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Bar Exam > Partnership > Flashcards

Partnership Flashcards

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1
Q

creation of gen partnership

A

two or more persons
as co-owners
carry on business for profit

  • intent not required
  • person who receives share of profits is presumed a partner unless the payment is received to pay a debt, loan, rent, wages, sale of business
  • joint venture or sharing in gross profits is not a partnership
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2
Q

limited partnership formation

A

file certificate of LP with secretary of state (name of partnership, address, registered agent, name of each gen partner and signed by all gen partners)
have at least one limited partner and
at least one general partner

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3
Q

Limited liability partnership creation

A

all partners have limited liability, no gen vs. limited partners

requires approval by same vote necessary to amend partnership agreement and statement of qualification must be filed with secretary of state

LLP remains liable for any obligations prior to becoming LLP

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4
Q

amending partnership agreement

A

unless otherwise agreed, requires unanimous vote of all partners

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5
Q

authority of partner to bind partnership

A

partner is an agent of partnership and generally has authority to bind partnership for its business

partner must have actual or apparent authority

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6
Q

partner express actual authority

A

a partner receives express actual authority from partners

acts within the ordinary course of business –> requires approval of majority of partners

acts outside the ordinary course of business –> requires unanimous approval of partners

if pship agreement is silent –> partner has authority for usual and customary matters unless he knows other partners might disagree or that consultation is appropriate

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7
Q

partner implied actual authority

A

a partner may take action reasonably incidental or necessary to achieve the partner’s authorized duties

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8
Q

partner apparent authority

A

apparent authority exists for act conducted within ordinary course of pship or of the kind carried out by Pship

BUT partners act will not bind pship when the partner lacked authority and third party knew or received notice of lack of authority

for acts outside the scope of business –> need a manifestation by pship that partner had authority for it to be binding

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9
Q

authority to bind partnership after dissolution

A

actual –> partners authority after dissolution is limited only to acts appropriate for winding up the business

apparent –> authority to bind partnership if the partners acts would have normally bound the partnership and third-party did not have notice of dissolution

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10
Q

liability of general partners

A

personal liability –> personally liable for all obligations unless otherwise agreed by the claimant or provided by law. partners are jointly and severally liable.

incoming partners –> not liable for obligations incurred prior to their admission but risk losing capital contributions

dissociating partners –> remains liable for obligations arising while partner unless payment, release, or novation

judgment against a partnership is not a judgment against individual partners, but judgment may be sought against pship and individual partners in the same action

may only go after personal assets if pship assets are exhausted

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11
Q

liability of limtied partners

A

not personally liable for obligations of LP

exceptions

  • liable for own conduct
  • at risk of losing capital contribution
  • may become personally liable if partner participates in management (some jxn only)
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12
Q

partnership profits and loss sharing

A

unless otherwise agreed, profits are shared equally and losses are shared in the same ratio as profits (losses follow profits)

*any partner who pays more than fair share in losses is entitled to contribution from other partners

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13
Q

partner right to management or control

A

unless otherwise agreed, each partner has equal rights in management and control

*disagreement only need majority approval if in ordinary course of business
acts outside ordinary course requires unanimous approval

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14
Q

transfer of partnership ownership interest

A

can only transfer interest in a share of profits and losses and right to receive distributions

***cannot transfer partnership - no matter what OG partner remains partner, even if interest in the partnership is transferred

any other rights cannot be transferred unless partnership agreement provides otherwise and all partners consent for assignee of partnership interest to become partner

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15
Q

right to partnership property

A

all property acquired by the partnership is owned by the partnership, not partners. partners have equal right to use of property and personal use of property requires consent

property acquired in name of a partner is presumed separate property if no partnership assets are used to acquire it and title to the property does not reference the partnership

*partnership property cannot be used to satisfy judgment against partner, but creditor may seize financial interest in partnership

