Partnership Flashcards
Definition: Partnership
Two or more persons carrying on as co-owners of a business for profit. (Intent is irrelevant)
What are the two types of partnerships?
General and Limited
Requirements to form a partnership
No formalities required. Partnership found based on intent of the parties. Signs of intent: contribution in exchange for proffit, common ownership, sharing of revenue, agreement to share losses.
Definition and applicability: RUPA
Revised Uniform Partnership Act. Default rules, partners can agree to different rules. Some provisions (duty of loyalty) cannot be waived.
Do partners have fiduciary duty to one another?
Yes
Identifying partnership assets
Assets purchased in partnership’s names, purchased by partner in capacity as partner, or if purchased with partnership funds (rebuttable).
Transferability of partnership interest
Partner is NOT co-owner of partnership and has no transferable interest. Can only transfer share of profits/surplus, since those are partner’s personal property.
Scope of use for partnership property
For benefit of partnership
Control of partnerships
Each partner entitled to equal control and management; no salaries performed.
Allocation of profits and losses in partnership
Default: Profits shared equally, losses shared in same proportion as profits.
Duties of partners to partnership
Partners are fiduciaries of each other and the partnership.
Duty of care (business judgment rule);
Duty of loyalty (partnership interests over own interests) - no conflicts.
Duty to disclose, duty to account
Duty of obedienceDduty of good faith and fair dealing.
Partnership relation to third parties: Debt
General partners personally liable for debt of partnerships
Partnership relation to third parties: Contracts
Each partner is agent of partnership
Civil liability for partners, generally
Partners jointly and severally liable for torts and contracts in scope of partnership.
Liability: incoming partners
Not personally liable for debts incurred prior to joining
Liability of outgoing partners
Remains laible for debts incurred prior to dissociation unless there’s been novation/release. Outgoing partner might bind partnership if other party didn’t have notice of dossociation.
End of partnership: Define dissociation, dissolution, and winding up
Dissociation - one partner leaves. Doesn’t destroy partnership, unless only onepartners left. Other partners must purchase dissociated partner’s interest.
Dissolution - Partnership stops being active. Voluntary or involuntary (order of court).
Winding up: Period between dissolution and termination of partnership. liquidate asets to satisfy creditors, make an accounting, distribute remaining assets. Wind up old business.
Priority of distribution at termination of partnership
- Credits 2. Partners who loaned money 3. Capital contributions by partners 4. Profits and surplus
Limited partnership: definition
Partnership that has at least one general partner and one limited partner. Two-tiered partnership with different rights, duties, liabilities.
Formation of a limited partnership
File limited partnership of formation - signed by all general partners, name of agent for service, maintain records, name of partnership .
What happens if limited partnership isn’t properly formed?
General partnership
Rights and duties: general partners in limited partnership
Same rights and duties as general partnership (ownership, use of property, control of assets, etc)
Rights and duties of limited partners
No right to act on behalf of partnership. No fiduciary duties to partnership. Can compete with partnership and have adverse interests.
liabilities of partners in limited partnership
General partners - same as regular general partner. Limited: Not liable for obligations of partnership itself beyond capital contributios, no right to manage.
LLPs
Limited Liability Partnership - form of partner where partners are not liable for obligations of partnership
LLP: Fiduciary duty
similar to director duties to corporation.
LLC - formation, liability, tax structure
Limited Liability Company - business entity that has limited liability of corporation combined with tax advantages of a partnership. Msut be filed with articles of organization.
How are LLC profits and losses distributed?
sharing based on contributions
What is express authority?
Express authority can arise from the partnership agreement itself, an authorization of the partners, or a statement of authority filed with the state.
What is implied authority
Implied authority is based on a partner’s reasonable belief that an action is necessary to carry out his express authority.
What is apparent authority
Apparent authority exists if the partnership holds a partner or employee out as possessing certain authority, thereby inducing others to reasonably believe that such authority exists. The third party must reasonably rely on the holding out.
