Partnership

Question 1

Five issue areas of Partnership

Answer 1

1. General Partnership Formation
2. Liabilities of General Partners to 3d Parties
3. Rights and Liabilities between General Partners
4. General Partnership Dissolution
5. Alternative Limited Partnership Business Organizations

Question 2

General Partnership Formation

Answer 2

No formalities

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

Question 3

Liabilities of General Partners to 3d Parties

Answer 3

Agency Principles Apply
Partners are agents of the partnership for apparently carrying on usual partnership business
Therefore, general partnership is liable for each partner’s torts in the scope of partnership business and for each partner’s authorized contracts

Question 4

Each general Partner is Personally Liable for All Debts of the Partnership and for each Co-Partner’s Torts

Answer 4

Incoming Partner’s liability for pre-existing debts- No direct personally liability, but capital contributed can be used for that purpose

Dissociating Partner’s liability for subsequent debts- Partner retains liability until actual notice of dissociation is given to known creditors and publication to all potential creditors

Question 5

General Partnership Liability by Estoppel

Answer 5

Partners are personally liable for all partnership obligations, including torts. One who represents to a 3d party that a general partnership exists will be liable as if a general partnership exists.

Question 6

Rights and Liabilities Between General Partners

Answer 6

General Partners are fiduciaries of each other and the Partnership
Duty of Loyalty- self dealing, usurpation, secret profit
Action for Accounting- may bring action to recoup losses or to account for profits made by breaching Partner

Question 7

Partners’ Rights in Partnership Property and Liquidity

Answer 7

1. Specific Partnership Property
2. Share of Profits
3. Share in Management

Question 8

Specific Partnership Property

Answer 8

Land, leases, equipment, cars, trucks, cars owned only by partnership and cannot be transferred by any individual partner

Question 9

Share in Profits

Answer 9

Personal Property owned by the individual partner and can be transferred

Absent an agreement NO SALARY (except compensation for “winding up”)

Absent an agreement, Profits are shared EQUALLY
Absent an agreement, Losses shared like Profits

Question 10

Share in Management

Answer 10

Not personal property and cannot be transferred. The partnership interest is relatively illiquid; only profits are personal property

Absent agreement, each partner is entitled to EQUAL control

Question 11

Test to determine personal property vs partnership property

Answer 11

Whose money was used to buy the property
If Partnership money, owned by partnership
If Personal funds, personal property

Question 12

General Partnership Dissolution

Answer 12

Dissolution
Termination
Winding Up

Question 13

Dissolution

Answer 13

A general partnership automatically dissolves upon any material change in the partnership caused by the withdrawal or death of any one general partner

Question 14

Termination

Answer 14

The real end to the partnership

Question 15

Winding Up

Answer 15

Remaining Partners liquidate assets to satisfy creditors

Question 16

Partnership’s Liability during Dissolution

Answer 16

Old Business- Retain liability on all transactions entered into to wind up old business with creditors

New Business- Retain liability on brand new transactions during winding up until notice of dissolution is given to all known creditors and publication to all potential creditors

Question 17

Priority of Distribution

Answer 17

Each level must be completely satisfied before next level. Order:

1. Outside Creditors- trade creditors, suppliers, 3d party creditors not partners
2. Inside Creditors- partners who have loaned money to Partnership
3. Capital Contributions- money paid in by partners not for fixed rate of return
4. Profits & Surplus- Any money remaining, shared equally absent agreement

Question 18

Priority of Distribution Rule

Answer 18

Each partner must be repaid his/her loans and capital contributions, plus that partner’s share of any profits, or minus that partner’s share of any loss

Question 19

Alternative Limited Partnership Business Organizations

Answer 19

Limited Partnerships

Limited Liability Partnerships

Question 20

Limited Partnership

Answer 20

A partnership with at least one general partner and at least one limited partner. Dual liability/limited liability form

Question 21

Limited Partnership Formation

Answer 21

Formation: must file “limited partnership certificate” that includes names of all general partners

Question 22

Limited Partnership Liability and Control

Answer 22

General Partners: General control and liability

Limited Partners: Limited liability. Not liable for obligations of other partners or partnership. In MI- limited partners may not manage the business without forfeiting their limited liability.

Question 23

Limited Liability Partnerships

Answer 23

Formation: Must register by filing annually with the Department of Licensing and Regulatory Affairs and pay a fee with name “limited liability partnership” or “LLP”

Question 24

Limited Liability Partnerships Liabilities

Answer 24

No partner is liable for the torts of their unsupervised co-partners, but are liable for the partnership’s contractual obligations and their own torts