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16
Q

partnership advance of funds and reimbursement

A

partnership must reimburse a partner for advancement to the partnership beyond their capital contribution – payment must be in proper course of partnership business and partner must comply with duty of care and loyalty

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17
Q

management & control in LP

A

general partner –> has full management rights and control

limited partner –> has no say or control as to how the LP is run and does not have the right to manage or control day-to-day business - generally, they are passive and have voting rights only in extraordinary situations (amendment, sale, admitting new partner)

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18
Q

limited partner financial rights

A

distributions are made on basis of partner contributions

contribution may be in form of any benefit

partner contribution obligation is not excused by death or disability and may only be compromised by consent of all partners

19
Q

limited partner right to inspect records

A

RULPA - limited partners have right to inspect and copy records the LP is legally required to keep

upon reasonable demand, a limited partner may obtain

  1. true and full info regarding the state of business and financial condition
  2. tax return and
  3. any information that is just and reasonable
20
Q

Duties owed by partners

A

Duty of care
duty of loyalty
duty to provide full information

21
Q

duty of care

A

partner owes fid duty of care to the partnership AND other partners

RUPA holds a partner only breach duty of care if he engages in gross negligence or reckless conduct, intentional misconduct, or a knowing violation of law

includes duty of disclosure - partner has duty to provide complete and accurate information concerning partnership

if breached, may be personally liable for any losses

22
Q

duty of loyalty

A

partner owes duty of loyalty to partnership and other partners. this requires acting in best interest of partnership

RUPA requires a partner to account for any property, profit or benefit derived from partnership property or business, not have adverse interest and not compete with partnership unless otherwise agreed

partnership agreement may reasonably eliminate or alter duty of loyalty

23
Q

avoiding duty of loyalty liability

A

partner is not liable if he fully discloses information and either the partnership agreement is amended or all partners consent

24
Q

duty of loyalty partnership opportunity

A

one that is closely related to the partnership existing or prospective line of business

would competitively advantage the partnership and

the partnership has the financial ability, knowledge, and experience to pursue the opportunity

25
Q

duty to provide full information

A

UPA - partners shall render, on demand by any partner, true and full information of all things affecting partnership

RUPA - partners shall disclose, without demand, full information concerning the partnership business and affairs

if breached, liable to partnership for any losses

26
Q

dissociation

A

partner may dissociate (withdraw) at any time upon notice

a partner becomes dissociated from a partnership upon the partner providing notice of express will to withdraw, the occurrence of agreed upon event, expulsion pursuant to the partnership agreement, expulsion by unanimous vote if it is unlawful to continue business with that partner or he transferred all partnership interest for other than security purpose, judicial expulsion, bankruptcy, incapacity, appointment of personal rep, or termination of an entity partner

27
Q

wrongful dissociation definition

A

deemed wrongful if it is done in breach of an express provision of the partnership agreement or
before the completion of an agreed upon term or undertaking

28
Q

wrongful dissociation result

A

a wrongfully dissociated partner cannot participate in the management or the winding up process

partner may be liable to the partnership or other partners for damages caused by wrongful dissociation for up to two-years after if the party reasonably believed the dissociated partner was still partner and did not have notice of dissociation

29
Q

events resulting in dissolution of general partnership

A

unless agreed otherwise, dissolution occurs upon

consent of all partners

within 90 days of partner death, bankruptcy, or wrongful dissociation, at least half of remaining partners wish to dissolve

occurrence of agreed upon event

business becoming unlawful or

judicial dissolution (pship purpose frustrated, partner involved in unreasonable conduct, business cannot be carried on)

