the profits. These rules apply without regard to capital contributions. [See Revised Uniform Partnership Act §§ 401(b), 502 (1997).]

Example:
A founding partner agreed to contribute $100,000 to a partnership intending to build and sell a home. The other partner was a general contractor who contributed no capital to the partnership but agreed to manage construction. Under the partnership
agreement, 60 percent of profits were to go to the founding partner and 40 percent were to go to the general contractor. The partnership agreement did not address allocation of losses. After three years, the constructed home was sold for a $100,000
loss. Because the partnership agreement did not specify otherwise, each partner bore Business Associations | 58 a portion of partnership losses equal to his share of the profits, without regard to
capital contribution. The general contractor’s share of profits was 40 percent. Thus, he owed the partnership $40,000, 40 percent of the $100,000 loss. [Adapted from Revised Uniform Partnership Act § 401(b) cmt. 3.]

Question 21

Partners’ Fiduciary Obligations
[Partners’ Right to Access Information]

Answer 21

Each partner is entitled to access the partnership’s books and records during ordinary business hours. The books and records must be kept at the partnership’s chief executive office.

Question 22

Implied Covenant of Good Faith and Fair dealing

Answer 22

Discharge duties to the
partnership and partners
consistent with implied covenant
of good faith and fair dealing.

Question 23

Rights and Liabilities of General Partners and the Partnership

Answer 23

In a general partnership, the partners have various rights and responsibi lities relative to one another and the partnership. The general partners are also typically personally liable for partnership obligations, whether in contract, tort, or otherwise.

Question 24

Partner’s Power to Bind the Partnership as an Agent

Answer 24

Each partner is considered to be an agent of the partnership when conducting partnership business. This means that, generally, if a partner’s act is apparently for carrying on the partnership’s business (or a business of the same kind) in its ordinary
course (or in the usual way), then the act binds the partnership, just as an agent’s act with actual authority would bind the principal. However, if the partner does not have
authority to act for the partnership in a particular matter (for instance, by the terms of the partnership agreement), and a third party with whom the partner is dealing knows
that the partner lacks authority, the partnership will not be bound. By contrast, a Business Associations | 50
partner’s actions outside the ordinary course of business bind the partnership only if all the other partners authorize it. [See Revised Uniform Partnership Act § 301 & cmt. (1997).]

Question 25

General Partnership’s Liability for Partners’ Misconduct

Answer 25

A general partnership may sue and be sued in its own name. In that vein, a general partnership (along with, hence, the partners themselves) is liable for harm arising from the partners’ torts and other wrongful acts committed (1) with actual authority or (2) in the ordinary course of the partnership’s business. [Revised Uniform Partnership Act
§§ 305(a), 307(a).]

Example:
A general partnership’s business was to deliver packages. One of the partners negligently struck a pedestrian while using a partnership truck to make deliveries for the partnership. This tort was committed in the ordinary course of the partnership’s business. The partnership and the other partners were thus liable for the pedestrian’s
injuries.

Question 26

Partners’ Liability to the General Partnership’s Creditors

Answer 26

Typically, all partners in a general partnership are jointly and severally liable for the partnership’s obligations. This means that the partnership’s tort, contract, and other creditors may be able to satisfy their claims from the partners’ personal assets. [See Revised Uniform Partnership Act § 306(1) (1997).]

Question 27

Partners’ Liability to the General Partnership’s Creditors

[General Rules, Recovery against Partners Individually]

Answer 27

Generally, to recover against a partner’s personal assets, a partnership creditor must obtain a judgment against that specific partner, not just the partnership. Also, before proceeding against a partner’s assets on a judgment attributable to partnership obligations, a partnership creditor must typically proceed first against the partnership’s property. Only if the partnership’s property is exhausted may the creditor then move against a partner’s personal property. [See Revised Uniform Partnership Act § 307 & cmt. (1997).]

