General Partnerships

Question 1

Characteristics of a General Partnership

Answer 1

A partnership is an association of: two or more persons to carry on as co-owners a business for profit

A “person” who is a partner in a partnership can be any legal entity.

A partnership is legally distinct and separate from its owners and can: own property, enter into a contract, sue to enforce its legal rights and be sued

General partnerships consist entirely of general partners.

Question 2

The characteristics of general partners:

Answer 2

a. Agents of the partnership;
b. Equal rights to control or manage the business;
c. They share in the profit and losses of the business;
d. Personally for the firms debt; and
e. They can exit the partnership at will

Question 3

Admission of new GPs

Answer 3

Unless the partnership agreement specifies otherwise, a new partner must have the unanimous consent or approval of all current partners in order to be admitted to the partnership.

Question 4

For tax purposes, partnerships are:

Answer 4

A flow through entities - this means that partnership income (whether its been distributed or not) is taxed only at the level of the individual partner, the partnership itself does not pay income tax

In the case of losses incurred by a partnership, partners can take a deduction from their taxable income that is in the same proportion as their share of the profits.

Question 5

Formation of a General Partnership

Answer 5

A general partnership is formed by an agreement among those who will co-own an ongoing business for profit

Potential partners must possess the capacity to contract.

This agreement can be made expressly - by oral or written agreement, or implicitly – from the conduct of the parties

Question 6

What are some situations where a partnership can exist under an implicit agreement? A partnership is deemed to exist when all parties:

Answer 6

a. Contributes to the labor or capital of the enterprise;
b. Have a mutuality of interest in both profit and losses; and
c. Agree to share the asset and liability of the business

Question 7

In general, the sharing of profits is:

Answer 7

Prima facie evidence that a partnership exist

The law presumes a person is a partner in the business if he receives a share of profits in the business

Presumption is rebuttable by showing you don’t share in the losses

Question 8

In general, relations among the partners and between the partners and the partnership are governed by:

Answer 8

The partnership agreement or when the partnership agreement doesn’t otherwise provide, then by Florida’s RUPA

Question 9

RUPA is

Answer 9

a series of default rules that step in when a partnership agreement is silent on a topic. For the most part, the partners can choose to opt out of these default rules by providing otherwise in their agreement.

Question 10

Non-Waivable RUPA provisions:

Answer 10

(1) A partnership agreement may not eliminate a partner’s right to have reasonable access to the partnership’s books and records – makes sense because of a partner’s unlimited liability for the partnerships liabilities
(2) A partner’s right to dissociate is non-waivable but can be limited by requiring a writing.
(3) Cannot unreasonably reduce the duty of care or eliminate a partner’s obligations of good faith and fair dealing (can be limited, but not forbidden)
(4) A partnership agreement can identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable. But the partnership agreement cannot: All together eliminate a partner’s duty of loyalty

Question 11

Property is partnership property when it has been acquired in one of the following three ways:

Answer 11

(1) transfer to the partnership in its name;
(2) transfer to one or more partners in their capacity as partner, with an indication in the instrument transferring title of the name of the partnership; or
(3) transfer to one or more partners (not in their capacity as partner) with an indication in the instrument transferring title of either the transferee’s capacity as a partner or the partnership’s existence.

Question 12

Even if property is not acquired in any of these ways, it’s still presumed to be partnership property if:

Answer 12

It is purchased with partnership assets

Question 13

In contrast, the use of property for partnership purposes does not:

Answer 13

Create a presumption that the property is partnership property

Question 14

What if property is not determined or presumed to be partnership property according to the rules above?

Answer 14

Then the property will be presumed to be separate property.

Question 15

Partnership property, including its profits, is subject to attachment or execution but only for:

Answer 15

Claims against the partnership but not also claims against the individual partner

Question 16

A partner’s right to use partnership property is limited to

Answer 16

uses on behalf of the partnership.

Question 17

A partner’s personal property includes her partnership interest, which consists of:

Answer 17

(1) Financial interest in the share of partnership’s profits and losses
(2) Rights to receive distributions from the partnership

Question 18

A partner’s partnership interest does NOT include

Answer 18

ownership in partnership property. That is owned by the partnership, but not co-owned by the partners. As co-owners of a partnership, partners own their partnership interest and not more.

Question 19

Unless otherwise provided in the partnership agreement, a partner may transfer to another party,

Answer 19

her partnership interest – and can transfer that partnership interest to another party

Question 20

A transferee of a partner’s transferable partnership interest is entitled to

Answer 20

those disbursements or distributions that the transferring partner would otherwise have been entitled.

