Partnership Flashcards
Key Principle #1 - Partnership Formation - General Definition
A partnership is the association of 2 or more persons to carry on as co-owners, a business for profit - whether or not the persons intended to form the partnership
1 - Partnership Formation - Profit Sharing & Other Indica
Profit sharing creates a presumption that a person is a partner unless the profits were received in payment of a debt, rent to landlord, wages, etc. Other factors that show partnership include capital contributions and mutual agency.
Neither a writing nor certificate needs to be filed for a general partnership to be formed. General partnership is the default form; sometimes a gen partnership is formed because a limited liability partnership was improperly formed.
Key Principle #2 - Partners rights
Partners are agents and comanagers of the Partnership
Partners have equal rights to comanage ordinary affairs (signing a lease) even if profits are not shared equally. A majority vote wins if there is a disagreement.
Extraordinary matters require a unanimous vote (admitting a new partner or selling land)
Key Principle #3 - Incoming/Outgoing Partner Liability
An incoming partner is not personally liable for prior debts of the partnership (although his capital contributions can be used to satisfy such debts). Outgoing partners are personally liable for debts incurred during their time at the partnership.
Key Principle #4 - Fiduciary Duties of a partner
Partners are in a fiduciary relationship with one another and must act in good faith.
They are charged with the
1) duty of loyalty (i.e. cannot usurp corporate opportunities for a personal advantage, engage in self-dealing, or compete with the partnership),
2) the duty of care, and
3) the duty to account (they must account for any profits).
Key Principle #5 - When does a partnership end?
When winding up is complete.
Dissolution does not end a partnership
5 - Ending A Partnership - Dissociation
A partner can withdraw from a partnership by giving notice at any time which will trigger dissociation in an at will partnership (can also be bought out).
5 - Ending A Partnership - Dissolution
Dissolution = termination of the partnership. Upon this, partnership must wind up by liquidating assets and paying creditors. Partnership continues until wind up is complete.
The partners still liable for any liabilities that occur during the wind up phase.
Key Principle #6 - Liability: Creditor claims
If a creditor has a claim against a PARTNER, the creditor can obtain an interest in the PARTNERSHIP. This includes profits but not management or voting rights.
If a creditor has a claim against the PARTNERSHIP, the creditor can try to collect from the individual PARTNERS.
The creditor must obtain a judgment against the partners personally to go after each partner’s personal assets. The creditor should attempt to collect from the partnership before seeking the partner’s personal assets.
6 - Liability Cont.
Partners are jointly and severally liable for the obligations of the partnership. Even if a partner enters into a contract without actual authority to do so, the partnership and the partners are bound (so long as the partner has apparent authority). However, Partners are entitled to indemnification.
Key Principle #7 - Partnerships other than general partnerships
LLP & LP
Must file a certificate with the state to be properly formed.
7 - Limited Liability Partnership (LLP) Characteristics
No partner is personally liable for the obligations of the partnership (but partners are liable for their personal torts)
If a general partnership converts into an LLP, then partners remain jointly and severally liable for actions that took place before the conversion.
7 - Limited Partnership (LP) Characteristics
At least one general partner must be listed on the certificate filed with the state.
An LP has at least 1 general partner and 1 limited partner.
General partners manage and control day to day ops and are liable for all partnership obligations while limited partners are liable only to the extent of their investment (capital contribution).
Limited partners have limited liability (limited to their capital contributions).
5 - Notice of Dissolution
Prior creditors are entitled to personal notice of the dissolution of the partnership.
Others who knew of the partnership are entitled to newspaper notice.