Question 28

Partners’ Liability to the General Partnership’s Creditors

[Exceptions to Requirement to Exhaust Partnership Assets]

Answer 28

A partnership creditor need not exhaust partnership assets before moving against
a partner’s personal assets if:
* a writ of execution on a judgment based on the same claim against the
partnership has been returned wholly or partially unsatisfied;
* there is a bankruptcy case in which the partnership is a debtor;
* the partner agrees that the creditor need not exhaust partnership assets;
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* a court allows the creditor to proceed against a partner’s assets, predicated on a
finding that partnership assets are not sufficient to satisfy the judgment,
exhausting partnership assets is excessively burdensome, or granting permission
is equitable; or
* the partner is liable on the claim, by law or contract, for reasons other than mere
status as a partner.
[See Revised Uniform Partnership Act § 307(d) (1997).]

Question 29

Partners’ Liability to the General Partnership’s Creditors

[Liability of Incoming Partner]

Answer 29

An incoming partner joining an existing partnership is not personally liable for partnership obligations incurred before her admission to the partnership. [See Revised Uniform Partnership Act § 306(b) (1997).]

Question 30

[General Partnerships]
Partners’ Fiduciary Obligations

Answer 30

In a general partnership, each partner owes the fiduciary duties of care and loyalty to both the partnership and the other partners. The partnership agreement may not waive these
duties. The agreement may, though, supply standards to evaluate whether partners have fulfilled these duties, provided the standards are not manifestly unreasonable. In Business Associations | 54
exercising partnership rights or performing partnership duties, a partner must deal fairly and act in good faith. [Revised Uniform Partnership Act § 404 & cmt. (1997).]

Question 31

[General Partnerships]
Transaction with the Partnership

Answer 31

A partner may generally transact with the general partnership in his individual capacity, as by lending money to the partnership. The partner’s rights and duties with respect to these transactions are the same as if the partnership had entered the same transaction with a third party, except as applicable law provides otherwise. [Revised
Uniform Partnership Act § 404(f) (1997).]

Question 32

[General Partnerships]

Benefits Arising from Partnership Activities and Property

Answer 32

Under the duty of loyalty, if a partner derives any personal benefit from carrying on or winding up the partnership business, the partner generally must account to the partnership for the benefit and hold it in trust for the partnership. In other words, the
partner must relinquish the benefit to the partnership. [Revised Uniform Partnership Act § 404(b)(1) (1997).]

Question 33

[General Partnerships]

Appropriating a Partnership Opportunity

Answer 33

Under the duty of loyalty, a partner must account to and hold in trust for the partnership any personal benefit the partner may derive from exploiting a partnership opportunity. In general, a partnership opportunity is an actual or potential transaction
that might possibly be valuable to the partnership, provided the partnership could legally (and, perhaps, practically) engage in it, and it falls within the scope of the partnership’s business. [See Revised Uniform Partnership Act § 404(b)(1) (1997);Fouchek v. Janicek, 225 P.2d 783 (Or. 1950).]

Question 34

[General Partnerships]

Confidential Partnership Information

Answer 34

Even after dissociation, a partner must not use or exploit the partnership’s confidential information. [Revised Uniform Partnership Act § 404 & cmt. (1997); Confidential Information, supra.]

Question 35

[General Partnerships]

Competing with the Partnership

Answer 35

Before the partnership’s dissolution or the partner’s dissociation, the duty of loyalty
forbids a partner from competing with the partnership in the conduct of its business.
This duty ends upon an event of dissolution. [Revised Uniform Partnership Act § 404
& cmt. (1997); Duty to Avoid Competing with Principal, supra.]

Question 36

Partner Dissociation from a Genral Partnership

Answer 36

Dissociation means that a partner ceases to be a partner. Sometimes, but not always, dissociation may lead to dissolution, winding up, and termination of the partnership. [See Revised Uniform Partnership Act § 602 (1997).]

Question 37

Three Phase of Partneship Ending

Answer 37

1. Disolution and Dissociation
2. Winding Up
3. Termination

Question 38

Events Causing Dissociation

[Partner Dissociation From a General Partnership]

Answer 38

a. Events Causing Dissociation
In most states, the relevant partnership statute will set forth an exclusive list of events
causing dissociation.

i. **Partner’s Volitional Withdrawal: **

• A partner may dissociate at any time by providing notice to the other partners of
  her express will to withdraw, whether or not the withdrawal breaches the
  partnership agreement. If the dissociation breaches the partnership agreement,
  then it is wrongful, and the dissociating partner will be liable to the partnership for
  any resulting damages. Even so, a dissociation is not void or ineffective simply
  because it breaches the partnership agreement. [See Revised Uniform Partnership
  Act §§ 601(1), 602(a) (1997).]

