Partnership

Question 1

What is a general partnership?

Answer 1

An association of two or more persons to carry on as co-owners of a business for profit.

“Persons” can be natural people, corporations, or organizations

Question 2

What is the liability for a general partnership?

Answer 2

General partners have joint and several liability for partnership debts and obligations

Question 3

What is prima facie evidence that a partnership exists?

Answer 3

Sharing profits

Question 4

What is not deemed sharing profits?

Answer 4

• receiving payment of a loan
• collecting rent
• earning a salary

Question 5

What is required for formation of a limited partnership?

Answer 5

Agreement sufficient for partnership

AND

Filing a certificate of limited partnership signed by all general partners listed on the certificate.

Question 6

When is a limited partnership formed?

Answer 6

On the date the secretary of state files the certificate

OR

if parties ask for a later date (as long as not more than 3 months after filing)

Question 7

What is the liability for limited partnerships?

Answer 7

Limited partners don’t have personal liability–they’re passive investors. No management of the business

Question 8

What is required for an LLP?

Answer 8

• licensed professionals in law, accounting, architecture
• Majority vote of partners (for a GP to convert to LLP)
• proper registration + fee

(Note: LPs can never become LLPs)

Question 9

Once formed, an LLP…

Answer 9

… is like a general partnership for all purposes except liability

Question 10

What is the general rule for partnership business?

Answer 10

The partnership agreement governs

Question 11

When is an action taken outside of the ordinary course of business a partnership action?

Answer 11

When ALL general partners agree

Question 12

What is a general partner’s right to co-manage the business?

Answer 12

GPs have an equal right to manage the business (unless the partnership agreement specifies otherwise)

Question 13

For what actions is partnership consent required?

Answer 13

To sell, lease, exchange, or otherwise dispose of all, or substantially all of the GP’s property

Question 14

What is a limitation on a partnership agreement?

Answer 14

No partnership agreement may limit a partners access to the books and records of the partnership

Question 15

What are the duties of partners?

Answer 15

Duty of care

Duty of loyalty

Question 16

What is the duty of care for partnerships?

Answer 16

Partners must not engage in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.

Question 17

What is the duty of loyalty for partnerships?

Answer 17

Can’t compete with the partnership’s business

Can’t deal w/ partnership if dealing is adverse to the partnership’s interest;

Must account for any benefit and hold as trustee any profit derived from any transaction connected w/ partnership’s business or use of partnership property

Question 18

What is a limited partner’s only duty?

Answer 18

Good faith and fair dealing

Question 19

How are profits and losses split in a partnership?

Answer 19

Absent contrary agreement, profits are split equally, and losses are shared in the same proportion as profits

Question 20

What is a general partner’s liability for torts?

Answer 20

All general partners in a GP or LP are jointly and severally liable for a partner’s torts when

• the tortious act was committed in the ordinary course of business; OR
• within authority of the partnership

Question 21

For what is an incoming partner not liable?

Answer 21

An incoming partner is not personally liable for obligations arising from before admission as a partner

Question 22

Describe a limited partner’s liability

Answer 22

Limited partners are not personally liable for obligations of the partnership. Their liability is limited to their capital contribution.

Question 23

What is the exception to limited partners not being personally liable?

Answer 23

Limited partners can be liable if they participate in management and control of the partnership.

BUT this liability can only be incurred w/rt persons who
A) transact business with the LP;
B) who have actual knowledge of the LP’s participation in control of the business; AND
C) have a reasonable belief that the partner was a GP at the time of the transaction

Question 24

What is the general rule for dissociation of a partnership?

Answer 24

In general, a partner’s power to dissociate is exercisable at any time (not waiveable).

Question 25

What is the limitation on a partner’s power to dissociate from a partnership?

Answer 25

A partner may have the power to dissociate but may not have the RIGHT to dissociate, they may be liable for damges for breach

Question 26

What is a partner’s liability for wrongful dissociation

Answer 26

they are liable to the partners for any damages caused

Question 27

List the causes of partner dissociation:

Answer 27

• death
• bankruptcy
• appointment of guardian for a partner
• judicial determination that a partner is incapable of performing his duties
• occurrence of an event specified in the partnership agreement

Question 28

What is a limited partner’s right to dissociate before termination?

Answer 28

A limited partner has no right to dissociate before termination

Question 29

What are the ways a partnership at will may be dissolved and wound up?

Answer 29

1) an individual partner can file an application to dissolve

2) approval of at least half of the GPs. (Count GPs who in the last 90 days rightfully dissociated by express will)

Question 30

When will an individual partner’s application to dissolve a partnership at will be granted?

Answer 30

• if the economic purpose of the partnership is unreasonably frustrated
• if carrying on the business in conformity with the partnership agreement is not reasonably practicable
• if the relationship with a particular partner is no longer reasonably practical in light of that partner’s conduct relating to the partnership’s business

Question 31

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

Answer 31

90 days after the wrongful dissociation of one of the GPs UNLESS before that time a majority of Ps agree to continue

Question 32

When does a limited partnership dissolve?

Answer 32

1) upon withdrawal of a lone GP, an LP dissolves unless a majority of LPs decide to continue and they replace the GP within 90 days
2) upon withdrawal of a lone LP, it dissolves unless another LP is admitted within 90 days

Question 33

What is the winding up hierarchy for partnerships?

Answer 33

• outside creditors
• inside creditors (e.g. partners)
• capital contributions to partners
• allocate balance in accordance w/ profits

Question 34

What happens if partnership assets are insufficient to fulfill the partnership’s obligations?

Answer 34

partners are individually liable for the outstanding obligations