But a transferee of a partner’s partnership interest acquires: No right to participate in the management of the partnership business or the right to require access the partnership information, books or record

Question 21

Duty of Loyalty

A partner’s duty of loyalty to the partnership and the other partners is limited to the following:

Answer 21

(a) Must account for any property, profit, or benefit derived from partnership opportunity
(b) Refrain from having an adverse interest
(c) Refrain from appropriating partnership opportunity
(d) Must not compete w partnership

Question 22

Partner may compete with the partnership if

Answer 22

All partners consent

Question 23

Duty of Care

Answer 23

A partner must refrain from engaging in grossly negligent or reckless conduct, intention misconduct or a knowing violation of the law

Question 24

Conducting Partnership Business

Answer 24

Unless the partnership agreement provides otherwise, all partners have equal rights in the management and conduct of the partnership business unless they appoint a managing partner

Question 25

Decisions that do not contradict partnership agreement require…

Answer 25

majority vote of partners

Question 26

Decisions that contradict partnership agreement require…

Answer 26

unanimous vote

Question 27

Binding the partnership

Answer 27

As agents of a partnership, partners can bind the partnership in the ordinary course of business unless the partner in fact had no authority to act on behalf of the partnership AND the third party knew or had notification that the partner lacked authority

Question 28

A partnership can provide notice of a partner’s lack of authority to act on the partnership’s behalf with respect to specific matters by properly filing

Answer 28

a statement of partnership authority.

Question 29

If taken outside the ordinary course of the partnership business, a partner’s action binds the partnership ONLY IF:

Answer 29

(a) Authorized in a written partnership agreement

(b) All general partners consent to the action

Question 30

Even if a right to a formal accounting is not made part of an agreement, any partner shall have the right to a formal accounting of partnership affairs whenever:

Answer 30

(1) He is wrongfully excluded by his co-partners from the business or possession of its property or
(2) other circumstances render it just and reasonable.

Question 31

A partnership’s records must be kept at

Answer 31

its chief executive office and made available upon a partners demand

Question 32

A partner who makes personal payments for partnership debts or advances money on behalf of the partnership is

Answer 32

entitled to indemnification from the partnership.

Question 33

Partners share profits and losses according to

Answer 33

the terms of the partnership agreement.

Question 34

If no arrangement is specified, each partner is entitled to ______ share of partnership profits and losses

Answer 34

Equal

Question 35

Partnerships are also liable to third parties for loss or injury sustained as a result of the actionable conduct of a partner when the partner’s action was:

Answer 35

In the ordinary course of the partnership business or otherwise authorized by general partners

Question 36

In general, partners are liable:

Answer 36

Jointly and severally liable

However, an incoming partner is NOT personally liable for partnership obligation arising from activity that occurred before her admission as a partner

NOTE: While Florida tort law has abolished joint and several liability, joint and several liability still persists among partners of a partnership.

Question 37

Dissociation

Answer 37

Dissociation refers to a partner’s withdrawal or expulsion from a partnership.

Question 38

Partner’s Power to Withdraw

Answer 38

A partner’s power to dissociate—or withdraw—from a partnership is exercisable at any time – non-waivable right of every partner

The partnership must have notice

Question 39

But while a partner always has the power to withdraw, a partner may not have the right to do so and may be liable for…

Answer 39

damages caused by the withdrawal.

Question 40

A partner’s dissociation will occur in the following situations:

Answer 40

(1) Any event that is specified in the partnership agreement as causing a partner’s dissociation;
(2) Death;
(3) the partner’s bankruptcy;
(4) the appointment of a guardian for a partner; OR
(5) a judicial determination that a partner is incapable of performing the duties of a partner.

Question 41

A partner can be expelled by the unanimous vote of the other partners, if:

Answer 41

(1) A partner has sold substantially all of his transferable interest in the partnership;
(2) it has become illegal to carry on business with that specific partner; OR
(3) a partner that is a business entity has been dissolved or has had its right to conduct business suspended or revoked.

Question 42

Suppose that a partnership is for a definite term or undertaking. Expulsion by unanimous vote of the partners constitutes a wrongful dissociation only if

Answer 42

the expelled partner was a business entity that willfully dissolved or terminated.

Question 43

A partner can also be expelled by judicial determination, upon application by the partnership or by a partner, if this partner:

Answer 43

(1) Engaged in wrongful conduct that materially and adversely affected the partnership’s business;
(2) Willfully or persistently committed a material breach of the partnership agreement or of a fiduciary duty owed the partnership or partners; or
(3) Otherwise engaged in conduct that makes it not reasonably practicable to carry on business with that partner

Question 44

If the partnership is for a definite term or undertaking, willful withdrawal also constitutes a wrongful dissociation if a partner withdraws:

Answer 44

before the expiration of the term or the completion of the undertaking – only exception is if the withdrawal is within 90 days of another partners dissociation, death, or wrongful dissociation

Question 45

If the partnership is for a definite term or undertaking, expulsion by judicial determination always

Answer 45

constitutes wrongful dissociation. In that case, the expelled partner is subject to liability for damages arising from the dissociation.

