Partners and the Partnership Business

Question 1

In general, relations among the partners and between the partners and the partnership are governed by:

Answer 1

1. The partnership agreement or,

2. when the partnership agreement does not otherwise provide, by California’s version of the Uniform Partnership Act.

Question 2

Can a partnership agreement restrict a partner’s access to the books and records of the partnership?

Answer 2

No (can’t UNREASONABLY) restrict a partner’s access to the books/records.

(This is an exception to the general rule that partnerships can contract out of the default UPA)

Question 3

What’s the default rule for a general partner’s right to manage/conduct the partnership’s business?

Answer 3

Absent a contrary provision in the partnership agreement, each general partner has an equal right to manage and conduct the partnership’s business.

Question 4

Can partners contract different management rights other than equal rights?

Answer 4

Yes

Question 5

Are general partners considered agents of the partnership when conducting business?

Answer 5

Yes

Question 6

If taken outside the ordinary course of the partnership business, a partner’s action constitutes partnership business conducted on the partnership’s behalf ONLY IF:

Answer 6

all general partners consent to the action.

Question 7

Do general partners in a limited partnership and in a limited liability partnership have the same right to co-manage and bind the business as do general partners in a general partnership?

Answer 7

Yes

Question 8

The right to co-manage the partnership’s business and to act on the partnership’s behalf is exclusively a right of:

Answer 8

general partners

Question 9

What does each partner owe to the partnership and the other partners in the conduct (and winding up) of the partnership business?

Answer 9

A duty of care

Question 10

As part of the duty of care owed, partners must not engage in:

Answer 10

1. grossly negligent or reckless conduct,
2. intentional misconduct, or
3. a knowing violation of the law.

Question 11

Do partners owe a duty of loyalty to the partnership and other partners?

Answer 11

Yes

Question 12

What does the duty of loyalty prohibit partners from doing?

Answer 12

Partners must not:

1. compete with the partnership in the conduct of its business OR appropriate a partnership opportunity; or
2. Engage in dealings with the partnership IF their dealings are intended to serve an interest adverse to the partnership’s interest.

Question 13

What does the duty of loyalty require of partners?

Answer 13

Partners MUST account for any benefit, and hold as trustee any profit derived from any transaction connected with the partnership’s business OR the use of partnership property.

Question 14

Do general partners in a limited partnership and in a limited liability partnership have the same fiduciary duties as general partners in a general partnership?

Answer 14

Yes

Question 15

Do limited partners owe a duty of loyalty and care?

Answer 15

No

Question 16

What duty is owed by limited partners?

Answer 16

Duty of good faith and fair dealing.

Question 17

How are profits split among partners?

Answer 17

Absent an agreement to the contrary each partner is entitled to share equally in the profits generated by the partnership business.

Question 18

How are losses split among partners?

Answer 18

In the absence of a contrary agreement, the partners share loses in proportion to their share of the profits.

Question 19

Only in a________is a general partner’s exposure to personal liability limited.

Answer 19

limited liability partnership

Question 20

A partnership is liable for torts committed by a partner when:

Answer 20

the partner’s tortious act is committed in the ordinary course of business or with the authority of the partnership.

Question 21

Are general partners are liable jointly and severally for all obligations of the partnership, whether arising under tort, contract, or otherwise?

Answer 21

Yes

Question 22

All _________are liable jointly and severally for all obligations of the partnership, whether arising under tort, contract, or otherwise?

Answer 22

General partners

Question 23

General partners have unlimited liability. However, whenever partners are required to pay more than their share of the partnership debts, they may:

Answer 23

compel other partners to pay their pro rata share by suing them for contribution.

Question 24

What are an incoming partner’s liabilities for partnership obligations?

Answer 24

An incoming partner is not personally liable for partnership obligations arising from activity that occurred before his admission as a partner.

Question 25

In general, is a limited partner personally liable for the obligations of the partnership?

Answer 25

No

Question 26

If a limited partner is ever liable for a partnership obligation, his liability is limited to:

Answer 26

his capital contribution

Question 27

Do limited partners have the right to inspect and copy partnership records related to its activities and financial condition?

Answer 27

Yes, this is granted by statute.

Question 28

Do limited partners have a right to manage and conduct partnership business?

Answer 28

No

Question 29

Do limited partners have the power to bind the partnership?

Answer 29

No

Question 30

A limited partner will be personally liable for the obligations of the partnership, IF:

Answer 30

the limited partner exercises more than just his rights as a limited partner and participates in the management and control of the limited partnership.

Question 31

A limited partner will be personally liable for the obligations of the partnership, IF the limited partner exercises more than just his rights as a limited partner and participates in the management and control of the limited partnership. However, this liability is only incurred with respect to those persons who:

Answer 31

* transact business with the limited partnership; * have actual knowledge of the limited partner’s participation in the control of the business; AND * have a reasonable belief that the partner was a general partner at the time of the transaction.