Partnership

Question 1

Limited Partnership

Answer 1

At least one general partner + one limited partner

Question 2

Limited Liability Partnership

Answer 2

Protects general partners from personal liability

Any general partnership can become LLP. LP CANNOT become GP.

Question 3

Forming a General Partnership

Answer 3

Formed by an objective agreement between 2+ persons to co-own an ongoing business for profit

Agreement can be expressly (oral/written) or implicitly (from the parties’ conduct)

Parties’ subjective belief is immaterial.

No formal or statutory requirements.

Question 4

Forming a General Partnership - Sharing of Profits

Answer 4

Sharing profits is prima facie evidence that the profit-receiving person is a partner in a GP

Sharing of profits is NOT being paid for a loan, collecting rent, or earning a salary.

Question 5

Forming a limited partnership

Answer 5

Formed by complying with statutory requirements:

(1) execute a certificate of limited partnership signed by all named general partners; and
(2) file a certificate of limited partnership within the secretary of state’s office

NOTE: Name of LP must include “LP”

Question 6

Forming a Limited Liability Partnership

Answer 6

Formed by filing with secretary of state’s office a certificate of registration signed by at least one person

Usually must pay a filing fee.

NOTE: Name of LLP must include “LLP”

Question 7

Partnership Agreement

Answer 7

Governs relations between partners and partnership.

But if PA is silent, look to default provisions of UPA.

Question 8

What is the PA barred from doing?

Answer 8

(1) unreasonably restrict a partner’s access to the books and records;
(2) remove the partner’s duties of loyalty and care; OR
(3) Disallow a partner’s right to dissociate (but can require the partner to given written notice of her intent to withdraw)

Question 9

Rights of General Partners (in GP and LP)

Answer 9

Each GP has equal rights to manage the partnership and conduct business, unless PA says otherwise.

GP binds the partnership when acting within the ordinary course o business.

Acts outside the ordinary course of business? –> binds the partnership ONLY IF all GPs consent to the action

Question 10

What happens to disputes between the GPs?

Answer 10

Requires majority vote for acts within the ordinary course of business.

Requires unanimous consent for acts outside the ordinary course of business.

Question 11

Rights of LPs

Answer 11

Right to seek information for a purpose reasonably related to their interest as a LP, including the right to

(1) inspect and copy tax returns and other documents required by law; and
(2) obtain true and full information as to the financial condition and state of the partnership’s business

LPs have NO right to co-manage the partnership or engage in partnership business
(Limited partners are not agents of the limited partnership)

Question 12

Duties within a Partnership

Answer 12

(1) Duty of Care
(2) Duty of Loyalty
(3) Duty to Disclose
(4) Duties of Limited Partners

Question 13

Duty of Care

Answer 13

Applies to GPs in a GP or LP. Applies during partnership and throughout the winding-up process.

Can’t engage in:

(1) grossly negligent or reckless conduct; (2) intentional conduct that harms the partnership; or
(3) a knowing violation of law.

Question 14

Duty of Loyalty

Answer 14

Applies to GPs in GP or LP.

Cannot:

(1) compete with the partnership or appropriate a partnership opportunity; or
(2) enter deals with the partnership that are adverse to the partnership’s interest

If a partner violates the duty of loyalty, they must account for any benefit and hold any profit in trust.

Question 15

Duty to Disclose to General Partners

Answer 15

Without demand –> any information related to the partnership and reasonably required to exercise a partner’s rights and duties under the PA

On Demand –> Any other information re partnership if the demand is reasonable and made for a proper purpose

Question 16

Duty to Disclose to Limited Partners

Answer 16

Must provide the opportunity to inspect financial and tax records, and other documents reasonably related to the limited partner’s interest in the LP

Question 17

Duties of Limited Partners

Answer 17

Duty of good faith and fair dealing (less demanding than duties of care and loyalty)

Question 18

Sharing of Profits and Losses - Default Rule

Answer 18

Profits are shared equally & losses are shared in proportion to the sharing of profits

Question 19

Partner’s Interest in Partnership

Answer 19

A partner’s interest in partnership is personal property, which includes:

(1) financial interest in his share of profits and losses; and
(2) right to receive distributions

Question 20

Transferring Partners Interest in the Partnership

Answer 20

Interest is freely transferrable, but transferee has NO right to

(1) participate in the management and control of the partnership; and
(2) demand access to the partnership’s information, books and records

Transfer does not automatically dissolve the partnership.

