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Business Organizations > General Partnerships > Flashcards

General Partnerships Flashcards

1
Q

BUSINESS ENTITY CHARACTERISTICS

A
  1. Management and control
  2. Tax features
  3. Financial structure
  4. Transfer rights
  5. Dissolution
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2
Q

UPA §6(1) - 3-part definition of a partnership:

A
  1. An association of 2+ persons
  2. to carry on business as co-owners
  3. for profit
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3
Q

Factors to Consider Whether Business = GP

A
  1. Profit sharing
  2. Contribution
  3. Participation in management
  4. Risk of loss
  5. Is entity registered in some other form?
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4
Q

GP Principle of Equality

A

Each GP . . .

  1. Can bind the partnership
  2. Has equal rights to manage business
  3. Shares equally in partnership liabilities or debts
  4. Shares equally in profits & losses
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5
Q

GP FEATURES That Distinguish Partnerships From Other Business Entities?

A
  1. PERSONAL LIABILITY
  2. PASS THROUGH TAXES (FLOW THROUGH)
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6
Q

STATUTES THAT GOVERN GPs

A

1.UPA

  1. RUPA
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7
Q

LIMITS ON PARTNERSHIP AGREEMENTS

A

Partnerships Agreements cannot . . .

  1. Unreasonably restrict partners’ rights to access p’ship’s books & records
  2. Eliminate general duty of loyalty (DoL)
  3. Unreasonably reduce duty of care (DoC)
  4. Eliminate obligations of good faith & fair dealing
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8
Q

WHAT IS A SOLE PROPRIETORSHIP?

A

Business owned by one person

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9
Q

IS INTENT OR CONTRACT NECESSARY TO FORM GP?

A

No - People can form a general partnership without even knowing it.

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10
Q

DOES A GP NEED TO BE ENTERED VOLUNTARILY?

A

YES

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11
Q

IS A PERSON REQUIRED TO ENTER A GP?

A

NO - It doesn’t have to be people. It can be entities, two or more people or entities to carry on business as co-owners.

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12
Q

DOES GP NEED TO BE FOR PROFIT?

A

YES - They need to have some business in mind and they need to carry on this business as co-owners for profit. They need to have the goal of making money

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13
Q

If invite someone to go wine tasting, that is merely a social gathering is it a partnership?

A

Hell Naw Son

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14
Q

if you suggest using your friends perfectly located real estate and your knowledge of enology to grow grapes and produce boutique wines is that a partnership?

A

It can be

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15
Q

WHEN DO YOU USE UPA §6(1) - 3-part definition of a partnership?

A

When nothing is reduced to a writing. Someone takes steps, something goes wrong, or the parties disagree about something. Then we do this analysis. There’s no magic formula, and we don’t need all these factors.

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16
Q

Important factors to consider when determining whether parties intend to carry on business as co-owners for profit?

A

Is there profit sharing? ? Partners usually share profits, and profit sharing is prima facie evidence that a partnership exists.

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17
Q

Exceptions to Profit Sharing as Evidence of GP

A

Profits are received as
1. Debt Service
2. Wages,
3. Rent or
4. An Annuity Contribution.

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18
Q

What Are Examples of What Partners Contribute for Share in Partnership?

A
  1. Money
  2. Talent
  3. Land
  4. Raw Materials
  5. Connections
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19
Q

Do Partners Need to Have Equal Votes?
(Participation in Management)

A

No - They don’t have to have equal votes or control.

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20
Q

Can Employees Have a Management Role Without Being Partners?

A

Yes - EX: Typical Law Firm Structure
A Little More Nuance.

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21
Q

Do Partners and Employees Typically Share in Financial Losses?

A

Partners - Yes
Employees - No

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22
Q

What Form can an Entity Registered Under a Partnership?

A
  1. LLC
  2. Corporation
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23
Q

If Entity is Not Registered as a(n) LLC or Corporation is it a Partnership?

A

No - It is definitely not a partnership.

24
Q

Are GPs Always Subject to Default Rules?

A

No - One can enter into a partnership agreement and change the default rules. Almost all of default rules can be changed by agreement.

25
Q

If Partners Do Not Expressly Change Default Rules Through a Partnership Agreement, Do They Share Equally in Rights, Responsibilities and Duties?

A

Yes

26
Q

What are the (Default) Rights, Responsibilities and Duties Under GP?

A
  1. That means that each partner can bind the partnership.
  2. Each partner has equal rights to manage.
  3. Each partner shares equally in any liabilities or debts of the partnership
27
Q

Situations Where Default Rules Can be Problematic.

A

One partner is an amazing person and incredibly creative but a horrible negotiator? Or if one partner has tons of money to pour into the business but is not particularly ethical? Maybe we want to rein them in. if one of the partners is a spendthrift? One has very expensive taste in office furniture and food and wine to serve at office meetings and events. And they’re only going to fly first class regardless of profits.

28
Q

If one partner contributes 90% of the capital, another only contributes 10%? Does it make sense for them to share equally in profits and losses?

