Partnership

Question 1

Partnership Generally

Answer 1

Association of two+ persons as co-owners of business for profit.

may not be formed for nonprofit purposes
Agreement will arise by actions of the parties
must be voluntary

Question 1

Tax Benefits of a Partnership

Answer 1

Flow-through entity.
No taxes as an entity.
gains and losses flow through to partners
Must pay proportional shares of partnership profits.

Question 2

Fundamental Principles of a Partnership

Answer 2

1. Partners - equal rights to control business
2. unlimited personal liability for partnerships debts.
3. Partners can exit at will.

Question 3

Factors indicating Partnership Formation

Answer 3

1. Joint Ownership of Property
2. Contributing Capital to the Business
3. Sharing Gross Income, but not profits

Question 5

Partnership Formation

Answer 5

2 or more persons engage in business together with
intent to create profit.
Intent is to make profit, not necessarily be in business together.

Sharing profits is prima facie evidence of intent to form a partnership.

Partnerships taking more than one year to complete -Statute of Frauds. Common law

*In NY Partnership agreements can be oral

legal entities can form partnerships

unanimous consent of existing partners required to add members

Question 6

Property of the Partnership

Answer 6

Property brought into partnership or
subsequently acquired by partnership
belong to partnership.

Property acquired with partnership funds is partnership property
absent contrary intent.
partners are co-owners of property held by partnership

Question 7

Partners Rights in Specific Partnership Property

Answer 7

Not assignable, except in connection with the assignment rights of all partners in the same property and

Is not subject to attachment by personal creditors, except on a claim against the partnership.

Partnership property that is attached for a partnership debt the partners together, or any one of them, cannot claim any right under the homestead or exemption laws.

Question 8

Property Rights of a Partner

transferability of interests

Answer 8

1. co-owners as tenants in partnership.
2. Economic interests in partnership, is transferrable.
3. participation in management not transferrable without unanimous consent of non-transferring partners.

Question 8

Accounting

Answer 8

partners must account for any benefits
hold as trustee any profits derived without consent of other partners resulting from any transaction connected with the partnership.

Question 9

Relationship Between Partners

Answer 9

• Partners are fiduciaries to each other.
• Each owes a duty of loyalty to other partners
• Partners have to disclose opportunities to other partners before taking them for themselves.

Question 10

Non-Competition

Answer 10

A partner may not compete with the partnership without consent of all partners.

If he does he must account for all profits he derives.

Question 11

When the right to a formal accounting arises when

Answer 11

1. wrongfully excluded from partnership business or possession of property.
2. right exists under terms of any agreement
3. circumstances render it just and reasonable.

Question 12

Remuneration

Answer 12

Partnership must indemnify partners for payments made and liabilities reasonably incurred in ordinary and conduct of business or preservation of business property.

Partners are entitled to compensation for services in shutting down partnership affairs.

Partners advancing payments beyond agreed capital amount
is paid interest from date of advance.

Capital contributions are entitled to interest only from the date repayment should be made.

Question 13

Partnership and Agency

Answer 13

Every partner is agent of partnership

governed by rules of agency in dealings with 3rd parties.

Question 14

Remuneration

Answer 14

Partnership must indemnify partners for payments made and liabilities reasonably incurred in ordinary and conduct of business or preservation of business property.

Partners are entitled to compensation for services in shutting down partnership affairs.

Partners advancing payments beyond agreed capital amount
is paid interest from date of advance. because it is in essence a loan

Capital contributions are entitled to interest only from the date repayment should be made. is a loan after it should have been repaid

Question 16

Act of a partner apparently carrying on the business of the partnership

Answer 16

act will bind the partnership UNLESS
partner has no actual authority AND
3rd party knows the partner lacks authority

Question 17

Partner actions outside of acts related to carrying on the business.

Answer 17

binds partnership ONLY if partners grant actual authority.

Question 17

Admissibility of Admissions or representations of partners

Answer 17

Admissions made by partner concerning affairs of partnership are admissible as evidence against the partnership.

Question 18

Prohibited Actions of Partners absent unanimous agreement

Answer 18

1. Assignment property of in trust for creditors or on the assignees promise to pay the debts of the partnership.
2. Dispose of the goodwill of the business
3. Commit an act making it impossible to carry on the ordinary business of the partnership
4. Confess a judgement
5. subject a partnership claim or liability to arbitration or reference.

Question 19

Partnership by Estoppel

Answer 19

Person representing himself as a partner in existing partnership to a 3rd party is liable to the 3rd party if that person relied in good faith on the representation to give credit to the partnership.

A person held out by others as a partner without consent who refrains from denying this status will NOT be held liable as a partner.

Question 20

New Partners

Answer 20

New admissions are liable for all obligations of partnership arising before admission. Liability can only be satisfied from partnership property.

Departing partners are protected from new liabilities but remain liable for obligations incurred prior to leaving.