ii. Event of Dissociation Set Forth in Partnership Agreement

• The partnership agreement may specify events of dissociation. If so, and a
  specified event of dissociation occurs with respect to a partner, then the partner is
  dissociated. [See Revised Uniform Partnership Act § 601(2) (1997).]

iii.** Partner’s Expulsion**

• A partner is dissociated if she is rightfully expelled from the partnership. [ See
  Revised Uniform Partnership Act § 601(3)-(4) (1997).]

1) Expulsion under Partnership Agreement
The partnership may expel a partner under the terms of the partnership
agreement. [See Revised Uniform Partnership Act § 601(3) (1997).]

2) Expulsion if Not Provided for in Partnership Agreement
Even if the partnership agreement does not provide for expulsion, a partner
may be expelled by the other partners’ unanimous vote if: (1) carrying on
business with the partner is unlawful; (2) the partner’s right to receive
distributions and income from the partnership has been transferred, except for
merely placing an unforeclosed lien or security interest on the right; (3) if the
partner is a corporation, on 90 days’ notice after the corporation has filed a
certificate of dissolution, had its charter revoked, or had its right to conduct
business suspended by the jurisdiction of incorporation, and the matter is not
cured in 90 days; or (4) if the partner is itself a partnership, the partner has
been dissolved and is winding up its business. [See Revised Uniform
Partnership Act § 601(4) (1997).]

3)** Judicial Expulsion**

 The partnership or another partner may petition a court to expel a partner.
The court will do so if it finds that the partner (1) engaged in wrongful conduct
that materially harmed the partnership business, (2) materially and either
willfully or persistently breached the partnership agreement or his fiduciary
duties to the partnership or the other partners, or (3) engaged in conduct
toward the partnership business making it not reasonably practicable to keep
carrying on business with the partner. [Revised Uniform Partnership Act §601(5) (1997).]

iv. Partner’s Financial Distress

According to statutes in many states, a partner is dissociated if she:

• becomes a debtor in a federal bankruptcy proceeding (though the United States
  Bankruptcy Code may preempt state law and limit expulsion on this ground);
• executes an assignment for the benefit of creditors; or
• seeks or allows the appointment of a trustee, receiver, or liquidator (or fails to have a nonconsensual appointment vacated within 90 days).
  [Revised Uniform Partnership Act § 601(5) (1997).]

v. Partner’s Death or Incapacity
* If a partner is a natural person, then the partner is dissociated if:
* she dies,
* a guardian or general conservator is appointed for her, or
* a court determines that she is not capable of performing her duties under the
* partnership agreement.
* [Revised Uniform Partnership Act § 601(7) (1997).]

Question 39

[Partner Dissociation From a General Partnership]

Wrongful Dissociation

Answer 39

Generally, dissociation is wrongful only if it breaches the partnership agreement. If the partnership is for a definite undertaking or specific term, then dissociation is also wrongful if, before expiration of the term or completion of the undertaking:
* * the partner withdraws by express will (with exceptions),
* * a court expels the partner, Business Associations | 61
* * the partner becomes a debtor in a federal bankruptcy proceeding, or
* * the partner is not an individual and is expelled because it willfully dissolved or
terminated.
[Revised Uniform Partnership Act § 602 (1997).]

Question 40

[Partner Dissociation From a General Partnership]

Dissociated Partner’s Rights and Duties

Answer 40

Dissociated Partner’s Rights and Duties

A dissociated partner is no longer a partner. Even so, the dissociated partner may owe certain duties and exercise certain rights toward the partnership. [See Revised Uniform
Partnership Act § 603 (1997).]

i. Termination of Fiduciary Duties and Right to Participate in Management

A partner’s fiduciary duties of loyalty and care generally terminate on dissociation,
except for matters arising (1) before the dissociation or (2) in the course of winding
up the partnership business, if winding up occurs. The partner’s right to participate
in managing and conducting the business also terminates, except insofar as the
partner rightfully participates in winding up the business. [See Revised Uniform
Partnership Act § 603 (1997).]