30
Q

dissolution of partnership happens when…

A

occurs within 90-days after partner dissociation by death or wrongful dissociate if it is the express will of at least half remaining partners to wind up (rightful dissociation constitutes the expression of partner’s will to wind up) or

express will of all partners to wind up or

upon expiration of the term or completion of the partnership purpose

31
Q

dissociation causing dissolution

A

two options: dissolve pship and liquidate business or remaining partners can buy out dissociating partner and pship continues

at-will partnership/no pship agreement = willful withdrawal of one partner REQUIRES dissolution of pship

partnership agreement dissolution:
rightful dissociation = must buyout at liquidation price or going-concern value
wrongful dissociation = not entitled to buyout price until term expires or undertaking is completed unless they can establish earlier payment will not cause undue hardship

rightful dissociation –> dissociated partner is allowed to vote on whether to waive winding up and termination of the partnership. regardless, the partners may choose to continue business for reasonable amount of time

dissolution is required when:

  1. partner dissociates by express will in an at will pship
  2. in term pship, if one dissociates wrongfully, or b/c of death or bankruptcy, dissolution are required only if, within 90 days after dissociation, at least on-half of remaining partners agree to wind up
32
Q

dissolution vs. winding up vs. termination

A

dissolution –> occur upon occurrence of any specified statutory event

winding up –> period b/t dissolution and termination, in which assets are liquidated to satisfy creditors

termination –> occurs when the winding up process is complete - the real end of partnership

33
Q

distribution of partnership assets during winding up

A

partnership assets are converted to cash and distributed in the following order:

  1. outside creditors
  2. inside creditors (partners who loaned money)
  3. partner’s capital contributions
  4. any remaining profits go to partners equally unless agreed otherwise

if insufficient assets to satisfy creditors, the loss is divided among partners

34
Q

rebutting the presumption of partnership

A

if there is profit-sharing, one can try to rebut partnership presumption with evidence suggesting lack of a co-ownership relationship, such as no right to control or no sharing of losses

35
Q

partnership by estoppel

A

if no partnership formed, parties may be liable as if they were partners to protect reasonable reliance by third-party
consider
1. person held out as partner by words or conduct (however, no duty to deny partnership)
2. person holds themselves out to be a partner

36
Q

partnership indemnification

A

partnership must indemnify every partner with regard to payment and obligations reasonably incurred in carrying out partnership business

if partner makes a payment or advance on behalf of the partnership beyond the contribution partner agreed to make, the payment or advance constitutes a loan and must be repaid with interest

37
Q

right to inspect books partnership

A

each partner has right to inspect books and information

upon demand, each partner must render true and full information of all things affecting partnership

38
Q

rights of partners

A
  1. management: equal right to participate in management of the partnership unless agreement otherwise
  2. distributions: share profits and losses equally unless agreement otherwise
  3. remuneration: partners have no right to remuneration for their services to partnership except for winding up partnership business
  4. indemnification: a partner has right to be indemnified by fellow partners for expenses incurred on behalf of the partnership
  5. contribution: partner has a right to contribution for partners where the partner has paid more than his share of partnership liability
  6. inspection: right to inspect and copy partnership books
  7. lawsuits: partner may sue partnership and the partnership may sue partners in law or equity
39
Q

duty of obedience

A

requires the partner to obey all reasonable directions of the partnership and not act outside the scope of the partnership authority

40
Q

property presumed to be partner separate property

A

under RUPA, property is rebuttable presumed to be partner property if it is held in the name of one or more partners, instrument transferring title gives no sign that they’re acting for partnership and partnership funds were not used in purchase

41
Q

admission of new partner

A

partner cannot unilaterally transfer management interest in partnership

must have unanimous vote to admit new partner

42
Q

partners express will to withdraw result

A

notice of partner express will to withdraw from partnership at will automatically triggers dissolution of the partnership

if this happens, discuss BOTH dissociation and dissolution

43
Q

at will partnership

A

one where the partners have not agreed to remain partners until expiration of definite term or the completion of particular undertaking

default form of partnership

44
Q

taxation of partnership and LLC

A

pass through taxation

no entity level tax

corporation is double taxed - pays taxes on income and SH pay taxes on that income when distributed to them

Bar Exam (17 decks)

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