Partnership

Question 1

What is a partnership?

Answer 1

An association of two or more legal persons who carry on a for-profit business as co-owners. Can be formed by an individual or company.

No need to have specific intent to form a partnership

Question 2

Partnership Liability

Answer 2

Partners are personally liable for partnership’s obligations – no limited liability

Question 3

Mandatory State Laws for Partnerships

Answer 3

Can’t waive these in an agreement:
(1) liability to third-parties
(2) can’t deny partners access to books and records
(3) fiduciary duties can’t be eliminated

Question 4

Partnership Agreement

Answer 4

There doesn’t need to be a written agreement – if there is one, it will govern

if there isn’t, state law will govern with default rules

Question 5

Fiduciary Duties

Answer 5

every partner owes duties of loyalty and care to the partnership (doesn’t apply to prospective or former partners)

(1) duty of loyalty: partners must not compete with partnership business, advance an interest adverse to partnership, or usurp a partnership opportunity

(2) duty of care: partners must not engage in grossly negligent/reckless conduct, engage in intentional misconduct, or engage in a knowing violation of the law.

Question 6

Division of Profits

Answer 6

will be determined by the agreement – do not need to be the same

when there is no partnership agreement regarding this division, they will be divided evenly

Question 7

Distributions

Answer 7

partners don’t have a right to demand distribution, but can agree in advance to allow distributions according to the agreement

Question 8

Transfer of Partnership Interests

Answer 8

Default rule: A partner has rights to transfer their partnership interest

Partners may agree to change the default rule to require a majority vote of partners

Question 9

New Partner

Answer 9

all existing partners must consent to the new partner

Question 10

Voting in Ordinary vs. Extraordinary Business Matters

Answer 10

ordinary: requires majority vote of partners

extraordinary: requires vote of all partners

Question 11

Management and Control of Partnership

Answer 11

Every partner has equal rights in management and control of partnership that can be changed by agreement. Sometimes are reflected by the partners’ capital contributions rather than an even share.

Question 12

Dissociation

Answer 12

when a partner ceases to be associated with partnership

Voluntary: partner may give notice that wants to withdraw

Involuntary: (1) an event triggered in partnership agreement, (2) expelled from agreement, (3) court order, (4) partner goes bankrupt, (5) partner dies, (6) partner became incapacitated, (7) one of entities of partnership dissolves, or (8) unlawful for partnership to continue business with that partner

Question 13

Consequences of Dissociation

Answer 13

must buy out partner’s interest if partnership continues

Question 14

Liabilities of Partnership

Answer 14

every partner is an agent of the partnership so partnership may be liable for partner’s contract and tort liabilities

can enter into Ks for which they have express, implied, or apparent authority

Question 15

Consequences of Liability

Answer 15

partners are personally liable for debts & obligations of partnership – can go after any partner for entire sum owed by partnership but must go after partnership’s funds first

incoming partner not liable for obligations incurred before becoming partner, but outgoing partner may be liable for obligations that occurred after dissociation

Question 16

3 ways to Dissolve a Partnership

Answer 16

(1) any dissolving event set forth in partnership agreement
(2) any event that makes it unlawful to continue if not cured within 90 days
(3) judicial determination – court order

Question 17

Termination of Partnership

Answer 17

Requires dissolution and winding up

Question 18

How to Wind-up a Partnership

Answer 18

(1) any partner that hasn’t been dissociated may dissolve, a legal representative of last surviving partner, or seeking judicial supervision to wind up

(2) may dispose of and transfer partnership property and discharge partnership liabilities OR can also preserve partnership business to maximize value as a going concern

(3) filing a statement that gives notice to third parties that partnership has been dissolved after 90 days

Question 19

Priority of Distributions

Answer 19

first creditors, then partners

Question 20

Limited Liability Partnerships (LLPs)

Answer 20

a partnership in which a partner’s principal liability is eliminated – must file with state

to make a partnership into LLP, must vote authorizing transformation

name must always end with either LLP or Registered Limited Liability Partnership (RLLP)

Question 21

Liabilities of LLPs

Answer 21

not personally liable for obligations of LLP

Limited partners are personally liable for their own personal misconduct/negligence

Question 22

Terminating LLP

Answer 22

partners can voluntarily opt in or opt out

the state can revoke LLP status, too

Question 23

Limited Partnerships (LPs)

Answer 23

different than LLPs

A general partnership formed by 2 or more people that has at least one general partner and one limited partner

limited partner = limited liability
general partner = personal liability

Question 24

Formation of Limited Partnerships (LPs)

Answer 24

File a certificate of limited partnership that contains name of partnership, in-state address, name of agent, names & addresses of general partners, statement of duration, and signed by general partner.

Comes into existence when filed or effective date if included – substantial compliance needed to be effective

Question 25

Limited Partners in LPs

Answer 25

may join at creation of partnership or with agreement of all partners

Default rule: does not vote, unless partnership agreement says otherwise

right to access records

Doesn’t have third-party liability unless starts to act like a general partner

May not: be an officer, director, shareholder of general partner, consult with general partner on partnership affairs, act as surety for partnership, request to attend meetings, wind up partnership, or propose or approve partnership matters

To Withdraw: must give 6 months’ written notice

Question 26

General Partner in LPs

Answer 26

may join at beginning or be admitted upon consent of all partners

personally liable to third parties

to protect from liability, many partners are corporations

Termination: may voluntarily withdraw, may be removed if tries to assign the partnership interest, if he goes bankrupt or insolvent, death or incapacitation, or business-entity partner is terminated