ii. Forced Buyout

In some states, the partnership must buy a dissociated partner’s interest in the
partnership at a price calculated under a statutory formula. Under the RUPA, the
price is what the partner would receive if the partnership were either sold as a
going concern or, if greater, liquidated on the date of the dissociation, less
damages for wrongful dissociation and any other amounts the dissociated partner
owes to the partnership. [See Revised Uniform Partnership Act § 701 (1997).]

iii. Liability of Dissociating Partner

A partner who leaves, or dissociates from, a partnership that does not then
dissolve and wind up remains personally liable for partnership obligations incurred
before dissociation. The dissociating partner is also personally liable for partnership
obligations incurred within two years after dissociation if, at the time of the
transaction, the creditor (1) reasonably believed that the dissociated partner was
still a partner and (2) did not know or have actual or constructive notice of the
dissociation. A dissociated partner may be released from liability for a partnership
obligation by agreement with the creditor and the continuing partners. A
dissociated partner is released from a partnership obligation if, without the
dissociated partner’s consent but with notice of the dissociation, the creditor
agrees to materially alter the nature or time of payment. [See Revised Uniform
Partnership Act § 703 (1997).]

Note: To cut off lingering liability, a partner may file a statement of dissociation
with the appropriate state office. Starting 90 days after the filing, the statement
will be deemed to provide constructive notice that the partner has withdrawn. [See
Revised Uniform Partnership Act § 704 (1997).]

iv. Dissociated Partner’s Authority to Bind the Partnership

If the partnership does not dissolve and wind up on dissociation, then the
partnership will be bound by the dissociated partners acts for two years after
dissociation if the act would have bound the partnership without the dissolution,
and the other party (1) reasonably believed the dissociated partner was a partner
and (2) lacked actual or constructive notice of the dissociation. The dissociated
partner is responsible to the partnership for any damages resulting from this
liability. [See Revised Uniform Partnership Act § 702 (1997).]

Question 41

Dissolution of a General Partnership

Answer 41

Dissolution is not synonymous with terminating the partnership, but it is generally the first step toward terminating the partnership. That is, if an event causing dissolution occurs, then the partnership continues, but only for the purpose of winding up the partnership business. Once the winding up is concluded, the partnership terminates. Termination, by itself, does not in any way affect the partners’ liability for partnership obligations. [See Revised Uniform Partnership Act § 802(a) cmt. (1997).]

Question 42

[Dissolution of a General Partnership]

Continuing Partnership Despite Dissolution

Answer 42

If an event of dissolution occurs, all current partners and any dissociating partner
(other than a wrongfully dissociating partner) may agree unanimously to waive windup and termination and thus continue the business indefinitely. Provided this takes place before wind-up is completed, the partnership will cont inue, for most purposes,as though the event of dissolution had never occurred. [See Revised Uniform Partnership Act § 802(a).]

Question 43

[Dissolution of a General Partnership]

Events Causing Dissolution

Answer 43

State partnership statutes typically set forth an exclusive list of events that cause
dissolution. These events—and only these events—can cause dissolution. [See, e.g., Revised Uniform Partnership Act § 801 (1997).]

1. Partner’s Withdrawal in a Partnership at Will
2. Dissolution Events Peculiar to pPartnership for a Definte Team or Particular Undertaking.
3. Dissolution Event Specificed in Partnership Agreement
4. Partnership Business Becoming Illegal
5. Judicial Dissolution, Partners’s Application
6. Judicial Dissolution, Transferee’s Application

Question 44

[Dissolution of a General Partnership]

Partner’s Withdrawal in a Partnership at Will

Answer 44

A partnership at will (that is, a partnership that is not for a definite term or a
particular undertaking) is dissolved if a partner provides the partnership notice of
her express will to withdraw from the partnership or to dissolve the partnership.
[Revised Uniform Partnership Act §§ 601(a)(1), 801(1) (1997).]

