Partnership

Question 1

General partnership

Answer 1

A general partnership is an association of two or more person to carry on as co-owners a business for profit, regardless of whether they intend to form a partnership.

Question 2

Formation

Answer 2

The formation of a general partnership doesn’t require formal steps. Whether the parties intended to do the acts in the law constitutes a partnership.

Question 3

Partnership agreement

Answer 3

A partnership agreement is a contract between partners about their rights and duties in relation to the partnership. The agreement governs the relationship between partners and the partnership, the business and conducting the business of the partnership, and how to amend the agreement.

If no agreement —> default rule is that this would be partnership with equal sharing of profits and losses

Question 4

Liability

Answer 4

A GP will be liable for contracts entered into on its behalf by partners with actually or apparent authority. All partners are joint and severally liable for all debts, obligations and other liabilities of the partnership.

The partnership is not bond if a partner had no authority to act in the particular matter and the person who dealt with the partner knew or had been notified that the person lacked authority.

Question 5

Partners rights

Answer 5

A partner is an agent of the principle for its business. An act of a partner for carrying on in the ordinary course of the partnership bind the partner.

Each partner is entitled to equal rights in the management and conduct of the partnerships business, equal share of distribution, reimbursement for any payments made in the course or the partners activities on the behalf of the partnership, indemnification, advancement in the ordinary course of the partnerships business and use or possession of partnership property.

Question 6

Distribution

Answer 6

Any distribution made before the partnership’s dissolution must be in equal shares. Partners do not have right to demand or receive a distribution in any form other than money. Distribution after dissolution is first given to creditors including partners who are creditors.

Question 7

Information/ right to inspect

Answer 7

A partner has the right to inspect any record about the partnership’s business, financial conditions, and other circumstances to the extent the information is material to their rights and duties if the inspection is for proper purpose.

Question 8

Fiduciary duties

Answer 8

Partners have fiduciary duties to the partnership and to each other. A partner does not violate their fiduciary duties or obligations solely because their conduct furthers the partners own interest.

Question 9

Duty of care

Answer 9

The duty of care relates to the exercise of care in the management and operation of the partnership.

A partner is in breach of the duty of care when they engage in a) grossly negligent or reckless conduct; b) intentional misconduct; or c) a knowing violation of law.

Question 10

Duty of loyalty

Answer 10

The duty of loyalty relates to putting the partnership’s interests before personal interests.

A partner cannot: a) engage in self-dealing, b) usurp business opportunities, or c) compete against the partnership.

When a partner breaches the duty of loyalty, profits may be disgorged, and any contracts may be revoked or rescinded.

Question 11

Transfer of ownership

Answer 11

A partner can only transfer their interest in the share of profits and loses and their right to receive distributions. All other incidents of partnership ownership (right to access partnership property, inspect books, participate in management) cannot be transferred unless all partners consent to transfer.

Question 12

Partnership property

Answer 12

Property acquired by a partnership is property of the partnership, not the partner individually. The property is partnership property if acquired or transferred in name of the partnership or by a partner. Property is presumed to be partnership property if purchased with the partnerships assets.

To determine partnership or separate look @ ( facts, circumstances, conduct & Intent

Question 13

Buy-sell agreement

Answer 13

A buy sell agreement is an agreement the parties have intended before the venture. It defines if and when a triggering event occurs, how an exit will occur and how stock will be valued.

Question 14

Disassociation

Answer 14

Withdrawal or departure of a partner. The partnership may continue after a partner disassociates.

Dissociates > when the partnership knows or has notice of the person express will to withdraw; event stated in the partnership agreement occurs ; the partner is expelled; partner is bankrupt or when partnership dissolves and completes winding up.

Partner has the power to disassociate rightfully or wrongfully by express will.
Wrongfully > breach of express provision.Also wrongful if occurs before the expiration of the term

Question 15

Buy out

Answer 15

In lieu of winding up the business, the remaining partners can buyout a disassociated partner’s economic interest unless the partners disassociation result in dissolution. It no dissolution after disassociation > continue business and pay disassociated partner partnership interest $

Question 16

Dissolution

Answer 16

Dissolution is the change in the relationship caused by any partner ceasing to be associated in carrying on the business.

Upon dissolution, the firm continues until the winding up, where assets are converted to cash and distributed to 1) outside creditors; 2) inside creditors (partners who made loans to partnership); 3) partners’ capital contributions; and 4) profits for distribution. If partnership assets are insufficient to pay the liability of partnership the loss will be divided among the partners.