Partnership

Question 1

Partnership formalities

Answer 1

There are no formalities to becoming a general partnership.

Question 2

Definition of partnership

Answer 2

An association of two or more persons who are carrying on as co-owners of a business for profit.

Question 3

Key fact to find a partnership

Answer 3

Contribution of money or services in return for a share of profits creates a presumption that a general partnership exist.

Question 4

Liability of general partners to third parties

Answer 4

Each general partner is personally liable for all debts of the partnership and for each copartner’s torts.

Question 5

Incoming partner’s liability for pre-existing debts

Answer 5

As a rule, incoming partners are not liable for prior debts, but any money paid into the partnership by new partner can be used to satisfy prior debts.

Question 6

Dissociating partner’s liability for subsequent debts

Answer 6

A dissociating partner retains liability on future debts until notice of dissociation is given to creditors or until 90 days of having filed notice of dissociation with the state.

Question 7

General partnership liability by estoppel

Answer 7

One who represents to a third-party that a general partnership exist will be liable as if a general partnership exist

Question 8

Duties of general partners

Answer 8

General partners are fiduciaries of each other and the partnership and therefore owe to each other and the partnership the duty of loyalty.

Remedy for breach of duty of loyalty is an action for accounting where the partnership may recover losses caused by breach and may take away profits made by the breaching partner.

Question 9

Rights to specific partnership assets

Answer 9

Land, leases, or equipment which are owned only by the partnership itself, and therefore no individual partner may transfer these assets to some third-party.

Question 10

Rights to share of profits

Answer 10

Share of profits is personal property owned as such by individual partners and maybe transferred by individual partners.

Question 11

Rights to share in management

Answer 11

Assets owned only by the partnership itself and therefore may not be transferred by any individual partner.

Question 12

How to determine whether fact pattern involves property owned by the partnership or personal property

Answer 12

If personal money was used the property becomes personal property. If partnership money was used it becomes partnership property.

Question 13

Default partnership rules

Answer 13

1) absent an agreement each partner is entitled to equal control (vote)
2) absent an agreement partners get no salary
3) absent an agreement profits shared equally
4) absent an agreement losses shared like profits

Question 14

Dissolution

Answer 14

In the absence of an agreement that sets forth events of dissolution, a general partnership dissolves upon notice of express will of one general partner to dissociate.

Question 15

End of the partnership

Answer 15

The real end of the partnership is called termination

Question 16

Winding up of a partnership

Answer 16

Period between dissolution and termination in which the remaining partners liquidate the partnerships assets to satisfy the partnership’s creditors.

Question 17

Partnership’s liability for old business

Answer 17

The partnership and therefore its individual general partners retain liability on all transactions entered into to wind up old business by satisfying existing creditors.

Question 18

Partnership’s liability for new business

Answer 18

The partnership and therefore its individual general partners retain liability on brand-new transactions during wind up until notice of dissolution is given to creditors or until 90 days after filing a statement of dissolution with the state.

Question 19

Priority of distribution

Answer 19

1) partnership must pay all outside non-partner trade creditors and also partners who have loaned money to the partnership and have become creditors thereby.
2) partnership is liable to its own partners for the full payment of the capital contribution.
3) profits if any are shared equally without an agreement.

Question 20

Rule for distribution

Answer 20

Each partner must be repaid his or her loans and capital contributions plus that partner’s share of any profits or minus that partner’s share of any losses.

Question 21

Definition of limited partnerships

Answer 21

Partnership with at least one general partner and at least one limited partner. Therefore limited partner gets limited liability.

Question 22

Formation of limited partnerships

Answer 22

Must file a limited partnership certificate that includes the name of all general partners.

Question 23

Liability in limited partnerships

Answer 23

General partners are liable for all limited partnership obligations but as general partners they have the right to manage the business.

Limited partners have limited liability and therefore not liable for the obligations of the limited partnership. Therefore a limited partner may not manage the business without forfeiting their limited liability status.

Question 24

Formation of registered limited liability partnerships

Answer 24

Must register by filing a statement of qualifications and annual reports.

Question 25

Liabilities in a registered limited liability partnership

Answer 25

No partner is liable for the debts and obligations for the limited liability partnerships.

Question 26

Limited liability companies

Answer 26

Hybrid between a corporation and a partnership in which the owners (members) have the same limited liability as stockholders and also the benefits of partnership tax treatment.

Question 27

Formation of the Limited liability Company

Answer 27

Organizers must file the articles of organization and may adopt an operating agreement.

Question 28

Control of limited liability companies

Answer 28

Owners may control the business but they may also delegate control to a team of managers.

Question 29

Limited liquidity of the limited liability company

Answer 29

Full membership interests may not be transferred without unanimous consent of all members.

Question 30

Limited life of limited liability companies

Answer 30

Articles of organization or operating agreement must identify some event of dissolution.