Question 45

[Dissolution of a General Partnership]

Dissolution Events Peculiar to Partnership for a Definite Term or Particular
Undertaking

Answer 45

In a partnership for a definite term or particular undertaking, dissolution occurs if:

        * a partner wrongfully dissociates or dissociates through death, bankruptcy or a similar arrangement, incapacity, appointment of a guardian or conservator, and similar events, and within 90 days, at least half the remaining partners agree expressly to wind up the business (any partner dissociating by express will is deemed to agree to wind up the business);
				
     * all the partners expressly agree to wind up the business;
     
			 * the definite term expires; or
     
			 * the particular undertaking is completed.
    [Revised Uniform Partnership Act §§ 601(a)(6)-(10), 602(b)(2), 801(2) (1997).]

Question 46

[Dissolution of a General Partnership]

Dissolution Event Specified in Partnership Agreement

Answer 46

The partnership agreement may articulate specific events of dissolution. If an event of dissolution enumerated in the partnership agreement occurs, then the
partnership is dissolved. [Revised Uniform Partnership Act § 801(3).]

Question 47

[Dissolution of a General Partnership]

Judicial Dissolution, Partner’s Application

Answer 47

Dissolution occurs if a court finds, on application by a partner, that

• *the partnership’s economic purpose will likely be unreasonably frustrated;
• due to another partner’s conduct concerning the partnership business, carrying
  on business with that partner is not reasonably practicable; or
• for any other reason, carrying on the partnership’s business is not reasonably
  practicable.

Question 48

Winding Up a General Partnership

Answer 48

Winding up refers to the process of settling the partnership’s accounts and
distributing its assets. Typically, the process of winding up includes:

• prosecuting and defending actions and proceedings,
• settling and closing the partnership business,
• disposing of and transferring the partnership property,
• discharging the partnership’s liabilities,
• distributing the assets of the partnership, and
• settling disputes regarding the partnership.

In winding up, partners may not enter into any transactions that continue or engage in
new business; they are limited to winding up old business. [See Revised Uniform
Partnership Act § 803(c) (1997).]

Question 49

Winding Up a General Partnership

• Right ot Participate in Wind up

Answer 49

Any partner who has not wrongfully dissociated from the dissolved partnership has the right to participate in winding up the partnership business.

• Example:
  Several brothers formed a partnership at will that operated feed mills. One of the
  brothers was served with a notice of dissolution and wind-up of the partnership by
  the other partners. The brother argued that the other partners could not distribute
  the partnership assets in the winding up of the partnership business. However, the
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  other partners had the right to dissolve the partnership with notice of their
  express will; they also had the right to wind up the partnership by liquidating the
  partnership’s assets to make distributions to creditors and partners. The other
  partners could thus wind up the partnership business without the brother’s
  consent. [See Dreifuerst v. Dreifuerst, 280 N.W.2d 335 (Wis. Ct. App. 1979).]

Question 50

Winding Up a General Partnership

[Distribution of Partnership Assets in Winding Up]

Answer 50

Typically, for purposes of dissolution, partnership assets include partnership
property at dissolution and any contributions from partners needed to satisfy
partnership liabilities at dissolution. In states following the original Uniform
Partnership Act, the priority of distribution is as follows:

1) to pay debts owing to third parties;
2) to pay debts owing to partners, other than profits or return of capital;
3) to return the partners’ capital contributions; and
4) to pay the partners whatever is left according to their respective shares of
partnership profits.

The priority of distribution under the RUPA is similar. But the RUPA puts debts
owing to partners (other than for capital or profits) on equal footing with debts
owing to third parties, except insofar as partnership assets are insufficient to
satisfy debts to third parties. Also, the RUPA abolishes the priority distinction
between profits and return of capital. [See Uniform Partnership Act § 40 (1914);
Revised Uniform Partnership Act § 807 & cmt. (1997).]

Question 51

Winding Up a General Partnership

[Distribution of Partnership Assets in Winding Up]

Answer 51

Typically, for purposes of dissolution, partnership assets include partnership
property at dissolution and any contributions from partners needed to satisfy
partnership liabilities at dissolution. In states following the original Uniform
Partnership Act, the priority of distribution is as follows:

1) to pay debts owing to third parties;
2) to pay debts owing to partners, other than profits or return of capital;
3) to return the partners’ capital contributions; and
4) to pay the partners whatever is left according to their respective shares of
partnership profits.

