Partnership

Question 1

Definition: Partnership

Answer 1

Two or more persons carrying on as co-owners of a business for profit. (Intent is irrelevant)

Question 2

What are the two types of partnerships?

Answer 2

General and Limited

Question 3

Requirements to form a partnership

Answer 3

No formalities required. Partnership found based on intent of the parties. Signs of intent: contribution in exchange for proffit, common ownership, sharing of revenue, agreement to share losses.

Question 4

Definition and applicability: RUPA

Answer 4

Revised Uniform Partnership Act. Default rules, partners can agree to different rules. Some provisions (duty of loyalty) cannot be waived.

Question 5

Do partners have fiduciary duty to one another?

Answer 5

Yes

Question 6

Identifying partnership assets

Answer 6

Assets purchased in partnership’s names, purchased by partner in capacity as partner, or if purchased with partnership funds (rebuttable).

Question 7

Transferability of partnership interest

Answer 7

Partner is NOT co-owner of partnership and has no transferable interest. Can only transfer share of profits/surplus, since those are partner’s personal property.

Question 8

Scope of use for partnership property

Answer 8

For benefit of partnership

Question 9

Control of partnerships

Answer 9

Each partner entitled to equal control and management; no salaries performed.

Question 10

Allocation of profits and losses in partnership

Answer 10

Default: Profits shared equally, losses shared in same proportion as profits.

Question 11

Duties of partners to partnership

Answer 11

Partners are fiduciaries of each other and the partnership.

Duty of care (business judgment rule);
Duty of loyalty (partnership interests over own interests) - no conflicts.
Duty to disclose, duty to account
Duty of obedienceDduty of good faith and fair dealing.

Question 12

Partnership relation to third parties: Debt

Answer 12

General partners personally liable for debt of partnerships

Question 13

Partnership relation to third parties: Contracts

Answer 13

Each partner is agent of partnership

Question 14

Civil liability for partners, generally

Answer 14

Partners jointly and severally liable for torts and contracts in scope of partnership.

Question 15

Liability: incoming partners

Answer 15

Not personally liable for debts incurred prior to joining

Question 16

Liability of outgoing partners

Answer 16

Remains laible for debts incurred prior to dissociation unless there’s been novation/release. Outgoing partner might bind partnership if other party didn’t have notice of dossociation.

Question 17

End of partnership: Define dissociation, dissolution, and winding up

Answer 17

Dissociation - one partner leaves. Doesn’t destroy partnership, unless only onepartners left. Other partners must purchase dissociated partner’s interest.

Dissolution - Partnership stops being active. Voluntary or involuntary (order of court).

Winding up: Period between dissolution and termination of partnership. liquidate asets to satisfy creditors, make an accounting, distribute remaining assets. Wind up old business.

Question 18

Priority of distribution at termination of partnership

Answer 18

1. Credits 2. Partners who loaned money 3. Capital contributions by partners 4. Profits and surplus

Question 19

Limited partnership: definition

Answer 19

Partnership that has at least one general partner and one limited partner. Two-tiered partnership with different rights, duties, liabilities.

Question 20

Formation of a limited partnership

Answer 20

File limited partnership of formation - signed by all general partners, name of agent for service, maintain records, name of partnership .

Question 21

What happens if limited partnership isn’t properly formed?

Answer 21

General partnership

Question 22

Rights and duties: general partners in limited partnership

Answer 22

Same rights and duties as general partnership (ownership, use of property, control of assets, etc)

Question 23

Rights and duties of limited partners

Answer 23

No right to act on behalf of partnership. No fiduciary duties to partnership. Can compete with partnership and have adverse interests.

Question 24

liabilities of partners in limited partnership

Answer 24

General partners - same as regular general partner. Limited: Not liable for obligations of partnership itself beyond capital contributios, no right to manage.

Question 25

LLPs

Answer 25

Limited Liability Partnership - form of partner where partners are not liable for obligations of partnership

Question 26

LLP: Fiduciary duty

Answer 26

similar to director duties to corporation.

Question 27

LLC - formation, liability, tax structure

Answer 27

Limited Liability Company - business entity that has limited liability of corporation combined with tax advantages of a partnership. Msut be filed with articles of organization.

Question 28

How are LLC profits and losses distributed?

Answer 28

sharing based on contributions

Question 29

What is express authority?

Answer 29

Express authority can arise from the partnership agreement itself, an authorization of the partners, or a statement of authority filed with the state.

Question 30

What is implied authority

Answer 30

Implied authority is based on a partner’s reasonable belief that an action is necessary to carry out his express authority.

Question 31

What is apparent authority

Answer 31

Apparent authority exists if the partnership holds a partner or employee out as possessing certain authority, thereby inducing others to reasonably believe that such authority exists. The third party must reasonably rely on the holding out.