A

Probably Not

29
Q

Do the Default Rules Govern Situations That Arise that not Covered in a Written Agreement?

A

Yes - Even if there is a partnership agreement, it may not cover all situations, so, those would be governed by the default rules.

30
Q

What do Partnership Agreements Generally Cover Disputes?

A

Yes

31
Q

What are Partners Agents of?

A

Each partner is an agent of the partnership and of each other.

32
Q

What is Personal Liability?

A

Each partner is personally liable for the partnership’s debts and obligations.

33
Q

If the partnership cannot pay a debt, can creditors go after that partner that has the deepest pockets.

A

Yes

34
Q

The Answer to the Question of whether an Endeavor is a Partnership?

A

The difference between personal liability and no liability. (May also impact rights to profits and control)

35
Q

Tax Liability

A

Typically passes through from the partnership to the partners.

36
Q

Is the General Partnership Taxed as a Separate Entity?

A

No - Tax liability passes through from the general partnership to individual partners who then pay taxes on profits through their income taxes based on their personal tax rates.

37
Q

What is a Joint Venture?

A

Are basically general partnerships, but for a limited purpose.

38
Q

How Does a Joint Venture Differ From a GP?

A

JV - Agreement to pull resources to accomplish a specific task or project.
JV - Ends when the task or project ends.
GP - Typically has a broader purpose and can last indefinitely.
(Otherwise, joint ventures have the same features as a general partnership and are treated accordingly).

39
Q

How is a Joint Venture Similar to a GP?

A

Like general partnerships in joint ventures? Two or more persons agree to pull resources to accomplish a specific task or project.

40
Q

Example of Joint Venture?

A

Buying an apartment building to renovate it and flip it.

41
Q

Where are the default rules governing partnerships are largely derived from?

A

UPA (Uniform Partnership Act)

42
Q

When was the Uniform Partnership Act (UPA) enacted?

A

1914

43
Q

Have all States Adopted UPA?

A

Yes, with the exception of Louisiana. (there’s some uniformity in the basic principles, but the particulars vary from state to state).

44
Q

When was the Revised Uniform Partnership Act (Rupa) Enacted?

A

1997

45
Q

Have all States Adopted RUPA?

A

Adopted by 37 states, but not in its entirety. So we cannot rely solely on Rupa.

46
Q

Is There More Case Law Under UPA or RUPA?

A

Rupa is the most recent iteration of the act, but there is so much more case law that developed under the UPA and a handful of important states like New York have not adopted Rupa. So we rely quite a bit on the UPA.

47
Q

Are Partnerships Governed by Federal or State Law?

A

State Law

48
Q

If You or a Client are in a Partnership is it Important to Have a Partnership Agreement?

A

Yes - Very Important

49
Q

Why it it Important to Have an Attorney Involved in Drafting a Partnership Agreement?

A

Because attorneys understand the default rules, when to use them, when to alter them for their client’s benefit. (If there are issues important to you or your client. Set those out clearly in your partnership agreement, otherwise the default rules kick in).

50
Q
A
51
Q

“Problem 2.2. On June 10, 2000, Charlene purchased a building from which she began operating a deli business. Beginning in 2004, Charlene’s two siblings, Linda and Shirley, began working in the business. Charlene, Linda, and Shirley coordinated their schedules so that they would not overlap and at least one of them would be present at the deli at all times. Linda ordered and maintained inventory for the deli, while Shirley performed bookkeeping functions for the deli. All three siblings negotiated with vendors and other individuals on behalf of the deli. Both Linda and Shirley received an hourly wage for the hours they worked in the deli in addition to 10% of the weekly net profits of the deli.
14
Can the deli business be viewed as a general partnership?”

A
52
Q

“Problem 2.3. In 2014, Matt and Becky began a cupcake business together where they agreed to donate all of their profits (after satisfying any expenses related to the business) to a designated charity.
Is the business a general partnership?”

A
53
Q

What Are the Two Primary Issues that Drive the Decision About Which Business Entity to Choose?

A
  1. Tax
  2. Limited Liability
54
Q

Does a Corporation or a Partnership Have a Lower Tax Obligation?

A

Partnership

55
Q

What is Limited Liability?

A

Investor’s liability is limited to the value of their investment in the business entity, and does not extend to their personal assets. (i.e. the extent to which the organization you choose limits for financial responsibility to your investment and does not your personal assets at risk).

56
Q

Why is a GP referred to as the Default Form of Business?

A

Because it is largely governed by statute.

57
Q

Problem 2.4. On June 10, 1992 Roger and Virginia began a business baking and selling cupcakes. From the outset Roger and Virginia agreed that Virginia would be responsible for managing the finances of the business while Roger would be responsible for baking and selling the cupcakes, including taking and fulfilling any cupcake orders. On April 20, 1995, for the first time ever, Roger entered into an agreement to fulfill a cupcake order whereby he donated all of the profits from the order to a charity. The order was three times more than the largest order they had ever fulfilled.
Is the business and Virginia responsible for the order? How would your answer change if Virginia had filled the order?”

A

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