Partnership

Question 1

Partnership

Answer 1

two or more persons carrying on as co-owners of a business for profit

• subjective intent to form a partnership is irrelevant
• writing is not required unless to comply with SOF
• entity distinct from its partners

Question 2

Profit-Sharing

Answer 2

person who receives a shart of profits is presumed to be a partner unless the profits were received in payment:

1. of a debt
2. as wages or compensation
3. as rent
4. as interest on a loan

Question 3

Co-Owners

Answer 3

person has a right to participate in the control of the business

Question 4

Partnership by Estoppel

Answer 4

if no partnership was formed in fact, parties may still be liable as if they were partners to protect reasonable reliance by third parties

• person who holds herself out as a partner = liable
• person who lets someone hold themselves out as a partner = liable

​analyzed on a creditor-by-creditor basis

Question 5

Partnership Agreement

Answer 5

not required, but allowed

partners can contract around almost all statutory provisions

Question 6

Voting

Answer 6

*DEFAULT RULE*

partners have equal rights in management and equal votes

decisions w/in ordinary course of business = majority vote

decisions outside ordinary course of business = unanimity

Question 7

Compensation

Answer 7

*DEFAULT RULE*

no right to compensation

exception: reasonable compensation when winding up the business

Question 8

How to Share Profits and Losses

Answer 8

*DEFAULT RULE*

profits = shared equally

losses = shared in the same manner as profits

• note: losses follow profits; profits do not follow losses

Question 9

Liability of Partnership in Tort

Answer 9

liable for tortious conduct of:

1. partner acting in the ordinary course of business of the partnership
2. partner acting with the authority of the partnership

Question 10

Liability of Partnership in Contract

Answer 10

partnership is liable for contracts entered into on behalf of its partners with actual or apparent authority

Question 11

Actual Authority in Partnership

Answer 11

can be created by:

• partnership agreement
• requisite vote of the partners
• filing of a “statement of partnership authority” with the Secretary

Question 12

Constructive Knowledge of Partner Authority

Answer 12

real property: third parties deemed to have constructive knowledge of grants and restrictions of authority on partners to transfer when the statement is recorded in the county where the property is located

all other property: third parties have constructive knowledge only to grants of authority, not to restrictions

Question 13

Apparent Authority in Partnership

Answer 13

partner has apparent authority to bind the partnership to transactions within the ordinary course of business unless the third party knows the partner lacks actual authority

Question 14

Liability of the Partners

Answer 14

in a GP, each partner is jointly and severally liable for all of the obligations of the partnership (tort or contract)

but must exhaust partnership resources before seeking collection from individual partners

• indemnification and contribution allowed

Question 15

Limiting Liability to Third Parties

Answer 15

partners cannot limit liability to third parties without a third party’s consent, but an agreement between partners is effective among the partners themselves (i.e., indemnification and contribution)

Question 16

Liability of Admitted Partners

Answer 16

newly admitted partners are not personally liable for partnership obligations that arose before their admission

Question 17

Fiduciary Duties

Answer 17

partners owe fiduciary duties to the partnership and each other:

1. duty of loyalty
2. duty of care
3. duty of disclosure*

*can eliminate in partnership agreement

Question 18

Duty of Loyalty

Answer 18

requires each partner to:

1. account to the partnership for any benefit derived
2. refrain from dealing with the partnership as an adverse party
3. refrain from competing with the partnership

Question 19

Duty of Care

Answer 19

refrain from engaging in:

1. grossly negligent or reckless conduct
2. intentional misconduct
3. knowing violations of law

Question 20

Duty of Disclosure

Answer 20

statutory duty (not fiduciary) to furnish to each partner:

1. w/o demand = any info concerning the partnership’s business and affairs reasonably required for proper exercise of partner’s rights and duties
2. on demand = any info concerning the partnership’s business and affairs

Question 21

Partnership Property

Answer 21

property acquired in the partnership’s name or in a partner’s name where it’s apparent he’s acting on behalf of the partnership

presumed partnership property = if partnership funds are used

presumed partner property = if acquired in her name, without partnership funds, and no sign she is acting for a partnership

Question 22

Partnership’s Rights in the Partnership Property

Answer 22

unrestricted

• can pledge as collateral
• creditor can levy on the property

Question 23

Partner’s Rights in the Partnership Property

Answer 23

partner is not a co-owner of partnership property

no interest that can be transferred

can only use partnership property for partnership purposes

Question 24

Partner’s Ownership Interest in the Partnership

Answer 24

“partnership interest” is comprised of:

1. management rights
2. financial rights

Question 25

Transferability of Management Rights

Answer 25

*DEFAULT RULE*

cannot unilaterally transfer management rights

Question 26

Admitting New Partners

Answer 26

*DEFAULT RULE*

requires unanimous vote of the existing partners

Question 27

Transferability of Financial Rights

Answer 27

*DEFAULT RULE*

can unilaterally transfer financial rights

transferee is not a partner; transferor is still a partner and retains his management rights

Question 28

Dissociation

Answer 28

partner withdraws from the partnership

events of dissociation:

1. partner giving notice of desire to withdraw
2. partner’s expulsion, death, or bankruptcy
3. agreed-upon event
4. appointment of a receiver for a partner

Question 29

Wrongful Dissociation

Answer 29

deemed to wrongfully dissociate if:

1. in breach of an express term in the partnership agreement
2. partner withdraws, is expelled, or is bankrupt before end of term

partner that wrongfully dissociates is liable to the partnership for damages

Question 30

At-Will Partnership

Answer 30

default form of partnership

can potentially last indefinitely

no agreed-upon termination date or particular purpose

Question 31

Term Partnership

Answer 31

partnership where partners have agreed to remain partners for a definite term or until completion of a particular undertaking

Question 32

Consequences of Dissociation

Answer 32

nature of the event of dissociation dictates which is implicated:

1. partnership is dissolved and business is liquidated
2. partnership continues in existence with dissociated partner bought out

Question 33

Dissolution

Answer 33

only required in limited circumstances:

1. partner dissociates by express will in an at-will partnership
2. in a term partnership, wrongful dissociation or death/bankruptcy requires dissolution only if one-half of the partners agree to wind up within 90 days of the dissociation

Question 34

Buyout

Answer 34

if no dissolution is required, partner is bought out

if wrongful termination, damages are removed from the buyout price

partnership continues

Question 35

Liability of Dissociated Partner

Answer 35

remains liable for pre-dissociation partnership obligations

remains liable for post-dissociation partnership obligations unless:

1. notified creditors directly (effective immediately)
2. filing public statement of dissociation (effective 90 days post-filing)

Question 36

Apparent Authority of Dissociated Partner

Answer 36

dissociated partner has apparent authority for two years after dissociation unless:

1. partnership notifies directors immediately
2. partnership files public statement (effective after 90 days)

Question 37

Priority of Distribution on Dissolution

Answer 37

1. must pay all creditors

• outside creditors = lenders, suppliers, etc.
• inside creditors = partners that lent money

2. repay all capital contributions paid into the partnership by partners
   * if not enough to cover, each partner must contribute their share of the loss; all partners pay in–including partner being repaid
3. profits or losses, if any

Question 38

Right to Wind Up

Answer 38

partners not wrongfully dissociated may participate in winding up

Question 39

Apparent Authority after Dissolution

Answer 39

partners retain apparent authority unless:

1. notify creditors directly
2. public statement of dissolution