Partnership

Question 1

Partnership formation

Answer 1

An association of two or more legal persons who carry on a for profit business as co-owners. Profit sharing creates a presumption of a partnership unless (money paid for debt, rent to a landlord)

A partnership may be formed by an individual or a company

no writing or certificate needs to be filed

NO intent requirement

Question 2

Who can form a partnership

Answer 2

anyone with legal capacity to contract

-if a minor or incapacitate–> can’t

Question 3

When 2 or more ppl share profits

Answer 3

there’s a presumption of a partnership relationship

not for debts, rent payments, wages employer to employee, goodwill

Question 4

Fiduciary duties in partnership

Answer 4

duty of loyalty

duty of care

Every partner is a fiduciary of the partnership and owes the above duties to partnership and other

Question 5

Duty of Loyalty includes

Answer 5

• Good Faith
• Not to Compete
• Not to advance interest ADVERSE to partnership
• Must not usurp partnership opportunity

-Cannot take a business opportunity that the partnership could have profited from (unless you presented it to partners first)

• Duty to Disclose
• Duty to Account

Question 6

Duty of care Includes

Answer 6

• Act as a reasonable partner
• Each partner owes to the partnership a duty of care to refrain from engaging in a) grossly negligent or reckless conduct, b) intentional misconduct, or c) a knowing violation of the law.

Question 7

Obligation of Good Faith and Fair Dealing

Answer 7

Partners are in a fiduciary relationship with one another and must act fairly and in good faith

Question 8

Profits and Losses

Answer 8

Absent a partnership agreement, each partner will share profits and losses equally

Question 9

Transfer of Financial Interest

Answer 9

A partner has a transferable partnership interest, i.e., a partner may transfer the right to share in the profits and losses of the partnership and to receive distributions.

o Partner is still a partner with remaining rights and obligations

o Third party does not become a partner, but can seek judicial dissolution of the partnership

o A creditor of a partner can enforce a judgment against the partner’s financial interest.

Question 10

Property Ownership

Answer 10

All property acquired by a partnership is the property of the partnership, NOT the partners individually.

Any personal use of partnership property requires the consent of the other partners partnership.

Question 11

Management Rights

Answer 11

Each partner has EQUAL rights in the management and conduct of the partnership.

o A majority of the partners can make a decision as to ordinary business matters.

o All partners must consent to a matter outside the course of ordinary business.

Question 12

Access to Records

Answer 12

Partnership must provide partners and their agents with access to records during business hours

Question 13

Tort Liability

Answer 13

A partner is an agent of the partnership

Partnership is Liable for a partner’s tortious acts, including fraud, committed in the ordinary course of
partnership business or with partnership authority

Question 14

General Partnership Liability

Answer 14

Partners are personally liable for the partnership’s obligations

No limited liability

Question 15

Partnership Agreement

Answer 15

There’s no requirement that partnership agreements must be written

However a provision partnership agreement will govern

can’t deny partners access to the partner’s books, fiduciary duties can’t be eliminated, and can’t waive liability to 3rd parties

Question 16

Timing of Fiduciary duties

Answer 16

doesn’t apply to prospective or former partners

no duty of care or loyalty to these ppl

Question 17

Liability to 3rd parties

Answer 17

a. As a separate entity, a partnership can be subject to a lawsuit for its obligations.
b. Partners are jointly and severally liable for all partnership obligations
c. Even if a partner enters into a contract but lack actual authority to do so, partnership and partners are BOUND so long as the partner had APPARENT authority
c. A creditor must obtain a judgment against the partners personally to go after the partner Partnership creditor should exhaust the partnership’s assets before taking the partner’s individual assets

Question 18

Termination of partnerships

Answer 18

Step 1: dissolution

Step 2: Winding up

Question 19

Dissolution

Answer 19

The dissolution of a partnership is the change in the relation of the partners. Dissolution does not end the partnership.

Prior creditors entitled to personal notice of the dissolution

Others who knew of partnership= newspaper notice

Any partner can choose to dissociate from the partnership by giving notice (or involuntary dissolution)

A partnership cannot prevent a partner from withdrawing, but can require certain restrictions on withdrawal (e.g., written notice, liability for
wrongful dissociation, etc.).

Question 20

Effects of Dissolution

Answer 20

Once dissociated, a former partner has no right to participate in management of the partnership, and owe no more duties to partnership

Partnership may dissolve

Question 21

A judgment creditor of 1 partner may not

Answer 21

A judgment creditor of an individual partner may not attach and execute upon partnership real
estate

Question 22

Termination of Partnership:

Winding Up

Answer 22

Partnership assets are liquidated and partnership creditors are paid.

A partnership that is dissolved only continues to exist to “wind up” its business.

a. Assets: Creditors have priority over partners to the partnerships’ assets.
b. then distributed to the partners.

Question 23

Limited Partnership (LP)

Answer 23

• Generally, limited partners are NOT liable for obligations of the Limited Partnership (LP)
• Individual partners are liable for their own misconduct.

participating in the removal of a director is NOT
considered to be participating in management and control.

Question 24

Formation of LLP

Answer 24

o Requires filing a statement of qualification with the sec. of state (name of partner, statement of that partnership elects to be LLP, date)

o Failure to form an LLP will typically result in a general partnership

Question 25

LLP- Limited Partners

Answer 25

o Partners are agents of the LLP

o Not personally liable for LLP obligations

Limited partners are personally responsible for their own misconduct/negligence

Question 26

Transition from General Partnership to LLP

Answer 26

Changed through vote

• If a general partnership incurs liability and then becomes an LLP, the LLP is liable for those
obligations.

• If an individual partner in a general partnership is liable, and then an LLP is formed, the partner is still liable for that obligation.
• A new partner admitted to the LLP is not liable for pre-transition obligations.

Question 27

LP—Limited Partnerships

Answer 27

Formed by 2 or more people, at least one general partner and one limited partner

Question 28

LP- Access to Records

Answer 28

limited partners have a right to inspect and copy records upon reasonable
demand

Question 29

LP-

Liability for a limited partner

Answer 29

limited partner is not liable for partnership obligations

o Can be liable if the limited partner participates in control of the partnership

o Removing a general partner does not amount to “control” of the partnership

o Limited partner only liable to third parties who reasonably believe the limited partner is a general partner

Question 30

Terminating LLP Status

Answer 30

1. partners can voluntarily terminate

2. the state revokes the llp status

Question 31

LP- General Partners

Answer 31

Engages in Control of the partnership and therefore can be liable

Question 32

incoming partner Liability

Answer 32

An incoming partner is NOT personally liable for prior debts of the partnership although their capital contributions can be used to satisfy such debts.

Question 33

Authority to Bind the Partnership

Answer 33

Each partner is an agent of the partnership and generally has authority to bind the partnership in the ordinary course of business transactions (including entering into contracts)

Question 34

Express Actual Authority

to bind

Answer 34

A partner has express actual authority to bind the partnership upon receiving said authority from the partners.

Question 35

Implied actual authority to bind

Answer 35

A partner has implied actual authority (incidental authority) to take actions that are reasonably incidental or necessary to achieve the partner’s authorized duties

Question 36

duty to account

Answer 36

account for any property, profit, or benefit derived by the partner from the partnership property or business (this includes the obligation to refrain from appropriating partnership assets for personal use)

Question 37

Acts within the ordinary course of the partnership business need only be approved, votes needed

Answer 37

majority of partners

Question 38

While acts outside the ordinary course of business must be approved by, votes needed

Answer 38

unanimously by partners;

change partnership agreement= unanimous vote