Partnership Flashcards
Formation of General Partnership
“A partnership is the association of two or more persons to carry on as co-owners a business of profit…whether or not the persons intended to form the partnership”
Profit sharing
Creates a presumption that a person is a partner unless the profits were received in payment of a debt, rent to landlord, wages etc.
Other indications of partnership includes capital contributions and mutual agency
A writing/certificate not required to form a GP
Sometimes a GP is formed because a limited partnership was improperly formed (paperwork not filed correctly)
Partners are agents and co-managers of the partnership
Partners have equal rights to co-manage with regard to ordinary affairs (signing a lease) even if profits are not shared equally
A majority vote wins if there is a disagreement
Extraordinary matters require a unanimous vote (admitting a new partner, selling land)
General partnership, partners are jointly and severally liable for partnership debts
An incoming partner is not personally liable for prior debts of partnership
Outgoing partners are personally liable for debts incurred during their time at the partnership
Fiduciary Duties
Partners are in a fiduciary relationship with one another and must act honestly and in good faith
Duty of loyalty
May not usurp (take) corporate opportunities for a personal advantage, engage in self-dealing, or compete with the partnership
Duty of care
Each partner must refrain from engaging in misconduct specifically grossly negligent or reckless conduct, intentional misconduct or knowing violations of the law
Obedience
Partners are agents of the partnership and as such must obey all reasonable directions from the partnership
Dissolution
Does not end a partnership, it ends once winding up is complete
Step one is dissociation - the dissolution of a partnership is the change in the relation of the partners. Prior creditors are entitled to personal notice of the dissolution of the partnership.
A partner can withdraw from a partnership by giving notice at any time, this will trigger dissolution in an at will partnership
Winding up
Step two - this is where partnership assets are liquidated and the creditors are paid
Partners are still liable for any liabilities that occur during the winding up phase
Termination
Step three
This is the true end of the partnership
If a creditor has a claim against a partner
The creditor can obtain an interest in the partnership
This includes profits but not management or voting rights
If a creditor has a claim against the partnership, the creditor can try to collect from the individual partners
Partners are jointly and severally liable for the obligations of the partnership
Even if a partner enters into a contract without actual authority to do so, the partnership and the partners are bound (so long as the partner had apparent authority)
The creditor must obtain a judgment against the partners personally to go after each partner’s personal assets
The creditor should attempt to collect from the partnership before seeking personal assets of the partners
Partnerships other than GP’s
Must file a certificate with the state to be properly formed
Liability is limited
Limited Liability Partnership (LLP)
No partner is personally liable for the obligations of the partnership (but partners are liable for their personal torts)