Question 46

Consequences of a Partner’s Dissociation

Answer 46

A partner’s right to participate in management and conduct of the partnership business terminates

A partner’s duty of loyalty and duty of care effectively terminate, continuing only with regard to matters arising before the partner’s dissociation

If partnership is still in business, it must buy out the dissociated partner’s interest in the partnership.

Question 47

The buyout price for a dissociated partner’s share of the partnership must be equal to the greater of:

Answer 47

(a) the liquidation value of the partnership’s assets; or

(b) the value of the partnership’s going concern

Question 48

Damages for wrongful dissociation and all other amounts owed by the dissociating partner must be…

Answer 48

offset against the buyout price.

Question 49

Suppose that a partner wrongfully dissociates before the expiration of a definite term or the completion of a particular undertaking, partner is not entitled to payment of any portion of the buyout price until the expiration of the original term or the completion of the undertaking originally agreed upon. However, if dissociating partner can establish…

Answer 49

that an earlier payment will not cause undue hardship to the business of the partnership, then he can be paid earlier

Question 50

If a partner is dissociated from a partnership without a dissolution and winding up of the partnership business occurring, the partnership will be bound by transactions entered into by the dissociated partner only if:

Answer 50

(1) the transaction occurred within a year after the dissociation;
(2) the transaction would have bound the partnership if performed before the dissociation; and
(3) at the time of the transaction, the other party reasonably believed that the dissociated partner was then a partner.

Preventable by filing statement of dissociation
Can seek indemnification from dissociated partner

Question 51

The continued use of a dissociated partner’s name in the ongoing partnership business does not:

Answer 51

Make the dissociated partner liable for future liabilities of the partnership

Question 52

Dissolution is

Answer 52

Time when partner cease to carry on the business together

Question 53

Winding Up is

Answer 53

Process of settling partnership affairs after dissolution

Question 54

Termination is

Answer 54

Point in time when all the partnership affairs are wound up.

Question 55

Events Causing a Partnership’s Dissolution and Requiring the Winding Up of its Business

Causes applicable to partnerships generally:

Answer 55

(1) As provided by partnership agreement triggering dissolution;
(2) When it becomes unlawful to continue;
(3) Judicial Determination

Question 56

Partner can get a judicial determination dissolving partnership if:

Answer 56

(a) the economic purpose is unreasonably frustrated;
(b) Not be reasonably practicable; or
(c) Partner’s conduct relating to the partnership business
(4) Application by a transferee of a partner’s transferable interest, that it is equitable to wind up the business.

Question 57

Causes of dissolution that’s applicable only to a partnership at will:

Answer 57

the partnership’s having notice from any associated partner of his express intention to withdraw as a partner;

Question 58

Causes of dissolution that are applicable only to a partnership for a definite term or a particular undertaking:

Answer 58

(1) the express will of all the partners to wind up;
(2) the expiration of the term or the completion of the undertaking;
(3) the express will of AT LEAST HALF of the partners to wind up the partnership business, if the will is expressed within 90 days of a partner’s dissociation by death or a partner’s wrongful dissociation.

Question 59

After dissolution, the partnership continues only

Answer 59

for the purpose of winding up the partnership’s business.

Question 60

After dissolution, a partnership will be bound by the acts of a partner, if:

Answer 60

(1) they are appropriate for winding up the partnership business; or
(2) they would have bound the partnership before dissolution and no other party to the transaction had notice of the dissolution.

Question 61

After dissolution, a partner will be liable to the partnership for damages incurred as a result of the partner’s own acts, if:

Answer 61

(1) they are not appropriate for winding up and

(2) the partner acted with knowledge of the dissolution.

Question 62

A person winding up a partnership’s business may do various things:

Answer 62

(1) preserve for a reasonable time the partnership business or property as a going concern;
(2) prosecute and defend actions or settle disputes by mediation or arbitration;
(3) settle and close the partnership’s business;
(4) dispose of and transfer the partnership’s property;
(5) discharge the partnership’s liabilities;
(6) distribute the assets of the partnership; and
(7) perform any other necessary acts

Question 63

In winding up a partnership business, partnership assets must:

Answer 63

(1) First be applied to discharge obligations to creditors and any partners who are creditors and
(2) then any surplus must be applied to pay in cash the net amount distributable to partners in accordance with their right to distributions.

Question 64

If there are insufficient partnership assets to cover the partnerships debts:

Answer 64

Partners must contribute to make up the shortfall that’s the idea of joint liability

Question 65

If a partner fails to contribute the full amount required to fulfill his liabilities to the partnership, the other partners:

Answer 65

will be personally liable to the creditors for the shortfall but can seek contribution from the lapsing partner

Question 66

At any time before the winding up of partnership business is completed, all of the partners, including any dissociating partner who is not wrongfully dissociating, may:

Answer 66

waive the right to have the partnership business wound up

Question 67

(Rights of Third Parties)

The resumption of a partnership business shall

Answer 67

not adversely affect the rights of third parties that accrued during the partnership’s dissolution and before receipt of notice that the partnership’s business would be resumed.