Partnership

Question 1

When is a partnership formed?

Answer 1

As soon as 2+ people associate to carry on as co-owner of a business for a profit. No writing is required.

Question 2

Who is a “person” that can enter a partnership?

Answer 2

A person may be an individual, trust, corporation, partnership, or other entity.

Question 3

What if the other would-be partner lacks capacity?

Answer 3

That person is liable only to the extent of his capital contribution but the partnership is NOT void, it will continue to exist until steps are taken to dissolve it.

Question 4

If no writing, how do you tell if a partnership existed?

Answer 4

1. Look to the intent of the parties.
2. Where the party’s intent is uncertain, the courts consider: 1) sharing of profits raises presumption of partnership, 2) evidence indicative of partnership; like title to property is held in joint tenancy or in common, the parties designate their relationship as a party, 3) the venture requires extensive activity and 4) sharing of gross returns.

Question 5

What is the liability of a person held out as partner?

What about liability of a person who holds ANOTHER out as partner?

Answer 5

1. They are liable to 3rd parties who extend credit in reliance on the representation.
2. This person will become an agent which will bind him to 3rd parties. But he must actually consent to this holding out which requires more than simply failing to deny representation.

Question 6

If property is titled, how do you know if it is partnership/person property?

Answer 6

1) is it titled in the partnership name OR titled in the name of one or more partnersh and the instrument transferring title notes the titleolder’s capacity as a partner or the existenceof partnership.

Question 7

If property is untitled, how do you know if its partnership/person propertly?

Answer 7

Common law governs. Courts look at:

1) acquisition of property with partnership funds
2) use of it by partnership in conducting the partnership’s business
3. ) Entry of the property in the partnership books as a partnership asset
4) a close relationship between the property and the business operation of the partnership
5) improvement of the property with partnership funds and
6) maintenance of the property without partnership funds.

Question 8

Does a partner have transferale interest in specific partnership property?

Answer 8

No, because a partner is not a co-owner of partnership property.

Question 9

Under the RUPA, titled property presumed to be partnership property if ___

Answer 9

Purchased with partnership funds, regardless of in who’s name title is held.

Question 10

Under RUPA titled property is presumed to be partners’s separate property if ___ (even if used for partnership purposes)

Answer 10

1) property is held in the name of one or more partners 2) the instrument transferring title does not indicate the person’s capacity as a partner or mention the existence of a partnership and 3) partnership funds were not used to acquire the property.

Question 11

In general, what kind of interest does each partner have in the partnership?

Answer 11

A transferable interest in the partnership, which consists of his share of partnership profits, losses and distribution

Question 12

Absent an agreement, how do partners share in profits and losses?

Answer 12

Partners share equally in the partnership profits and must contribute to the losses in proportion to his share of the profits.

Question 13

What does a transfer of a partner’s interest in the partnership effectively do?

Answer 13

gives the transferee no rights with regard to the operation of the partnership, merely entitles the transferee to receive profits that the transferring partner would be entitled to.

Question 14

What kind of right does each partner have to participate in the management?
How are decisions involving ordinary business made?
What about decisions involving matters outside the ordinary course of business?

Answer 14

All partners have equal rights in the management of the partnership absent an agreement to the contrary.
Decisions involving the ordinary course - majority vote of the partners
Decisions involving beyond the ordinary course - unanimous consent of the partners

Question 15

What fiduciary duties does each partner owe the partnership?

Answer 15

1. the duty of loyalty, which requires a) the partner account for all profits or other benefits derived by the partner in connection with the partnership business b)not deal with the partnership as one with an adverse interest c)not compete with the partnership
2. the duty of care which requires the partner to refrain from engaging in negligent, reckless or unlawful conduct or intentional misconduct.

Question 16

What is the order of distribution of assets upon dissolution?

Answer 16

Partnership assets are reduced to cash and liabilities are first paid to creditors, including partners who are creditors, and then next partners’ accounts.

Question 17

A partnership can be liable for other acts if the party with whom the partner delt didn’t have notice of the dissolution.. how can this be avoided?

Answer 17

File a statement of dissolution with the secretary of state; then all persons are deemed to have notice of the dissolution 90 days after notice is filed.

Question 18

What are the liabilities of the general partner of a limited partnership?

Answer 18

He is subject to all of the liabilities of a partner in a regular partnership including personal liability for partnership obligations.

Question 19

What are the liabilities of the limited partner of a limited partnership?

Answer 19

Generally not liable for partnership obligations beyond their contributions except where the limited partner is also a general partner, participates in control of the business and the person dealing with her reasonably believes she is a general partner, or knowingly permits her name to be used improperly in the name of the partnership.

Question 20

What are the rights specific to general partners?

Answer 20

Has all of the rights of a partner in a regular partnership including the right to manage partnersihp

Question 21

What are the rights specific to limited partners?

Answer 21

1) to vote on specific matters, but not to participate in control of the business
2) to obtain partnership information (including inspection of books
3) to bring a derivative action if the general partners refuse to do so or in an attempt to cause them to do so would be futile.

Question 22

How may a derivative action be maintained/brought?

Answer 22

Only by a person who is a partner at the time the action is commenced and 1)who was a partner when the conduct giving rise to the action occurred or 2) whose status as a partner devolved upon him by operation of law or pursuant to the terms of the partnership agreement from a person who was a partner at the time of the conduct.

Question 23

What is the order of distribution of assets upon dissolution of a limited partnership?

Answer 23

First - to creditors, including partners who are ordinary creditors of the partnership
Second - to general limited and former partners in satisfaction of liabilities for interim distributions and distributions due on withdrawal
Third - to general and limited partners first for the return of their contributions and then for partnership profits and property in the proportions in which the partners share in distributions.

Question 24

What is an LLC?

Answer 24

A limited liability company - hybrid business org that 1) is taxed like a partnership, 2) offers its owners (members) the limited liability of shareholders of a corporation and 3) can be run like either a corporation or a partnership. There is no limit on the number of owners (members), and no one has to accept full personal liability for the organization’s debts as would be required in a limited partnership.