Operating General Partnership: Internal Operations

Question 1

Relationship Between Partners and the Partnership

Answer 1

Every partner is an agent of the partnership entity for business purpose

Each partner will owe the partnership and other partners several fiduciary duties

Question 2

Duty of Loyalty

Answer 2

ONLY APPLIES TO CURRENT PARTNERS

(1) Do not compete with the partnership business
(2) Do not pursue interest adverse to partnership

(3) Do not take an opportunity that belongs to the partnership without notifying the
partnership and getting permission

(4) Do not use assets of the partnership for personal benefit

Question 3

Partnership Profits and Losses

Answer 3

Default Rule: Each partner is entitled to an EQUAL SHARE of profits and losses

Can be modified in the partnership agreement

If partnership agreement only addresses profits, then losses shared in same manner

Question 4

Partnership Account

Answer 4

Every partner will have an account reflecting their net worth in the partnership

INCREASED by initial and subsequent contributions

DECREASED by liabilities, distributions, and losses

Question 5

Partnership Distributions

Answer 5

When the partnership earns a profit, each partner’s account will be credited with their share of the profits

Partner CANNOT DEMAN DISTRIBUTION of these profits

Question 6

Loan By a Partner to the Partnership

Answer 6

Partner can make loans to the partnership and is entitled to interest unless partnership agreement provides otherwise

Question 7

Property Ownership

Answer 7

All property acquired by partnership is partnership property

Property is presumed to be partnership property if purchased with partnership funds

Question 8

Partners’ Rights to Partnership Property

Answer 8

Each partner holds an ownership interest in the partnership property as a tenant in partnership

Partner has equal right to possess specific property for partnership purposes but cannot possess it for other purposes without consent of other partners

Question 9

Does a Partner Have an Individual Right to Transfer or Assign Partnership Property?

Answer 9

No

Question 10

Partnership Interest

Answer 10

Held by each partner

Consists of the rights to share in the partnership’s profits and losses and to receive distributions

Question 11

Transfer of Partnership Interest to Third Party

Answer 11

Partner can transfer all or part of partnership interest

Transferor partner retains all rights and duties of partner (except distributions)

Transfer does not cause dissolution of dissociation

Question 12

Transfer of Partnership Interest to Third Party: Transferee’s Rights

Answer 12

Right to receive distributions, seek judicial order for dissolution, and to an accounting upon dissolution

No right to participate in management or conduct of partnership’s business, access partnership’s records, or demand other information

Question 13

Partnership Decisions: New Partner

Answer 13

Decision to admit a new partner must be approved by ALL existing partners

Question 14

Partnership Decisions: Management Rights

Answer 14

Default Rule: Each partner has EQUAL RIGHTS in management

Question 15

Partnership Decisions: Ordinary Partnership Business Decisions

Answer 15

Majority vote

Question 16

Partnership Decisions: Special Partnership Business Decisions

Answer 16

Consent of ALL partners

Question 17

Indemnification

Answer 17

A partnership must indemnify each partner for personal liability incurred in the ordinary course of conducting partnership business

Question 18

Contribution

Answer 18

Partners must contribute to the partnership to cover losses suffered by the partnership

If a partner is compelled to pay more than their share, the partner can seek reimbursement from the other partners

Question 19

Access to Records

Answer 19

Each partner has the right to inspect and copy records, including the finances, of the partnership

Each partner must give true and full information about the partnership’s business to an inquiring partner

Question 20

Lawsuits

Answer 20

Partnership can sue/be sued in its own name

A partner may not normally sue a partnership or other individual partners on matters relating to the partnership business (Exception: may seek an accounting)