Kaplan pgs 360-401 Partnerships Flashcards
If a partnership agreement is silent on anything, what controls?
The Uniform Partnership Act
If a partnership agreement makes no mention of how profits and losses will be shared, what is the default?
That they will be shared evenly
Do general partners have a right to be compensated for acting as a partner?
No, but the partnership agreement can provide for salaries
What is involved in the duty of loyalty with regard to a partnership?
- duty not to compete
– duty of care
– duty to account
What is involved in the duty to account that is part of the duty of loyalty for partnerships?
Partners have a duty to account to the general partnership
What is involved in the duty of care with regard to a partnership?
The partner can not engage in gross negligence, reckless or intentional conduct, or in violation of the rules.
What are all of the duties that a partnership owes?
- duty of loyalty: duty not to compete, duty to account, duty to refrain from adverse dealings
– duty of care
– good faith and fair dealing
– duty to keep books and right to information
What is required in order for a partnership to take on a new partner?
The consent of all of the partners
Who owns property that is acquired by a general partnership?
The partnership, and not the general partners individually
What are the different events that could lead to disassociation?
– notice to the partnership of the person’s express will to withdraw
- an event that was agreed-upon in the partnership agreement
– expulsion according to the partnership agreement
– expulsion by consent of the partners because of unlawful conduct or transfer of his interest
– expulsion by judicial order because of wrongful conduct, material breach of the partnership agreement or breach of duty
– person didn’t act or did act
Upon dissociation of a general partner, what are the general partner’s rights to participate in the management and conduct of the business and what are his duties of loyalty?
Both of those are terminated, but he continues to have duties of loyalty and due care with regard to things that happened before disassociation.
In what situation would a general partnership still be bound for up to two years after a general partner disassociates for any act of that general partner?
– if at the time the other party reasonably believed that the disassociated general partner was still a general partner
– if the other party didn’t have any notice of the disassociation
– if the other party would not otherwise have had knowledge or notice of the disassociation
If a partnership has an open account with a vendor, and an ex-partner orders inventory, and the vendor has no reason to think that partner has exited the partnership, what happens?
The partnership is bound by the contract and the ex partner is liable for damages
What is a good way to make sure that a disassociated partner can’t bind the partnership anymore?
Either party can file a statement of disassociation that says the general partner is disassociated. This acts as a limitation of authority for that disassociated partner and any non-partner is deemed to have notice of the disassociation 90 days after the statement is filed
What are the powers and duties involved in winding up?
A person that is winding up can:
– preserve the general partnership business as a going concern for a reasonable time
– prosecute and defend actions
– settle and close the business
– dispose of or transfer property
– discharge liabilities
– distribute the assets and settle accounts
– settle disputes by mediation or arbitration
– do all necessary things
If a cake bakery is winding up, what are the things it can and cannot do?
- can: fill all existing orders, sell inventory, collect amounts due, pay amounts due
– cannot: take on new business
Upon winding up of a general partnership when you do a settlement of accounts, how does that work?
- the general partnership must make a distribution (of the excess) to a general partner if the credits exceed the charges
- the partner must make a contribution to the partnership if the charges exceed the credits (in the amount of the excess)
What is the statutory default law for limited partnerships in California?
The Uniform Limited Partnership Act
If you are a limited partner in a limited partnership, what does that mean?
You contribute capital and share in the profits, but you do not take part in control or management and your liability is limited to your contribution
If you are a limited partnership, what does your name have to say?
Something to the effect of “Limited Partnership“ or the abbreviation “LP“
What are things that a limited partnership must maintain?
– a current list of all the names and addresses of all partners
– copies of the certificate of limited partnership and the partnership agreement
– copies of all financial statements and all tax returns for the past six years
– copies of any filed certificates of conversion or merger
– copies of any record made in the last three years of consent given or vote taken by any partner
– other records relating to contributions or events involved in dissolution and winding up
If a partner lends money to a limited partnership, what are his rights?
The same as any general creditor
What are the two situations when you need consent of every partner in a limited partnership?
- to amend the partnership agreement
– to sell or dispose of all or substantially all of the partnership’s property other than the usual course of business
What are things that a limited partner is allowed to do without losing his limited partner status?
– contract for the partnership
– be an officer, director, or shareholder
– be a member, manager, or officer of an LLC that is a general partner
– be a limited partner of a partnership that is a general partner
– consult with an advisor general partner
– act as a surety for a general partner
– approve or disapprove an amendment to the partnership agreement
– vote on meetings of the partners
– wind up the partnership
– serve on an audit committee
– serve on a committee that approves actions of the general partner
– participate in a meeting of the partners
– bring a derivative action
Does a limited partner have the right or power to act for or bind the limited partnership?
No
Does a limited partner have the right to inspect and copy partnership records?
Yes, and he doesn’t have to show a particular purpose for requesting that information
What are different ways that someone can become a limited partner?
– as provided in the partnership agreement
– because of conversion or merger
– with the consent of all the parties
What duty does a limited partner owe?
He has no fiduciary duties, he only has to discharge his duties with good faith and fair dealing
If a limited partner transfers his interest in the partnership, what is the only thing that can actually be transferred?
His right to distributions, which is personal property.
Does the transfer of partnership interests cause a disassociation or dissolution?
No
If there has been a transfer of a limited partner’s interest, what does that entitle the transferee to?
Only the right to distributions, he cannot participate in management, access information, or inspect or copy records
What is the difference between a limited partnership and a limited liability partnership?
– limited partnership: has general partners and limited partners, and the general partners have full liability while the limited partners are protected
– limited liability partnership: all the partners are protected from liability although they stay liable for their own negligence or negligent supervision of others
What is important for the name of a limited liability partnership?
It must say “Limited Liability Partnership“ or “Registered Limited Liability Partnership“ or “LLP“ or “RLLP“
If your law firm is an LLP, but you do not write the name of your firm with LLP at the end of it on all communications, what can happen?
You can lose the liability shield
In California is it possible for a licensed professional to form an LLC instead of a PC?
No, their only option is a PC
What is the major advantage for LLCs?
They are the most flexible entity, have flow through taxation, and limited liability for its members
What is the default rule for how LLCs are managed unless the articles of organization say otherwise?
Member managed
What is the requirement for the name of an LLC?
It must contain the words “Limited Liability Company“ or “LLC“ or it can abbreviate the words to “Ltd“ or “Co.”
What is the difference between member-managed and manager-managed LLC’s?
- member-managed: the LLC will only have members
– manager-managed: it will have members and managers, but managers do not have to be members
What is the basic rule structure for LLCs?
According to the operating agreement
Why is it hard to pierce the corporate veil for LLCs?
Because they do not have many required formalities or meetings
When can a member withdraw from an LLC?
Anytime as long as it is written notice to the other members
