Partnership

Question 1

What is a partnership and what are the types?

Answer 1

An association of two or more persons who have agreed to co-own an on-going business for profit.

General partnerships
Limited partnerships
Limited liability partnerships

Question 2

What’s the difference between a limited partnership and a limited liability partnership?

Answer 2

Limited partner - one general partner, one limited partner

Limited liability partner - can come from a general partnership
- general partners are not exposed to personal liability risks they would normally be

Question 3

What is a limited partner?

Answer 3

Only in limited partnerships

Passive investors. Not agents, do not participate in management, not exposed to personal liability.

Question 4

When is a general partnership formed?

Answer 4

An objective agreement between two or more people to co-own an ongoing business for profit.

Can one oral, written, or implicitly.

Question 5

When is the sharing of profits proof that a partnership exists?

Answer 5

Under the Revised Uniform Partnership Act - earning a salary doesn’t count.

Question 6

How is a limited partnership created?

Answer 6

Under the ULPA, filing of a certificate of limited partnership with the Sec of State’s office.

Must be signed by all general partners.

Must contain LP or equivalent in name.

Question 7

How is a limited liability partnership created?

Answer 7

From a general partnership. Vote of majority interest. Filing with Secretary of State, registration executed by partner, payment of fee.

Name must include LLP or equivalent.

Question 8

What are the 4 basic characteristics of a general partnership?

Answer 8

1. General partner’s right to co-manage business
2. General partner’s fiduciary duties to other partners and partnership
3. Sharing of profits and losses
4. Unlimited liability of general partners for all partnership debts

Question 9

What rights to general partners have?

Answer 9

• equal right to manage and conduct partnership business
• authorized agent
• reasonable access to books and records

Question 10

When does a general partner’s act bind the partership?

Answer 10

• when conducted in the ordinary course of business
  - unless not authorized and other party knows that
• when not in the ordinary course of business, only if all general partners agree

Question 11

What rights to limited partners have?

Answer 11

• do not have right to co-manage
• are not authorized agents
• do have right to seek information for a purpose reasonably related to their interest

Question 12

What duties do partners have?

Answer 12

• duty of dare
• duty of loyalty
• duty to disclose

Question 13

Can partners transfer their partnership interest?

Answer 13

Yes, unless provided otherwise.

Transfer includes only financial interest, not right to participate in management or access records.

Question 14

What is a general partner’s liability to 3rd parties?

Answer 14

• liable for torts when committed by partner with authorization or ordinary course of business
• all obligations of partnership

Not liable for anything before they were a partner.

Question 15

What are limited partner’s liabilities to 3rd parties?

Answer 15

Generally not personally liable. Liability limited to capital contribution.

Question 16

What are limited liability partner’s liabilities to 3rd parties?

Answer 16

Any obligations are solely obligations of partnership, not the parties.

Remain liable for partner’s own wrongful acts.

Question 17

When can a partner dissociate from a partnership?

Answer 17

At any time, with notice to partnership.

But may be liable for damages if dissociates against provision of partnership agreement.

Question 18

What events cause a partner’s dissociation?

Answer 18

• death
• bankruptcy
• appointment of guardian for the partner
• judicial determination of incapacity
• event specified in partnership agreement

Question 19

When can a partner dissociate from a limited partnership?

Answer 19

• general partners: wrongfully
• limited partner - no right to dissociate before termination of partnership

Question 20

What happens once a partnership dissolves?

Answer 20

Continues only for the purpose of winding up - discharging its debts and distributing its assets.

Question 21

What happens during the winding up process?

Answer 21

• discharge obligations of creditors, including partners who are creditors
• reimburse partners for capital contributions
• allocate any profits to partners
• partners are jointly and severally liable for outstanding debt

Question 22

When can a transferee file an application to have a partnership dissolved?

Answer 22

At any time if at will partnership.

If for a definite term or undertaking, only after the completion of the definite term or undertaking.

Question 23

When will a court grant an application to dissolve a partnership?

Answer 23

• economic purpose of partnerships is likely to be unreasonably frustrated
• carrying out the business in conformity with the partnership agreement is not reasonably practicable
• a partner’s conduct has made it not reasonably practicable to continue working with them

Question 24

When will a partnership at will dissolve?

Answer 24

• application to the court
• unlawful to carry on business
• occurrence of event in partnership agreement
• when the partnership has notice of a partner’s express will to withdraw

Question 25

When does a partnership for a definite term or particular undertaking dissolve?

Answer 25

• 90 days after a partner wrongfully dissolves, unless a majority of the partners agree otherwise
• expiration of the term o the completion of the undertaking, with consent of all partners

Question 26

When does a limited partnership dissolve?

Answer 26

• 90 days after withdrawal of only general partner, unless a majority of remaining partners agree to continue and appoint new general partner
• 90 days after withdrawal of any general partner, unless majority of remaining partners don’t consent to dissolution
• 90 days after withdrawal of sole limited partner, unless a new limited partner is admitted.

Or
- an event specified in partnership agreement
- consent from all general partners and a majority of limited partners
- application to the court