Partnership Flashcards
Partnership definition
A partnership is an association of two or more persons to carry on a for profit business as co owners
Key test to determine whether a business arrangement is a partnership
The key test applied to ascertain whether a business arrangement is a partnership is whether there is a sharing of profits for the business. If so, such an arrangement is generally presumed to be a partnership, and persons who share in the profits are partners.
Receiving profits as payment of a debt
A partnership does not exist between persons when one person receives profits in payment of a debt.
Transferability of a partnership interest
A partner has a transferable partnership interest. This means that they may transfer the right to share in profits and losses of the partnership and to receive distributions.
What happens when a partnership interest is transferred?
The transfer of a partnership interest creates in the transferee a right to receive distributions to which the transferor would otherwise be entitled to.
Allowing partners to inspect books and records
A partnership must provide its partners and their agents with access to all its records.
transferees of a partnership interest’s rights to participate in management and to inspect books
A transferee is not entitled to participate in the management or conduct of the partnership business or access partnership records.
Transferring partnership interest and when that does not make them a partner
A transfer of a partner’s partnership interest does not make the transferee a partner unless the other partner or partners consent to making the transferee a partner.
What is partnership property
Property is partnership property if it is acquired in the name of the partnership. It is the property of the partnership and not of the partners individually
When may a partner use or possess partnership property
A partner may use or possess partnership property only on behalf of the partnership.
Effect of filing a statement of qualification
Filing a statement of qualification, which transforms a partnership into an LLP, does not create a new partnership.
LLP
An LLP is a partnership in which a partner’s personal liability for obligations of the partnership is eliminated.
Partner liability for partnership obligations
A partner is jointly and severally liable for all partnership obligations
When does LLP status start
LLP status is generally only effective on the date that the statement of qualification is filed.
Protection from a partner when converting Pship to LLP
Though a limtied partner in an LLP is not personally liable for an obligation of an LLP, LLP status is only effective on the date the statement of qualification is filed. Thus, they may be liable for judgments levied against the partnership prior to filing the statement of qualification
Partner’s liability for obligations incurred prior to them joining
A person admitted as a partner into an existing partnership is not personally liable for any prior partnerhsip obligations.
Capital contributions and using those to satisfy partnership obligations
Any captital contribution made by an incoming partner to the partnership is at risk for the satisfaction of partnership obligations.
Partner as agent
A partner is an agent of the partnership for the purpose of its business and can contractually bind the partnership when the partner acts with either actual or apparent authority
Partner acts authorized by the partnership
A partner’s act that was authorized by the partnership binds the partnership
Express authority in partnerships
Express authority may arise from the partnership agreement itself, an authorization of the partners, or a statement of authority filed with the state
Apparent authority and partnerships
For apparent authority to apply, the partner must perform the unauthorized act in the ordinary course of apparently carrying on either the partnership buisiness or the business of a kind carried on by the partnership
How a partnership can escape liability when P acts beyond authority
For the partnership to escape liability, the third party generally must possess actual knowledge of the partner’s lack of actual authority.
Fiduciary duties of a partner
A partner owes the partnership and other partners two fiduciary duties – the duty of loyalty and the duty of care.
Duty of loyalty
Under the duty of loyalty, a partner is prohibited from using partnership property or business to derive a personal benefit without notifying the partnership
Duty of care
Under the duty of care, a partner is prohibited from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law
Partnership actions against partner
A partnership may pursue a legal action against a partner for breach of the partnership agreement or for violating a duty owed to the partnership that caused the partnership harm
Partner actions against other partners
A partner may pursue legal action against the partnership or against another partner to enforce the partner’s rights under the partnership agreement or RUPA
General rule for when a partner may dissociate from Pship
A partner has the power to dissociate from the partnership at any time, even if dissociation is wrongful.
When is a dissociation wrongful if Pship is unlimited by time or undertaking
For a partnership that is unlimited by time or undertaking, a partner’s dissociation is wrongful only when it is in breach of an express provision of the partnership agreement
Partnership at will definition
A partnership at will is an open ended partnership that does not have a fixed termination based on a period of time or particular undertaking
How is a partnership at will dissolved
A partnership at will is dissolved when a partner chooses to dissociate from the partnership by giving notice of his withdrawal
Dissociated partner’s right to participate in pship business
A dissociated partner generally does not have the right to participate in the management or conduct of the partnership business
When does a partner’s duty not to compete terminate
A partner’s duty not to compete terminates upon dissociation
When does a dissociated partner’s fiduciary duties terminate
The dissociated partner’s duties of loyalty and care terminate with respoect to post-dissociation events, unless the parnter participates in winding up the partnership’s business if the partnership dissolves.
What does a person winding up do
A person who is winding up the parntership business may dispose of and transfer partnership property and may discharge the partnership’s liabilities
What duties does a partner owe the other partners and partnership
A partner owes the partners and partnership the duty of loyalty and the duty of care
Duty of loyalty for partners
Under the duty of loyalty, a partner is required to refrain from (i) competing with the partnership business, (ii) advancing an interest adverse to the partnership; and (iii) usurping a partnership opportunity or otherwise using partnership property or business to derive a personal benefit without notifying the parntership
Partner’s duty not to break law
A partner is required to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law
Requirement of good faith and fair dealing for partners
A partner must perform his duties consistently with the contractual obligation of good faith and fair dealing.
general partnership
a general partnership is an association of two or more persons to carry on a for profit business as co owners.
Specific intent to form a partnership; forming pship by conduct
It is not necessary for people to have the specific intent to form a partnership. The only agreement necessary to create a partnership is the agreement to conduct a for profit business as co owners. This agreement may be implied by conduct in the absence of written or oral agreement
Partnership at will
A partnership at will is an open ended partnership that does not have a fixed termination based on a period of time or particular undertaking
Partner as agent of pship
A partners is an agent of the partnership for the purpose of its business and can contractually bind the partnership when the partner acts with either actual or apparent authority.