Question 21

Partnership Charged with Knowledge of or Notice to Partner

Answer 21

partnerships have knowledge and notice of any matter relating to partnership and partners actions on behalf of the partnership

except for fraud.

Question 22

Partnership Bound by Partner’s Wrongful Acts

Answer 22

joint and several liability for partners
acting in ordinary course of business
or
with the authority of co-partners

Partners are jointly, not severally liable for contractual obligations of partnership.

Question 23

Partnership Profits and Losses

Answer 23

share profits and losses according to partnership agreement.

split profits equally and losses like profits

Question 24

Assignment of Partnership Interests

Answer 24

Economic Interests are assignable.

Status as a partner or interest in partnership property is not without unanimous consent of the other partners.

Transfers of income will not dissolve the partnership.

Transferee does not obtain management, control, or rights of accounting, absent agreement of the partners.

Question 25

Dissolution - Generally

Answer 25

designates the point when partners cease doing business together.

Winding Up - process of settling affairs after dissolution.

Termination follows when affairs are wound up.

Remaining partners can reconstitute business for the remainder of the term of the partnership

Question 26

Causes of Dissolution

Events not in violation of partnership agreement

Answer 26

1. Termination of a definite term or particular undertaking.
2. Express will of any partner when no definite term set
3. Express will of all partners who have not assigned there interests or suffered them to be charged for their separate debts.
4. Expulsion of a partner in accord with a power conferred to the other partners by agreement.

Question 27

When the court will order dissolution for a partner (5)

Answer 27

1. Business only operates at loss
2. Partner declared incompetent
3. Partner incapable of performing duties
4. Partner conduct prejudicially affecting the business
5. willful, persistent breach of partnership agreement not reasonably practicable to carry on business together

Question 28

Rights Upon Dissolution

Answer 28

triggers the right to:

1. Liquidate
2. have partnership property applied to liabilities
3. excess cashed to pay the partners.

Question 29

Post dissolution

Answer 29

Partners contributions repaid
share equally in profits and surplus
contribute to losses according to share of profits.

Question 30

Dissolution in Contravention of the Partnership Agreement

Answer 30

The remaining partners may agree to continue the business.

Partner causing wrongful dissolution entitled to value of interest less damages due to breach.

Question 31

Effect of Withdrawal on Partnership

Answer 31

Partnership dissolves.
Receives no further profit
incurs no liability during winding up.
Actions do not bind partnership after dissolution.
EXCEPT
other party to transaction:
1. extended credit prior to dissolution without knowledge of dissolution
2. knew partnership but no knowledge of dissolution
because lack of published notice in place the business was regularly carried on.

Question 32

Partnership post dissolution

Answer 32

Partners may bind partnership in acts appropriate to winding up affairs.

Dissolution does not terminate the business.

Partnership continues until winding up of affairs is completed.

Does not discharge existing liability of any partner

Question 33

Acts that the partnership is NEVER bound after dissolution

Answer 33

partnership dissolved because it is unlawful to carry on the business - unless the act is appropriate for winding up partnership affairs.

The partner has become bankrupt

Question 35

Winding Up In General

Answer 35

Process where assets are sold, debts paid, and balance distributed to.

1. outside creditors
2. inside creditors - partner creditor
3. capital contributions
4. surplus or deficit divided among partners

Any partner showing cause may obtain a winding up by the court.

Question 35

Contributions

Answer 35

partners contribute amounts necessary to satisfy the liabilities.

partners not capable of satisfying liabilities,
remaining solvent partners contribute share of liabilities in proportion they share profits.

Question 36

Rules generally observed for settling accounts

Rank of Liabilities settled

Answer 36

1. assets include partnership property and contributions of partners.
2. Liabilities of partnership rank in order of payment as follows:
   a. creditors
   b. partners other than for capital and profits
   c. partners in respect of capital
   d. partners in respect of profits
3. Assets applied to satisfy partnership liabilities in the following order:
   partnership property, partnership contributions

Question 37

Ranking of Claims against a bankrupt partner

Answer 37

1. Owed to separate creditors
2. owed to partnership creditors
3. owed to partners by way of contribution

Question 38

Right to possession of partnership property

Answer 38

partners have equal right to possess partnership property for partnership purposes

no right to posses property for any other purpose without consent.

Question 40

Real property owned by a partnership

Answer 40

Real property acquired in the partnership name
must be conveyed in the partnership name.
May be transferred by any one of the partners.

Question 41

Disagreements among partners

ordinary course of business

Answer 41

is matter in the ordinary course of business
if so, requires majority of partners
if not, requires unanimous consent of all partners

in 2 person partnership, majority is unanimous agreement, otherwise deadlock

Question 42

other actions resulting in dissolution

Answer 42

caused by event in contravention of the agreement where circumstances do not permit dissolution under any other provision, but there is breach of partnership agreement.

Others include death, bankruptcy, court order, or event making it unlawful for partnership to continue.