Partnership Flashcards
How is a partnership formed?
a partnership is formed as soon as two or more people ASSOCIATE to carry on as CO-OWNERS of a business for PROFIT
Do you need a formal agreement to form a partnership?
No, the parties intent may be implied from their conduct
What raises the presumption of partnership?
Sharing of profits raises a presumption
(unless payment of debt, services, rendered, rent payment, annuity or retirement benefit, interest on a loan, sale of goodwill)
What factors do not raise a presumption of partnership?
- title held in joint tenancy or in common
- parties designate their relationship as a partnership
- venture undertaken by the parties requires extensive activity
- sharing of gross returns
Is there liability to a person who holds out to be a partner?
yes, liability by estoppel. when a person by words or conduct represents themselves as a partner, they’ll be liable to third parties
Who is the principal and who is the agent in a partnership?
Partnership = principal partners = agents
What is apparent authority?
a. act of any partner;
b. for carrying on in the ordinary course of business or business in kind carried out by the partnership;
c. binds the partnership unless:
- the partner had no authority to act AND
- the person with whom the partner was dealing KNEW or had received NOTIFICATION that the partner lacked authority
Does it matter that a 3rd party should have known the partner lacked authority to act?
NO only if they actual knew or received notification
What % of vote is required to authorize ordinary business?
majority vote
What types of liability are partners liable for?
all contracts entered into by a partner in the scope of partnership business or authority of the partnership
all torts committed by any partner or employee within the ordinary course of business
What is the nature and extent. of partnership liability?
Joint and several for ALL obligations of the partnership and individually liable for the entire amount of partnership obligations
What is the liability of an incoming partner?
an incoming partner is not personally liable for obligations incurred by the partnership before the person became partner BUT their capital contribution can be used for that purpose
What is the liability of an outgoing partner?
an outgoing partner remains liable for obligations arising while they were partner unless there has been release, payment, or novation
can also be liable for acts after dissociation - retain liability until actual notice is given to creditors OR 90 days after filing a notice of dissociation with SCC
Are partners generally liable for criminal crimes of another partner?
No, unless the partners participated
What are the first three steps in a partnership question?
(1) formation
(2) liability
(3) estoppel
What duties are owed to partners?
Fiduciary duties: loyalty and care
What is the duty of loyalty?
requires that the partner:
1) not make a secret profit
(2) not engage in self-dealing
(3) not compete with the partnership (usurp opportunities
Recourse for a breach of duty?
Action for accounting - recoup losses or disgorge profits
What is the duty of care?
Refrain from negligent, reckless, or unlawful conduct or intentional misconduct
What is partnership property?
everything that the partnership owns, including both capital and property subsequently acquired in partnership transactions
Titled property is deemed partnership property if:
- it is titled to the property
- it is titled in the name of 1 or more partners and the instrument transferring title notes the titleholder’s capacity as a partner or existence of the partnership
When is property PRESUMED to be partnership property?
if it was purchased with partnership funds, regardless of whose name title is held
When is property presumed to be partner’s separate property?
(1) if property is held in the name of one or more partners;
(2) the instrument transferring title doesn’t indicate the person’s capacity as a partner or mention the partnership; AND
(3) partnership funds weren’t used to acquire the property
What are the rights of partners in partnership property?
a partner isn’t a co-owner and thus has no transferrable interest in specific property of the partnership
What is the only property that can be transferred by a partner?
share of profits
What is a share of profits?
transferable interest in the partnership which consists of a partner’s share of profits, losses, and distributions
it is attachable by a creditor and transferable
Share in Management
- not personal property and nontransferable
* you cannot sell your right to vote **
Right to participate in management
all partners have require rights in management absent an agreement to the contrary
- ordinary business = majority vote
- outside ordinary business = unanimous consent of all partners
Salary in a partnership
default rule - no right to salary except for reasonable compensation for winding up the partnership
Partner’s share of profits and losses
absent an agreement, profits are shared equally and losses are shared like profits
** profits first **
How does dissociation occur?
A partner becomes dissociated from the partnership by: (1) notice of partner’s express will to withdraw; (2) happening of an event the partners agreed would cause dissociation; (3) expulsion; (4) bankruptcy; (5) death or incapacity; (6) appointment of receiver; or (7) termination of a business entity that is a partner
What is dissociation?
change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business
When can a dissociated partner bind the partnership?
within 1 year after dissociation if:
(1) the act would have bound the partnership before dissociation; and
(2) the other party to the transaction (a) reasonably believed the dissociated partner was still a partner; and (b) did not have notice of the dissociation
** personal notice is required for existing creditors and publication for all others**
What is a dissociated partner’s liability to other parties?
can be liable for obligations incurred by the partnership within 1 year after dissociation if:
(1) when entering into the transaction the other party reasonably believed the dissociated partner was still a partner; and
(2) did not have notice of dissociation
** can be cut short by filing a notice of dissociation with State Corporation Commission (after 90 days)
What triggers dissolution?
- partnership at will - notification of any partner to withdraw/dissociate
- partnership for definite terms - expiration of the term, consent of all partners, within 90 days of partner’s death, bankruptcy, wrongful dissociation and at least half the remaining partners vote to wind up
- agreed upon event happens
- happening of an event that makes it unlawful for the partnership to continue
- issuance of a judicial decree
Partnership’s liability for old business after dissolution?
the partnership and its individual partners retain liability on all transactions entered to wind up old business with existing creditors
Partnership’s liability on new business after dissolution?
a partnership can be bound after dissolution by any act of a partner appropriate for winding up the business
- can be limited to other acts by filing a notice of dissolution with the State Corporation Commission
Who can wind up a partnership?
all living partners have a right to participate except those who have wrongfully dissociated and bankrupt partners
What is the order of distribution of partnership’s assets?
- pay all creditors (trade creditors/suppliers AND partners who loaned money to the partnership)
- MUST repay all capital contributions paid into the partnership by partners
- any money remaining must be shared equally (profits and losses) in the absence of an agreement
What is a registered limited liability partnership?
no partner is individually liable for their own wrongful acts or the wrongful acts of those under their direct supervision
How to form a registered limited liability. partnership?
must contain the words R.L.L.P., L.L.P., RLLP or LLP and file a statement of qualification with the SCC
