Partnership Flashcards
Five issue areas of Partnership
- General Partnership Formation
- Liabilities of General Partners to 3d Parties
- Rights and Liabilities between General Partners
- General Partnership Dissolution
- Alternative Limited Partnership Business Organizations
General Partnership Formation
No formalities
Association of two or more persons who are carrying on as co-owners of a business for profit
Liabilities of General Partners to 3d Parties
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
Each general Partner is Personally Liable for All Debts of the Partnership and for each Co-Partner’s Torts
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
General Partnership Liability by Estoppel
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.
Rights and Liabilities Between General Partners
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
Partners’ Rights in Partnership Property and Liquidity
- Specific Partnership Property
- Share of Profits
- Share in Management
Specific Partnership Property
Land, leases, equipment, cars, trucks, cars owned only by partnership and cannot be transferred by any individual partner
Share in Profits
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
Share in Management
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
Test to determine personal property vs partnership property
Whose money was used to buy the property
If Partnership money, owned by partnership
If Personal funds, personal property
General Partnership Dissolution
Dissolution
Termination
Winding Up
Dissolution
A general partnership automatically dissolves upon any material change in the partnership caused by the withdrawal or death of any one general partner
Termination
The real end to the partnership
Winding Up
Remaining Partners liquidate assets to satisfy creditors
Partnership’s Liability during Dissolution
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
Priority of Distribution
Each level must be completely satisfied before next level. Order:
- Outside Creditors- trade creditors, suppliers, 3d party creditors not partners
- Inside Creditors- partners who have loaned money to Partnership
- Capital Contributions- money paid in by partners not for fixed rate of return
- Profits & Surplus- Any money remaining, shared equally absent agreement
Priority of Distribution Rule
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
Alternative Limited Partnership Business Organizations
Limited Partnerships
Limited Liability Partnerships
Limited Partnership
A partnership with at least one general partner and at least one limited partner. Dual liability/limited liability form
Limited Partnership Formation
Formation: must file “limited partnership certificate” that includes names of all general partners
Limited Partnership Liability and Control
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.
Limited Liability Partnerships
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”
Limited Liability Partnerships Liabilities
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
