Partners and the Partnership Business Flashcards
What are the four basic characteristics of a general partnership?
- Right to co-manage the business
- Fiduciary duties to other partners and the partnership
- Sharing of profits and losses
- Unlimited liability for all partnership debts
What governs relations among partners and between the partnership and the partners when a partnership agreement is absent?
The Uniform Partnership Act (UPA)
The UPA is a series of default rules that apply 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.
True or False: Partners can opt out of the UPA entirely.
False
A few of its provisions are non-waivable:
- No partnership agreement may unreasonably restrict a partner’s access to the books and records of the partnership.
- UPA provisions concerning such things as a partner’s duty of loyalty, duty of care, and right to dissociate are also non-waivable.
While these rights and duties can be limited (e.g., the partnership agreement can require that the notice of a partner’s will to dissociate be provided in writing), they cannot be eliminated entirely.
What is the exception to the general rule regarding partnership agreements?
No partnership agreement may unreasonably restrict a partner’s access to the books and records of the partnership.
What is the result of each general partner being an agent of the partnership to conduct its business?
As an agent, a general partner’s act the in ordinary course of business binds the partnership, unless there is no authority to act and the person with whom the partner is dealing with knows of no such authority.
What happens if partners disagree on a course of action in the ordinary course of business? Outside the ordinary course of business?
**OCB: **Absent a contrary provision in the partnership agreement, each general partner has an equal right to manage and conduct the partnership’s business. So when partners disagree, the matter is resolved by majority vote.
**Outside OCB: **A partner’s action constitutes partnership business conducted on the partnership’s behalf ONLY IF ALL general partners consent to the action. (Same rule if the proposed action was in contravention of the partnership agreement)
What rights do limited partners have in a limited partnership?
- Right to seek information related to their interest
- Right to inspect and copy partnership records and tax returns
- Right to obtain true and full information about the financial condition of the partnership
No right to comanage business nor to act as agents of partnership.
What is the duty of care that each partner owes to the partnership?
Partners must not engage in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.
What are the key obligations under the duty of loyalty for partners?
- Not compete with the partnership
- Not appropriate partnership opportunities
- Not engage in transactions serving an interest adverse to the partnership
What must partners do if they violate a fiduciary duty?
They become liable to the partnership and other partners for any loss incurred due to the breach.
Fill in the blank: Each partner is entitled to share equally in the _______ generated by the partnership business.
[profits]
How is a partner’s personal property defined in relation to partnership property?
A partner’s personal property includes their partnership interest and financial interest in profits and losses.
What is the liability of general partners for partnership obligations?
All general partners are jointly and severally liable for all obligations of the partnership.
True or False: An incoming partner is personally liable for partnership obligations incurred before their admission.
False
What is the liability exposure of a limited partner?
Limited to their capital contribution.