The priority of distribution under the RUPA is similar. But the RUPA puts debts
owing to partners (other than for capital or profits) on equal footing with debts
owing to third parties, except insofar as partnership assets are insufficient to
satisfy debts to third parties. Also, the RUPA abolishes the priority distinction
between profits and return of capital. [See Uniform Partnership Act § 40 (1914);
Revised Uniform Partnership Act § 807 & cmt. (1997).]

Question 52

Winding Up a General Partnership

[Insufficient Assets to Satisfy Liabilities]

Answer 52

If in wind-up, the partnership assets are insufficient to satisfy liabilities, then each
partner must contribute to the deficiency in proportion to her share of partnership losses. If a partner fails or is unable to contribute her share, then the other partners must make up the difference, again in proportion to their respective shares of partnership losses, and they may recover the excess from the nonpaying partner. Of course, a partner need not contribute at all toward any debt for which she is not personally liable. [See Uniform Partnership Act § 40(d) (1914); Revised Uniform Partnership Act § 807 & cmt. (1997).]

Question 53

Winding Up a General Partnership

[Partners’ Actions after Dissolution]

Answer 53

After dissolution, a partnership may be bound by a partner ’s action that: (1) is
appropriate for winding up the partnership business or (2) would have bound the
partnership before dissolution, if the other party to the transaction lacks notice of
the dissolution.

Question 54

Limited Partnerships

Answer 54

A limited partnership is a partnership containing at least one general partner and at least one limited partner and formed by compliance with specific statutory procedures under state law.
[Revised Uniform Limited Partnership Act § 101(7) (1985)

• This is a hybrid
• LP in exchange for giving up a lot of control they are sort of the money partner
• LP is a soecial kind of registrar organization. You can not just be a registered organization
• LP partners do not have Agency powers.
• LP do not go into day to day business but has the ability to invest. The GP has all the rights and responibilty but has all the liabilty.

Question 55

Limited Partnerships

[Formation of limited Partnership]

Answer 55

• Typically, to form a limited partnership, a certificate of limited partnership containing any information required by statute must be filed with the state’s office for records pertaining to business organizations, usually the secretary of the state.

    * A limited partnership may also be formed by converting a general partnership into a limited partnership with the approval of all partners and the filing of a certificate of limited partnership. As with general partnerships, a partnership agreement may set forth additional terms that govern the limited partnership. [See Revised Uniform Partnership Act § 902 (1997); Revised Uniform Limited Partnership Act § 201 (1985

Question 56

Limited Partnerships

[General Partners in Limited Partnerships]

Answer 56

a.** Liability of Incoming General Partner**

An incoming general partner or a limited partner converting to a general partner is
liable only for those partnership obligations incurred after the person becomes a general
partner. [See Uniform Limited Partnership Act § 404(a) (2001).]

b. Becoming a General Partner

In most instances, a person becomes a general partner in a limited partnership if either
(1) the certificate of limited partnership designates the person as a general partner, or
(2) except insofar as the partnership agreement states otherwise in writing, by consent
of all existing general and limited partners. A person may also become a general
partner in the course of a merger or similar transaction affecting the partnership.
[Revised Uniform Partnership Act § 401 (1985); Uniform Limited Partnership Act §
401 (2001).]

c. General Partner’s Right to Withdraw

Under RULPA, a general partner may withdraw, or dissociate, from the limited
partnership at any time by giving notice to the other partners, even if the withdrawal
violates the partnership agreement. If the withdrawal violates the partnership
agreement, though, the withdrawing general partner may be liable to the limited
partnership for any resulting damages. [See Revised Uniform Limited Partnership Act
§ 602 (1985); Uniform Limited Partnership Act § 604 (2001).]

d. Other Events of Dissociation, General Partners

The rules governing dissociation of general partners largely parallel those governing
dissociation of a partner in a general partnership. [See Revised Uniform Limited
Partnership Act § 402 (1985); Uniform Limited Partnership Act § 603 (2001).]

