Partnership

Question 1

What statute governs general partnerships?

Answer 1

Revised Uniform Partnership Act

Question 2

A general partnership is:

Answer 2

an association of two or more persons who intend to carry on and manage a business for profit as co-owners.

Question 3

What is presumptive evidence of the existence of a partnership?

Answer 3

receipt of a share of profits

Question 4

What filing requirements are there for a general partnership?

Answer 4

None, except if a fictitious name is used then the name must be registered

Question 5

What provisions cannot be included in a partnership agreement?

Answer 5

• restrictions on access to financial records or inspection of books
• elimination of good faith and fair dealing between partners
• restrictions on the rights of third parties

Question 6

What does the Statute of Frauds require for partnerships?

Answer 6

If the partnership is for a specified term exceeding one year then there must be a written partnership agreement. However, if a partnership is at-will then an oral agreement is permitted.

Question 7

In addition to share of profits, what other factors are evidence of the existence of a partnership?

Answer 7

• share in control and management

- capital contributions

Question 8

What is partnership by estoppel?

Answer 8

If a person refers to himself as a partner, uses partnership in the trade name of the business, then the person may be estopped from denying the existence of a partnership and will personally liable.

Question 9

What is the implication of making a representation as to the existence of a partnership in a public manner?

Answer 9

If in a public manner, then a partnership by estoppel claim extends to creditors who did not actually receive the communication.

Question 10

What presumptions apply to acquisition of property by partners?

Answer 10

(1) If acquired with partnership assets it is presumed to be property of the partnership, even if held in one partner’s name.
(2) If acquired with personal assets and in one partner’s name, then the property is presumed to be separate, even if used for the partnership.
* look for a creditor going after assets in one partner’s name – were partnership assets used to acquire or improve the property?

Question 11

If a partner conveys his ownership interest without approval of the partners what happens?

Answer 11

Under the common law, the conveyance would dissolve the partnership

Under the Revised Uniform Partnership Act: (1) transferee is entitled to the share of profits and losses

(2) transferee has no right to participate in management, unless all other general partners agree
(3) transferor, but not transferee, has inspection and account rights

Question 12

Can a creditor of an individual partner go after partnership assets?

Answer 12

The creditor can place a charging order on the partnership, charging that partner’s interest. Distributions due the partner are then paid directly to the creditor.

Question 13

What duties of loyalty issues are there for partnerships?

Answer 13

Partners must not:

• compete with the partnership
• have adverse interests, or deal with parties having adverse interests to the partnership
• usurp partnership profit opportunities

Question 14

What claims can partners bring against one another?

Answer 14

• breach of partnership agreement

- breach of fiduciary duty

Question 15

What rights does a partner have if his own money was expended for the business?

Answer 15

• reimbursement of expenses and

- indemnification for liabilities incurred “in the ordinary and proper conduct of its business”

Question 16

How is management authority handled in a partnership?

Answer 16

• all general partners have equal rights in day-to-day management
• ordinary decisions are determined by a majority vote

Question 17

In a partnership, what decisions must be approved unanimously by all partners?

Answer 17

• admission and expulsion of general partners must be unanimous
• changing the partnership agreement must be unanimous
• decisions “outside the ordinary course” of business may require unanimous approval

Question 18

What are examples of partnership activity “outside the ordinary course” of business that might require unanimous approval?

Answer 18

Under the old UPA:

• confessing judgment
• submitting a claim for arbitration
• assignment for the benefit of creditors
• bulk sale of assets
• sale of goodwill

*Under the RUPA, the court will now decide what is outside the ordinary course.

Question 19

What conditions are there on a partner’s right to inspect and copy records?

Answer 19

• in a reasonable manner
• during business hours
• with prior notice
• copying fees allowed

Question 20

In a general partnerships, what is the liability of partners?

Answer 20

All partners are joint and severally liable for obligations and torts incurred in the ordinary course of partnership business.

Question 21

What is different about a new partner’s liability?

Answer 21

For contract and tort claims incurred prior to the new partner’s admission into the partnership, the new partner is only liable to the extent of his contribution, unless there is an express assumption of liability.

Question 22

What rules apply if a partner improperly transfers partnership assets to a third party.

Answer 22

(1) If the transfer violated the partnership agreement or lacked authority AND the third party knew of the lack of authority, then the partnership can recover the property.
(2) If the third party re-conveyed to a subsequent transferee without knowledge that the original conveyance was unauthorized, then the property cannot be recovered.

Question 23

How can the partnership protect real estate from being improperly conveyed by a rouge partner?

Answer 23

by filing a Statement of Partnership Authority, specifying which partners have authority to sell real estate, which will be binding constructive notice on all transferees of the real property

Question 24

What is a disassociating partner entitled to?

Answer 24

the current value of her ownership interest

Question 25

What is required if there are only two partners and one disassociates?

Answer 25

dissolution and winding up of affairs

Question 26

Are there restrictions on partners’ disassociation?

Answer 26

Absent an express agreement to the contrary, partners are free to disassociate at any time.

Question 27

For what reasons may a partner be expelled from a partnership?

Answer 27

• without cause if allowed in the partnership agreement
• if silent, only for limited reasons:
  
  • it would be unlawful to carry on the
    business with that partner
  • transfer of ownership interest w/o
    approval
  • wrongful conduct
  • material breach of the partnership
    agreement

Question 28

How many votes are required to expel a partner?

Answer 28

unanimous vote

Question 29

What is the effect of a partner’s death or incapacity?

Answer 29

automatic disassociation

Question 30

What rights do partners have if one partner disassociates in violation of the partnership agreement?

Answer 30

• a claim for “wrongful disassociation” may create damages in favor of the non-breaching partners or the partnership

Question 31

When is disassociation not wrongful?

Answer 31

• if done within 90 days of another partner’s disassociation through death, bankruptcy, expulsion, termination

Question 32

What statute governs limited partnerships?

Answer 32

Revised Uniform Limited Partnership Act (RULPA) - most jurisdictions have adopted, but some follow an older version

Question 33

What is the liability of limited partners?

Answer 33

(1) Liability is capped at their contributed capital, unless they personally engaged in fraud.
(2) Under RULPA, if an LP is actively participating in control of the partnership, then he will be liable as a general partner

Question 34

What trade name restrictions apply to LPs?

Answer 34

the limited partners’ names may not be used

Question 35

What exceptions allow an LP to contribute to control of the business without incurring GP liability?

Answer 35

Under the “safe harbor” provision the LP may

• act as a nominal consultant, contractor, agent, employee, or surety
• be an officer, director, or shareholder of a corporate GP
• propose incurring debt
• propose a change in the nature of the business
• propose admission or removal of a GP or LP

Question 36

What are the common ways an LP will be liable as a GP?

Answer 36

• active participation in management

- holding himself out as a GP

Question 37

What is the default rules for allocating profits and losses in a general versus a limited partnership?

Answer 37

GPs: equal sharing of profits
LPs: according to the contributed capital values as stated in the LP certificate

Question 38

When may an LP bring a derivative action?

Answer 38

If the GP with such authority refuses to do so after a demand.

Question 39

What rights do dissenting partners have upon a merger?

Answer 39

receive the fair value of their shares