Actual authority as partner
Acting individually, a partner has the actual authority to commit the partnership to usual and customary matters, unless the partner has reason to know that the other partners may disagree.
Rights to manage pship biz
Each partner has equal rights in the management and conduct of the partnership business.
Decisions outside the ordinary course of pship biz
If there is a decision as to a matter outside the ordinary course of the pship business, the decision requires consent of all partners
partners notice of withdrawal
A partner’s notice to the pship of their express will to withdraw can trigger a partner’s dissociation from the pship
When is a pship at will dissolved
A pship at will is dissolved when a partner chooses to dissociate from the pship by giving notice of her withdrawal. A partner has the power to dissociate from the pship at any time, even if the dissociation is wrongful
Limits on partner’s ability to withdraw
A pship agreement cannot prevent a partner from withdrawing from a pship, but it can require that the partner’s notice of withdrawal be in writing.
wrongful dissociation fror an unlimited pship
For a pship that is unlimited by time or undertaking, a partner’s dissociation is wrongful only when it is in breach of an express provision of the pship agreement
Pship dissolved, but winding up not done
Once a pship has been dissolved, but before the winding up of its business is complete, the pship may resume carrying on its business as if dissolution had never occurred. To do so, all partners (including any properly dissociated partners) must agree to waive the right to termiante the pship
What happens when partner dissociates but pship is not dissolved
When a partner dissociates from the pship, but the pship is not dissolved, the pship must buy out the dissociated partner’s partnerhsip interest.
Compelling buyout of pship interest
A dissociated partner may maintain an action against the pship to determine the buyout price and compel the pship to pay that amount to the partner. The action must be commenced within 120 days after the pship has tendered payment or an offer to pay or within one year after written demand for payment if no payment or offer has been tendered
Power to dissociate
A partner has the power to dissociate from a partnership at any time, even if doing so is wrongful
When is an at will partner’s dissociation wrongful
For a partnership that is unlimited by time or undertaking, a partner’s dissolution is wrongful only when it is in breach of an express provision of the partnership agreement.
Liability of partner who wrongfully dissociates
A partner who wrongfully dissociates is liable to the partnership and the other partnes for damages caused by the dissolution
dissociated partner’s rights to participate in management
A dissociated partner generally does not have the right to participate in the management or conduct of the partnership business and cannot participate in the winding up of it
effect of dissolution on partnership
dissolution may, but does not necessary result, in dissolution of the partnership and the winding up of its business
Wrongful dissolution and possibility of winding up
Wrongful dissolution creates a possibility of dissolution if, within 90 days of dissociation, a majority of partners express a will to wind up the business
What if a partnership doesnt dissolve after a wrongful dissolution
with regard to dissociated partners’ payout
If the partnership does not dissolve and wind up, the wrongfully dissociated partner is not entitled to payment of any portion of their payout until the expiration of the term or completion of undertaking unless the partner proves to the court that earlier payment will not cause undue hardship to the business of the partnership
partnership at will definition
a partnership at will is an open ended partnership that does not have a fixed terimination based on a period of time or particular undertaking
When is an at will partnership dissolved
It is dissolved when a partner chooses to dissociate from the partnership by giving notice of his withdrawal
partners that get to participate in winding up
Any partner who has not wrongfully dissociated may participate in winding up the partnership’s business. They may also dispose of and transfer partnership property, and may discharge partnership’s liabilities
Post dissolve, pre winding up partnership activities
Once a partnership has been dissolved, but before the winding up, the partnership may choose to resume carrying on its business as if dissociation had never occurred. To do so, all partners (including properly dissociated partners) must waive the right to terminate the partnership
How long can someone winding up the pship preserve the business
A person winding up the partnership may preserve the business or property as going concern for a reasonable time to maximize its value
When is a partnership terminated
The partnership is not terminated until the pship business is wound up.
Things partners are bound to post dissolution
After dissolution, the partnership is bound by a partner’s act that is appropriate for winding up the patnership.
partner liability for post dissolution acts
each partner is liable to the other partners for their share of partnership liability incurred by post dissolution acts that are appropriate for winding up the partnership
partnership liability for a partner’s tortious acts
Because a partner is an agent of the partnership, the partnership is liable for a partner’s tortious acts committed in the ordinary course of the partnership’s business or with the partnership’s authority
When can a judgment be satisfied against a partner’s assets
Unless there is also a judgment against a partner, a judgment against a partnership cannot be satisfied from a partner’s assets, only from the partnership’s assets
Partnership creditor’s exhaustion of partnership assets
Even though a partner is personally liable for a partnership obligation, a partnership creditor generally must exhaust the partnership’s assets before levying on the partner’s personal assets
new partner’s liability for prior obligations
A person admitted as a partner into an existing partnership is not personally liable for any prior partnership obligations. However, any capital contribution made by them is at risk for the satisfaction of partnership obligations
consensus of partners to convert to an LLP
Unless the partnership agreement states otherwise, the conversion must be approved by all of the partners of the general partnership.
Procedure for going from GP to LLP
Once the conversion is approved, the partnership must file the articles of qualification with the state
Liability of a GP who becomes a LP for pre conversion obligations
A general partner who becomes a limited partner remains liable for any obligation incurred by the partnership before the conversion
LLP definition
An LLP is a partnership by which a partner’s personal liability for obligations of the partnership is eliminated.
A limited partner in an LLP’s liability
A limited partner in an LLP is not personally liable for an obligation of an LLP, but can be personally liable for their own misconduct
