Partnership Flashcards
Define Partnership
A partnership is an association of two or more people who carry on as co-owners of a business for profit.
Is intent required for parties to form a partnership?
No, it is not required. However, courts will inquire as to whether parties intended to associate as co-owners of a business for profit.
What evidence do courts consider in determining whether a partnership has been formed?
Sharing of profits - presumption of partnership
Right to participate in control
Other evidence (no presumption):
title to property held jointly
parties designate relationship as partnership
sharing of gross returns
undertaking ventures
Partnership by Estoppel
If no partnership was formed, parties may still be liable s if they were partners to protect reasonable reliance by third parties.
Is an agreement required to form a partnership?
No!
What rights do partners have in the partnership business?
All partners have equal rights in the management of the business AND equal votes.
What is the voting requirement for decisions regarding matters within the ordinary course of the partnership business?
Majority vote is required.
What is the voting requirement for matters outside of the ordinary course of business?
A unanimous consent of all partners is required.
What management rights do partners have?
all partners have an equal right to participate in the management of the partnership unless the agreement provides otherwise.
How are profits and losses distributed among partners?
Partners have the rights granted in the partnership agreement.
If it is silent, they have a right to share profits and losses equally.
What renumeration rights do partners have?
Partners have no renumeration rights for their services to the partnership except for winding up.
What indemnification rights do partners have?
A partner has the right to be indemnified by other partners for expenses incurred on behalf of the partnership.
What contribution rights does a partner have?
A partner has a right to contribution from fellow partners where the partner has paid more than his share of a partnership liability.
What inspection rights does a partner have?
A partner has the right to inspect and copy partnership books.
What lawsuit rights do partners have?
A partner may sue the partnership and the partnership may sue a partner in law or equity.
A partner is a(n) _____ of the partnership?
agent! the partnership is the principal.
How can a partner get actual authority?
Through the partnership agreement OR
a vote by the partners giving actual authority to the partner
As agents of a partnership, partners have
apparent authority to bind the partnership to any contract within the scope of the partnership business.
If a contract is outside of the scope, the partnership will not be bound unless the partner has actual authority.
General Partnership
Under the rules, a partnership is formed when two or more people associate to carry on as co-owners of a business for profit, whether or not the persons intended to form the partnership. A person who receives a share of the profit is presumed to be a partner, unless the share of the profits was for repayment of a debt, rent to a landlord, or wages. A general partnership does not require a writing or a certificate.
Under a general partnership, each partner is
jointly and severally liable for all obligations of the partnership whether in tort or contract.
But the plaintiff must first exhaust all the partnership resources before seeking to collect from individual partners.
Can partners agree to limit personal liability for any partnership losses to a third party?
NO! The partners must have the consent of the third party to limit liability. However, the agreement is binding on the partnership.
Ex:
A forms a partnership with B and C. They all agree that C will not be responsible for any losses. Is C shielded from liability to a third party? NO.
Can C prevent B and A from seeking contribution of liability? YES.
An outgoing partner is liable for
all partnership obligations incurred while they were a partner
An incoming partner is liable for
all partnership obligations incurred after they become a partner
NOT liable for obligations incurred before they became a partner
What fiduciary duties do partners owe to the partnership?
Duty of Care
Duty of Loyalty
Duty of Obedience
Duty of Disclosure
Does a partner have a right to use partnership property?
Only for the benefit of the partnership. Partners may not use the property for personal use.
What is dissociation of a partner?
The change in relationship in which a partner ceases to be associated with the partnership.
What are the (7) ways that a partner can dissociate from a partnership?
(1) a partner’s express notice to dissociate (oral or written)
(2) Expulsion of the Partner
(3) Partner’s bankruptcy
(4) Partner’s death of incapacity
(5) Happening of an agreed event
(6) Court order
(7) Termination of a business entity that is a partner
Notice of a partner’s express will to withdraw from a partnership at will
automatically triggers dissolution of the partnership. The partnership is dissolved and its business must be wound up.
**If an essay Q shows that a partner notifies his co-partners of his express will to withdraw, then discuss BOTH dissociation AND dissolution.
if a partner’s dissociation does not result in a dissolution, the partner is entitled to
receive a buyout of his partnership interest. The remaining partners can continue the business.
What is dissolution
The process of ending the business by requiring the partnership to be wound up.
What is a limited partnership (LP)?
A partnership with at least one general partner and one limited partner. It is formed only by filing a certificate of formation with the state.
General partner is personally liable for partnership obligations.
Limited partner does not have liability.
What is a LLP?
Liability?
Formation?
Tort Liability?
Limited Liability Partnership
All partners have limited liability and none of them are personally liable for a partnership obligation beyond their contribution.
Must file a certificate with the secretary of state. The partnership becomes effective at the time of filing.
Partner is NOT liable for a tort committed by a co-partner UNLESS they personally committed the tort.
What is a LLC?
How is it formed?
Liability?
Limited Liability Company
It is a hybrid business organization between a corporation and a partnership that is (1) taxed like a partnership, (2) limits the liability of its members, and (3) can be run like a partnership or corp.
Formed by filing a certificate of organization with the state. Must state the name, the address of the registered office, and name of the registered agent.
Members are not personally liable for LLC’s obligations. However, courts may pierce the LLC veil to reach member’s personal assets.
What duties do members or managers owe to the LLC?
Fiduciary duty of care and loyalty.
Dissociation in LLC’s?
A person has the power to dissociate from an LLC at any time, rightfully or wrongfully, by expressly withdrawing.
Same events that cause dissociation of a partnership will cause dissociation of a member in an LLC.
An LLC will be dissolved when any of the events occur:
(1) event in the operating agreement;
(2) consent of all members; or
(3) passage of 90 days during which the LLC has no members.
What actions do members have against the LLC?
Members can bring:
direct actions or
derivative actions
A partner has a _______ in the _____ and ____ of the partnership and in the right to _____ ________.
A partner has a transferrable interest in the profits and losses of the partnership and in the right to receive distributions.
A partner’s transferable interest in the profits and losses of the partnership is considered _______.
personalty.
It can be transferred by her voluntarily or involuntarily at any time.
Does a transferee of a partner’s transferable partnership interest allow them to become a partner?
NO! A transferee does not become a partner by virtue of the transfer.
The transfer of a partnership interest does not entitle the transferee to inspect partnership books or records.
Is a partnership bound for a partner’s acts after dissolution?
Yes. A partnership is bound by a partner’s post-dissolution acts if the act was appropriate for winding up the business.
A partnership will be bound by an act even if it was not appropriate for winding up the business if (1) the third party did not have notice of the dissolution and (2) the partner had authority.
*New business is NOT appropriate for winding up.
Is a partner liable for the torts that another partner commits?
Yes, if the tort happened while the partner was acting in the ordinary course of the partnership business.
How does one determine if a person is an employee of another?
If the “employer” has the right to control the manner and the means of how he performs his work.
A non-employee agent is essentialy
an independent contractor
What is an independent contractor
an employee agent who agrees to act on the principal’s behalf but NOT subject to the control regarding the manner and means of performing the work.
If a partner withdraws (dissociates) from the LLC, does that terminate the LLC?
NO. Such a partner will not be responsible for managing the LLC, but will be entitled to distributions indentical to those of the other partners.