Question 57

Limited Partners

Answer 57

Limited Partners

A limited partner contributes capital in exchange for an ownership stake in the limited
partnership’s business and, typically, does not participate in controlling the business.

a. Liability of Limited Partners: The Control Test

The general rule is that a limited partner is not liable for obligations of the limited
partnership except to the extent of her capital contributions. However, if a limited
partner participates in controlling the business in a manner inconsistent with status as
a mere passive investor, then, in many states, she becomes liable for the general
partnership’s obligations as though she were a general partner. This is true regardless
of whether the limited partner is designated as a limited partner in any document or
agreement. Many states limit this liability to third parties who transact with the limited
partnership and reasonably believe, based on the limited partner ’s conduct, that she is
a general partner. In other states, a limited partner’s liability is limited to her capital
contributions, even if she participates in controlling the business. [Compare Revised
Uniform Limited Partnership Act § 303(a) (1985) with Uniform Limited Partnership Act
§ 303 (2013); Caley Inv. I v. Lowe Family Assocs., Ltd., 754 P.2d 793 (Co. Ct. App.
1988).]

Example:
A general partner and two limited partners formed a limited partnership. The
partnership agreement gave the general partner broad authority to manage the limited
partnership’s business. However, the agreement also gave the limited partners power
to withdraw all funds from the partnership’s bank account without consent from the
general partner. This, in turn, afforded the limited partners the leverage to run every
aspect of the business. They used this leverage to make purchasing and other
decisions for the business and even to compel the general partner’s resignation. The
limited partners were liable for the partnership’s obligations. Their conduct crossed
the line from passive investment into active management. [Adapted from Holzman v. De
Escamilla, 195 P.2d 833 (Cal. Ct. App. 1948).]

i. Control Test, Safe Harbor
RULPA enumerates certain activities that do not constitute participation in control
of the business. A limited partner will not be liable as a general partner simply
because she engages in these activities, which include:
* working for the limited partnership as an agent, contractor, or employee;
* being an officer, director, or shareholder of a corporation that is a general
partner;
* guaranteeing or assuming limited-partnership debt;
* proposing or requesting a partner meeting;
* voting on whether to approve specific partnership actions, such as incurring debt
or winding up the partnership; and
* winding up the limited partnership.
[

Question 58

Limited Partners
[Becoming a Limited Partner]

Answer 58

Generally, a person becomes a limited partner:

• by being designated a limited partner by the certificate of limited partnership or
  other governing partnership documentation;
• if all general and limited partners consent (some states may require written consent);
  or
• as provided in the partnership agreement.
  A person may also become a limited partner due to a merger or similar transaction
  affecting the limited partnership. [Revised Uniform Partnership Act § 301 (1985);
  Uniform Limited Partnership Act § 301 (2013).]

Question 59

Limited Partners
[Dissociation of a Limited Partner, RULPA]

Answer 59

Under RULPA, a limited partner may withdraw, or voluntarily dissociate, from a limited
partnership according to the terms of the partnership agreement. If the partnership
agreement does not address the matter in writing, then a limited partner may
withdraw on six months’ written notice to the general partners. [Revised Uniform
Partnership Act § 603 (1985).]

Question 60

Limited Partners

[Dissociation of a Limited Partner, ULPA]

Answer 60

Under ULPA, a limited partner generally may not withdraw until the limited
partnership terminates, but may be dissociated upon grounds similar to those
sufficient to dissociate a partner in a general partnership. [See Uniform Limited
Partnership Act § 601 (2001).]

Question 61

Limited Partners
[Limited Partner’s Right to Vote]

Answer 61

Generally, the partnership agreement may give limited partners the right to vote on any matter, provided the control limitation is not transgressed. Many states give limited partners the right to vote on certain key matters, such as:

• admitting a limited or general partner,
• amending the partnership agreement,
• disposing of substantially all of the limited partnership’s property outside the usual course of business,
• expulsion of a general or limited partner, or
• dissolving the partnership.

Question 62

Limited Partners

[Limited Partner’s Right to Information]

Answer 62

Most states require limited partnerships to keep specific records. A limited partner has a right to inspect and copy these records, at least during regular business hours at the partnership’s main office. Additionally, and upon reasonable demand, a limited partner has a right to various types of information regarding the partnership’s business and affairs. Some states may require that the demand be in writing and describe the requested information with reasonable particularity. Generally, the limited partner’s purpose for seeking the information must be reasonably related to her interests as a limited partner, and the information itself must reasonably relate to that purpose. A limited partner may not obtain information for some abusive or subversive purpose,
such as providing confidential information to a competitor of the limited partnership.
[See Revised Uniform Limited Partnership Act § 305 (1985); Uniform Limited Partnership Act § 304 (2013).]