Question 21

General Partners - Liability to Third Parties

Answer 21

Personally liable for all partnership debts, including torts committed by a partner IF it’s:

(1) done in the ordinary course of the business; or
(2) With authority from the partnership

GPs are joint and severally liable. Partners can sue others who didn’t pay their pro rata share for contribution.

NOTE: does not apply to an LLP

Question 22

Limited Partners - Liability to third parties

Answer 22

Not personally liable for the debts. (only their capital contribution is at stake).

This is true even if the limited partner participates in management.

Question 23

Dissociation of a Partner in GP or LLP

Answer 23

Partners always have the power to dissociate upon giving notice to the partnership.

It would be wrongful if it violates an express provision of the partnership agreement. And thus, the partner who wrongfully dissociates would be liable for any damages caused.

Question 24

Events causing a partner’s dissociation

Answer 24

(1) death
(2) bankruptcy, which will make the dissociation wrongful if the partnership is for a definite term or undertaking
(2) appointment of a guardian
(3) judicial determination that a partner is incapable of performing the duties of a partner
(4) occurrence of an event specified in the PA that triggers dissociation
(5) Expulsion from the partnership pursuant to a provision in the PA, unanimous vote of other partners, or judicial determination made upon application of a partner

Question 25

LP - Dissociation of partner

Answer 25

GP - dissociation is wrongful if it occurs before termination of LP

LP - no right to dissociate

Question 26

Dissociation effects

Answer 26

(1) Ends the partner’s right to co-manage and conduct partnership business

Still liable for partnership obligations incurred before dissociation

(2) Ends the partner’s duties of loyalty and care going forward (still liable for matters occurring before dissociation)

Can thus compete with the partnership.

Question 27

Causes of dissolutoin

Answer 27

(1) Becomes illegal to carry on the partnership’s business
(2) Upon occurrence of an event agreed upon and specified in the PA
(3) Partner files an application to dissolve partnership
(4) Application to dissolve by transferee of partnership interest

Question 28

Partner files an application to dissolve partnership, which will

Answer 28

Granted if
(a) economic purpose is likely to be unreasonably frustrated

(b) carrying on the business in conformity with PA is isn’t reasonably practicable; OR
(c) carrying on the business with that particular purpose is no longer reasonably practicable

Question 29

Application to dissolve by transferee of partnership interest

Answer 29

Can be made only on the ground that equity demands the partnership be wound up

At-will partnership –> transferee can file application at any time

Definite term or specific undertaking –> transferee can file only after completion of the term or undertaking

Question 30

Dissolution - At-will partnerships only

Answer 30

If one partner gives notice to partnership of his express will to withdraw

Question 31

Dissolution - Partnership for Definite Term/Particular undertaking only

Answer 31

If a partner wrongfully dissociates –> automatic dissolution in 90 days unless a
majority of partners vote to continue the partnership

Question 32

Dissolution of Limited Partnership

Answer 32

Sole GP dissociates –> automatic dissolution in 90 days unless majority of limited partners vote to continue business AND a GP is appointed

One of multiple GP dissociates –> no automatic dissolution unless majority of ALL partners vote to dissolve

Sole limited partners dissociates –> automatic dissolution unless limited partner is admitted within 90 days

Question 33

Consequences of dissolution

Answer 33

Partnership continues only for the purpose of winding up the business (paying debts and distributing assets)

Partnership terminates after winding-up process

Question 34

Partnership’s Liability on Post-dissolution cotracts

Answer 34

Liable if the transaction would have bound the partnership before dissolution and the other party didn’t have notice of the dissolution

Question 35

Order in which partnership’s assets are distributed

Answer 35

(1) Pay credits, including partners who are creditors

If not enough, then partners are joint and severally liable for the entire amount of the outstanding debt

(2) Reimburse partners for their capital contributions
(3) Pay the balance to partners in accordance with the r share of profits.