Management and Operation of Entities

Question 1

management rights in general partnerships

Answer 1

all partners have equal rights in management of the business, unless otherwise agreed

Question 2

Voting in general partnerships

Answer 2

Unless otherwise agreed, all partners have equal voting rights

Ordinary course of biz requires a majority vote. Outside ordinary course of biz requires consent of ALL partners

Question 3

Compensation in general partnerships

Answer 3

Unless otherwise agreed, NO right to compensation

Profits are your default salary. Most change this in partnership agreement however

Question 4

Sharing profits and losses in general partnership

Answer 4

Unless otherwise agreed, profits shared EQUALLY among partners

Losses shared in SAME MANNER as profits, unless otherwise agreed

LOSSES FOLLOW PROFITS, BUT NOT HTE OTHER WAY AROUND

Question 5

Liability in Tort of General partnerships

Answer 5

Partnership liable for loss or injury caused to a person as a result of the tortious conduct of a partner or employee acting in the ordinary course of biz or with authority

Each partner is J&S liable for all obligations whether arising in tort or K, but P must first EXHAUST partnership resources before going after individual’s assets

Question 6

Liability in K of General Partnerships

Answer 6

Partnership liable for contracts entered into on its behalf by partners with actual or apparent authority

Each partner is J&S liable for all obligations whether arising in tort or K, but P must first EXHAUST partnership resources before going after individual’s assets

Question 7

Actual Authority in partnerships

Answer 7

Created by partnership agreement or by requisite vote of the partners

Question 8

Statement of authority

Answer 8

Filed withs secretary of state. Grants or limits a partner’s authority to enter into transactions on behalf of the partnership

If RP, must be filed with county recorder

Third parties deemed to have constructive knowledge of GRANTS of authority, not RESTRICTIONS. Therefore, only actual knowledge of a lack of authority or actual knowledge of restrictions would hurt them)

NOTE: for REAL PROPERTY, however, Third parties benefit by filed grants of authority and are burdened by filed restrictions. constructive record knowledge for both

Question 9

Limiting Third Party Liability in General Partnerships

Answer 9

Partners cannot limit a third party’s rights w/o the third party’s consent

Question 10

Fiduciary Duties

Answer 10

partners in general partnerships owe fiduciary duties of loyalty, care , and statutory duty of disclosure

Question 11

Liabilities of Newly Admitted Partners

Answer 11

Not liable for partnership obligations that arose BEFORE his admission. Can only lose thea mount of his investment in the partnership

Question 12

Duty of Loyalty

Answer 12

Each parter required (1) to account to the partnership for any BENEFIT derived by the partner in conducting the partnership business, using partnership property, or appropriating a partnership opportunity; (2) to refrain from dealing with the partnership in an ADVERSE way; (3) to refrain from COMPETING with teh partnership in the conduct of its business

Question 13

Duty of Care

Answer 13

Partner must refrain from engaging in GROSSLY NEGLIGENT or RECKLESS CONDUCT, INTENTIONAL MISCONDUCT, or KNOWIN VIOLATION of the law

Note: does not include mere negligence

Question 14

Duty of Disclosure

Answer 14

Statutory duty, not fiduciary

Each partner and the partnership shall furnish to a partner:

(1) WITHOUT DEMAND, any info concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties;
(2) ON DEMAND, any other info concerning the partnerships business and affairs, so long as not unreasonable or improper

NOTE: may be eliminated by partnership agreement. Duty of Care and Loyalty may not be eliminated.

Question 15

Title Property in Partnership’s Name

Answer 15

Property is deemed to be partnership property if titled in the partnership’s name; or is titled in the name of one or more partners and the instrument transferring title notes the titleholder’s CAPACITY as a parter or the existence of a partnership

Question 16

Title purchased with partnership funds

Answer 16

PRESUMPTIVELY partnership property, regardless of whose name title is held.

Includes cash and credit

Question 17

Presumption of Separate Property

Answer 17

Presumption of partner’s separate property arises if (1) property is held in the name of one or more partners, (2) instrument transferring title DOES NOT indicate person’s capacity as a partner; and (3) partnership funds were NOT used to acquire property

Presumption of separate property even f it is used for partnership purposes

Question 18

Untitled Property

Answer 18

Factors: (1) use of partnership funds; (2) use of property by the partnership in conducting biz; (3) entry of the property in the partnership books as a partnership asset; (4) close rltnsp between property and the business operations of the partnership; and (5) improvement and maintenance of the property with partnership funds

Question 19

Partner’s Rights in partnership property

Answer 19

NOT A CO OWNER. Thus NO TRANSFERRABLE INTEREST in specific partnership property

Only a right to use the property for partnership purposes

Question 20

Partner’s Ownership Interest in partnership

Answer 20

Management rights and Financial Rights

Right to obtain info about partnership, be recognized as a partner, receive profit distributions, etc.

