Partnership Flashcards
What is a partnership
-association of 2+ persons carrying on as co-owners of a for-profit business
How is partnership formed
Partners must intend to take actions to a create a partnership, but don’t necessarily need to realize or understand that they are creating a partnership
-written agreements are not necessary
-persons who take a share in profit are presumed partners unless the profit is taken for a specific purpose, such as repayment of debt, wages or rent
Who has decision-making authority in partnership?
Decisions in the ordinary course of business for a partnership can be made by a majority of partners
-decisions outside the ordinary course of business require agreement by all partners
What does partner have power to bind partnership
-each partner in a partnership can bind the partnership for an act in which it seems apparent he is carrying on in the ordinary course of the partnership business
What is the 2-part test regarding partner’s power to bind a partnership
- Was the act must apparently carrying on in the ordinary course of the partnership’s business?
- Did the person dealing with the partner have actual knowledge or receive notification that the partner had no actual authority to bind the partnership
What type of liability do partners have for partnership obligations
All partners are jointly and severally liabile for all partnership obligations.
What is the process for claimants against partnership and individual partners
-Claimant must first try to obtain judgement against partnership and exhaust partnership assets
-Claimant must make obtain separate judgement against individual partner to attack that partner’s assets if partnership assets are insufficient (can be made simultaneously with a judgement against the partnership)
What is a partnership’s legal status?
A partnership is a distinct legal entity apart from the partners who comprise it
What are the types of partnerships in terms of their duration
A partnership may be either “at will” or for a definite time or undertaking
What are the nature of general partners?
-are agents of the partnership
-co-manage the business
-share in profits and losses of the business
-are exposed to personal liability for partnership debts and obligations
What is the nature of limited partners
-generally passive investors
-not agents of the partnership
-do not participate in management of the partnership
-are generally not personally liable for partnership debts and obligations
What are the three primary types of partnerships?
- General Partnership
- Limited Partnership
- Limited Liability Partnership
What is the nature of a general partnership
Two or more general partners
What is the nature of a limited partnership
At least one general partner and one limited partner
What is the nature of a limited liability partnership?
Protect general partners from personal liability
What types of partnerships can become LLPs
Any partnership other than a limited partnership and become an LLP
How is a general partnership formed?
A general partnership can be formed by an objective agreement between two or more persons to co-own an ongoing business for profit
Can a partnership be formed without subjective intent regarding formation?
Yes, a partnership may be formed regardless of what was subjectively intended
Do partnership agreements need to conform to any statutory formalities?
No
How can partnership agreements be made?
Partnership agreements may be either:
1. express oral or written agreements
2. implied from the parties conduct
What is prima facie proof of association?
Sharing profits is prima facie evidence that a partnership exists, with the profit-sharing party presumed to be a partner
What does not constitute sharing in profits?
-being paid for a loan
-collecting rent
-earnign a salary
How is a limited partnership formed?
A limited partnership may be formed by complying with statutory requirements of:
1. execution of a certificate of LP signed by all named general partners
2. filing a certificate of LP with the secretary of state’s office
How can a partnership be converted from a general partnership to an LLP?
A general partnership can be convered to an LLP through the vote of partners holding a majority interest in the partnership
How is an LLP formed?
An LLP is formed by filing with the secretary of state’s office a certificate of registration that’s signed by at least one partner, and paying a filing fee
What is required regarding the name of an LLP?
The name of the LLP must say “limited liability partnerhsip” or an abbreviation
What governs relationships between partners and partnership?
In general, relations between partners and the partnership are governed by the partnership agreement
How are relationships between partners and the partnership governed in circumstances where the partnership agreement is silent?
Where a partnership agreement is silent, relations between the partners and partnership are governed by the Uniform Partnership Act
Must a partnership agreement conform to the provisions of the UPA?
No, a partnership agreement can opt out of almost all of UPA’s default rules.
What are UPA provisions that partnership agreement cannot opt-out of?
The partnership agreement cannot opt out of UPA’s default rules to the extent that the agreement:
1. unreasonably restricts a partner’s access to books and records
2. removes a partner’s duties of loyalty and care
3. disallows a partner’s right to disassociate beyond requiring the partner to give written notice of intent to withdraw
What are the rights of general partners when conducting partnership business?
Unless otherwise specified in the partnership agreement, each general partner has equal rights to manage the partnership and conduct business
When doe a general partner bind a partnership?
A general partner binds the partnership when acting within the ordinary course of business
When do a general partner’s acts outside the ordinary course of business bind the partnership?
A general partner’s acts outside the ordinary course of business bind the partnership only if all general partners consent to the action
How are disputes between general partners resolved?
Disputes regarding acts within the ordinary course of business are resolved by majority vote
Disputes regarding acts outside the ordinary course of business are resolved through unanimous consent
What are rights of limited partners
-limited partners do not have right to co-manage the partnership or engage in partnership business
-limited partners do not act as agents of partnership
-limited partners retain the right to seek information for a purpose reasonably related to their interest as a limited partner
What are rights of limited partners regarding their right to seek information for purposes related to their interests as a limited partner?
A limited partner’s right to seek information for a purpose reasonably related to their interest as a limited partner includes the right to:
- inspect and copy tax returns and other documents required by law
- obtain true and full information as to the financial condition and state of the partnership’s business