Question 63

Transferability of Interest in Limited Partnership

Answer 63

Subject to the partnership agreement, a general or limited partner may transfer only her right to receive distributions from the limited partnership, not the status or other prerogatives of partnership. Under RULPA, the partnership agreement may give an assignor who is a limited partner the right to make the assignee a limited partner in her place. If it does not, then the assignee may become a limited partner only by consent of all partners or as otherwise provided in the partnership agreement. [See Revised Uniform Limited Partnership Act § 704 (2018).]

Question 64

Dissolution of a Limited Partnership

Answer 64

A limited partnership may generally be dissolved, wound up, and terminated in the same
manner as a general partnership. [See Revised Uniform Partnership Act §§ 804-05, 903
(1997); Dissolution of a General Partnership, supra.]

a. Events of Dissolution, Limited Partnership

a. As with a general partnership, a limited partnership will dissolve upon an event of dissolution.

I. Time or Event in Certificate of Limited Partnership or Partnership Agreement
A limited partnership will dissolve at a time set forth in the certificate of limited
partnership or on the occurrence of an event specified in the partnership
agreement. [Revised Uniform Partnership Act § 801(1)-(2) (1985); Uniform Limited
Partnership Act § 801(1) (2001).]

ii. Dissolution by Consent
Under RULPA, a limited partnership will dissolve if all general and limited partners
consent in writing to dissolution. Under ULPA, a limited partnership will dissolve
upon consent by (1) all general partners and (2) limited partners holding a majority
of the rights to distribution at the time consent is to take effect. [Revised Uniform
Partnership Act § 801(3) (1985); Uniform Limited Partnership Act § 801(2) (2001).]

Question 65

Winding Up a Limited Partnership

Answer 65

As with a general partnership, a limited partnership does not terminate immediately
upon dissolution. Rather, termination does not occur until the business is wound up.
Under RULPA, general partners who have not wrongfully dissolved the limited
partnership (as by wrongfully dissociating from it) are responsible for winding up the
limited partnership, including entering into transactions and incurring liabilities
necessary to wind up the business. If there are no general partners who have not
wrongfully dissociated, then the limited partners may wind up the business.

Alternatively, any general or limited partner may petition an appropriate court, which
may then wind up the business. Under ULPA, if there is no general partner to wind up
the business, then the limited partners may appoint the equivalent of a general
partner for that purpose, or for good cause (including lack of a general partner and
failure to appoint one), a court may appoint and supervise someone to wind up the
business. [See Revised Uniform Limited Partnership Act § 803 (1985); Uniform Limited
Partnership Act § 803 (2001).]

i. Creditors’ Claims, Winding Up a Limited Partnership
If a limited partnership winding up follows specific statutory notice procedures,
then creditors’ claims received after a certain date and arising before the event of
dissolution may be barred against the limited partnership. [See Uniform Limited Partnership Act §§ 603, 604 (2001).]

ii. Distribution on Winding Up a Limited Partnership
For winding up limited partnerships, the rules governing distribution of assets and
general partners’ obligations to contribute to satisfy liabilities in excess of assets
largely parallel those governing general partnerships. Claims for unpaid
distributions may be subordinated to claims of general creditors, including partners
who are creditors for debts other than unpaid distributions, but they will be paid
ahead of partners’ capital returns or profits. [See Revised Uniform Limited
Partnership Act § 804 (1985); Uniform Limited Partnership Act § 821 (2001).]

Question 66

Limited Liabilty Partnerships

Answer 66

A limited liability partnership (LLP) is a partnership that has (1) obtained approval from the requisite number of partners (usually, enough to amend the partnership agreement) and (2) properly completed and filed a statement of qualification with the appropriate state office, paid the requisite fee, and satisfied other requirements. Like a general partnership, an LLP draws no distinction between general and limited partners. Indeed, the law of general partnerships typically governs LLPs, except insofar as the jurisdiction’s partnership statute provides otherwise. [See Uniform Partnership Act § 1001 (1997); Dow v. Jones, 311 F. Supp. 2d 461 (D. Md. 2004).]