Question 21

Partner’s right to transfer partnership interest

Answer 21

unless otherwise agreed, partner CANNOT unilaterally transfer his management rights and make transferee a partner

Requires UNANIMOUS vote of existing partners to bring in new partner

Can only unilaterally transfer FINANCIAL RIGHTS. Transferee gets right to receive profit distributions and that’s it.

Question 22

LP Management

Answer 22

managed by general partners who have equal rights in management and conduct activities

Limited partners have no management rights, unless otherwise agreed

Question 23

Voting in LPs

Answer 23

Majority vote of only majority partners required for ordinary business activities

Vote of ALL partners is necessary for extraordinary activities, such as amending partnership agreement, admitting new partner, selling all/sub all of partnership property

Question 24

Distributions in LP

Answer 24

DIFFERENT FROM GENERAL PARTNERSHIPS

Distributions made on the basis of the partner’s CONTRIBUTIONS (in proportion to contribution)

Question 25

Liability in LP

Answer 25

General Partners are liable for all obligations of the LP

Limited Partner is NOT personally liable for obligations of the LP solely by being a limited partner. They have limited liability and thus are Limited to their investment only

Question 26

Fiduciary Duties in LP

Answer 26

General partner owes LP and other partners same duties of loyalty and care as general partners owe each other. however, general partner is NOT automatically in violation of DoL just because he furthers his own interest

limited partner DOES NOT have fiduciary duties solely b/c he is a limited partner

Question 27

LLP Liability

Answer 27

partners in LLP are NOT personally liable for obligations of the LLP

however, partners individually liable for their own wrongful acts

Question 28

LLC Management

Answer 28

Management is presumed to be by all of the members

Can be member-managed (Default rule) or manager managed

Question 29

LLC Voting

Answer 29

majority vote required for ordinary business decisions

Unanimous vote required to approve extraordinary biz decisions

NOTE: if manager managed, need majority/unanimous of managers only

Question 30

Financial Distributions in LLC

Answer 30

Unless otherwise agreed, profits and losses are allocated on basis of contributions

Question 31

Duty of Care in LLC

Answer 31

Members must act with the care that a person in a like position would exercise under similar circumstances, in a manner reasonably believed to be in the LLC’s best interest

Business Judgment Rule applies. Not liable for mere poor or erroneous decisions, or even mere negligent ones. Only liable for GROSS NEGLIGENCE or worse

Question 32

Duty of Loyalty in LLC

Answer 32

Member must (1) account and hold for LLC any benefit he derives from LLC’s activities or from appropriation of an LLC opportunity; (2) refrain from dealing adversely with LLC; and (3) refrain from competing with the LLC’s business

HOWEVER, after disclosure of material facts, unanimous vote by members may authorize or ratify a act by a member/manager that would otherwise violate the duty of loyalty

Question 33

Fiduciary duties in manager managed vs member managed LLC

Answer 33

Manager Managed – Both members and managers must discharge duties in accordance with contractual obligations of good faith and fair dealing. However, only managers are subject to duties of loyalty and care and only members may authorize or ratify an act by manager that may violate DoL

Member Managed – members owe each other and the LLC duties of care and loyalty. Members may authorize or ratify act of other members that may violate DoL

Question 34

Transferability of LLC interest

Answer 34

Unilaterally transferrable financial interests, but NOT management interests

One can become a member only with consent of ALL the members

Question 35

Taxation in LLC and partnerships

Answer 35

Pass-Thru Taxation. NO entitly level tax

Business income is passed through and reported on owner’s INDIVIDUAL tax returns

Question 36

Rights to Information in LLC

Answer 36

Member managed – member has right to inspect and copy an record concerning LLC’s activities. LLC must automatically furnish any requests, unless if they reasonably believe the member already knows the information, or if it would be unreasonable or improper

Manager managed – managers have same right to info as above. MEMBERS have right to inspect and copy any record concerning LLC’s activity if it is (1) just and reasonable, (2) there is a material purpose to the member’s interest as a member, (3) the demand describes the information sought and purpose with reasonable particularity, and (4) the information sought is directly connceted to the member’s purpose

Question 37

Piercing the LLC Veil

Answer 37

possible to reach members and managers personal assets

NOTE: failure to observe corporate type formalities will not be ground for piercing the LLC veil