Parnterships Flashcards
Partnership Formation Requirements
- Association of ≥ 2 persons;
- to carry on as co-owners;
- An on-going business for profit.
No formal agreement needed.
Intent of the parties does not matter.
Liability of Partners
Unlimited Liability
How can a partnership’s formation occur
- Express formation by oral or written agreement; or,
2. Implied by the parties conduct.
Limited Partnership Formation
- Meets the requirements of a partnership
- Has at least one general partner; and,
- Has at least one limited partner.
A limited partner’s liability is
limited to his contributions
A general partner’s liability is
unlimited
A limited partner is?
partner contributes capital and shares in profits, but typically takes no part in the control or management of the business.
The dissolution of a partnership is the change in the relationship of the partners caused by
any partner ceasing to be associated with the carrying on the business
What is dissolution?
The point when the partners cease to carry on business together
Winding up is the process of?
Settling partnership affairs after dissolution
Termination?
The point in time when all partnership affairs are wound up.
Reconstitution allows
For the remaining partners to continue the business
Dissolution events that do not violate the P’Ship agreement
(1) For partnerships for a term (or specific undertaking): the termination of the definite term or particular undertaking specified in the agreement, such as the expiration of the term.
(2) For partnerships at will: the express will of any partner
(3) The agreement of the parties to dissolve because a partnership is a voluntary association
(4) The expulsion of any partner from the business as provided in the partnership agreement.
Partners can expel other partners if
The P’Ship agreement gives the partners a right to do so.
No right by default
Death of a partner
Dissolves partnership
Effect of bankruptcy of a partner or partnership
Dissolve partnership
If the business becomes unlawful, effect?
Dissolve Partnership
Court will grant a dissolution if (3)
the business of the partnership: can only be carried on at a loss
2) a partner has been: declared incompetent in any judicial proceeding or is shown to be of unsound mind
3) a partner becomes: incapable of performance of duties under partnership agreement
A dissolution not in contravention of p’ship gives what right to each partner
to liquidate and get paid out if there are net profits or contribute if there are net losses.
After dissolution, a partner can still bind by what acts
a partner still has the ability to bind the partnership only while engaging in any act appropriate for winding up partnership affairs.
When does partnership liability end?
At termination of partnership
Winding up is the process by which
a. Assets are sold
b. Debts are Paid
c. Balance is distributed to partners
Outside creditors
those owing to creditors other than partners (paid first)
Inside Creditors
Loans made by partners to company
Capital Contribution
What partners initally puts in and is repaid in winding up
Order of payment in winding up?
- Outside Creditors
- Partner Creditors
- Capital Contributions
- Surplus paid out
What happens when a limited partner withdrawals? General partner?
- Limited partner can leave without dissolution.
2. General partner leaving dissolves.
3 characteristics of a general partnership
(1) a general partner’s right to co-manage the business;
(2) a general partner’s fiduciary duties to the other partners and the partnership itself; and
(3) the sharing of profits and losses.
What governs the relation among partners & between the partnership?
In general, relations among the partners & between the partners and the partnership are governed by the partnership agreement or if the agreement is silent: NC Uniform Partnership Act
What governs if a partnership agreement is silent?
N.C. Uniform Partnership Act
What can a partnership agreement not do? (4)
- Restrict access to books and records
- disclaim duty of loyalty,
- disclaim duty of care,
- and right to dissociate
Rights of partners to conduct partnership business
Unless agreed otherwise,
- each partner has a right to manage and conduct the partnership’s business
- Each partner is an agent of the partnership in the conduct of it’s business
- A partner’s action outside the ordinary course of business requires the consent of all general partners
If a partner’s action is outside the ordinary course of business, can they bind the partnership
Only if they get the consent of all of the general partners
What does the duty of care require of partners?
Partners must refrain from engaging in
grossly negligent or
reckless conduct,
intententional misconduct, or knowing violation of the law
What does the duty of loyalty require of partners?
The partners must account for any benefit and hold as trustee any profit derived from any transaction connect with the partnership’s business or any use of the partnerships property
What are the partnerships fiduciary duties? When are they discharged?
Loyalty and care
Discharged at termination or withdrawal
Rule when Partnership Agreement does not provide a profit split formula
Unless agreement, each partner is entitled to share equally in the profits
Rule when Partnership Agreement does not provide a profit loss split formula
Unless agreed, partner’s share in losses in proportion to their profits
When a limited partner participates in the management or control of the business, do they lose liability shield?
No, they do not become personally liable.
What is the liability of a minor who enters into a partnership?
Up to the amount of contribution
What must a limited liability partnerships name contain
L.L.P, R.L.L.P, LLP, RLLP or the words spelled out
The liability of a partner in an LLP?
- Liable for debts arising out of their own negligent or wrongful acts;
- Not liable for debts and obligations of the LLP
What is an incoming partner’s liability for debts owed before arrival?
Liable for the prior debts up to the amount of capital contribution.
When is a partnership liable for torts?
When they occur in the ordinary course of busienss
A partner acting with apparent authority can
Bind the partnership if in the ordinary course of business
How can a partnership dissolve when one of the partners assign their interest to a third party?
Unanimous consent of the original partners
If partners are liable for debts and one of the partners is insolvent, what happens?
The remaining partners are reapportioned their share of debts as if the other partner never existed
When a partner leaves a partnership there are entitled to
Their share of profits - losses incurred by breach (if applicable)
What events will automatically dissolve a partnership?
Death of a partner
Bankruptcy of a partner or the pship
Business becomes illegal
