Partnership

Question 1

how is a partnership is formed?

Answer 1

under the TBOC, a partnership is an association of two or more persons to carry on a business for profit as owners, regardless of their intent.

Question 2

Factors indicating creation of partnership

Answer 2

(1) receipt of or the right to receive a share of profits; (2) expression of an intent to be partners; (3) participation or the right to participate in control of the business; (4) sharing or agreeing to share losses or liability for claims by third parties against the business; and (5) contributing or agreeing to contribute money or other property to the business.

Question 3

Factors not indicating creation of partnership

Answer 3

(i) receipt of or the right to receive a share of profits are: i. repayment of a debt; ii. wages or compensation to an employee; iii. payment of rent; iv. payment of interest on a loan; v. payment to a former partner, representative of a deceased or disabled partner, or transference of a partnership interest; or transferee of a partnership interest; or vi. payment of consideration for the sale of a business or other property.

(ii) existence of joint or common tenancies of any type;
(iii) sharing or possession of a right to share gross receipts; and
(iv) ownership of a mineral property under a joint operating agreement.

Question 4

Filing of certificate

Answer 4

General partnership: an assumed named certificate for a general partnership must be filed with the clerk of each county where the partnership maintains business premises or, if no business premises are maintained, in each county where the partnership conduct business.

Question 5

What must the certificate contain?

Answer 5

1. the name and assumed name of the partnership
2. the partnership’s office address
3. the name and address of each general partner
4. the period, not to exceed 10 years, during which the assumed name will be used; and
5. a statement that the business will be conducted as a partnership.

Question 6

Liability of partners-Civil

Answer 6

1) contract liability: partners will be liable on contracts made by a partner in the scope of the partnership business and on any other contracts expressly authorized by the partners.
2) tort liability: partners will be liable for any torts committed by a partner or by an employee of the partnership in the course of partnership business or with the partnership’s authority.

Question 7

Nature of partner’s liability in a civil action

Answer 7

Except for LLP, all partners are jointly and severally liable for all obligations of the partnership, whether the obligations arise in contract or tort.
however, a judgement is not personally binding on a partner unless she has been served.

Question 8

extent of partner’s liablity

Answer 8

each partner is personally and individually liable for the entire amount of all partnership obligation, whether arising in contract or tort. He also may require the other partners to contribute their pro rata shares of the payment if the partnership is unable to indemnify.

Question 9

Exhaustion of partnership assets required first

Answer 9

a creditor cannot proceed directly against a partner on a partnership obligation unless the creditor has first obtained a judgement against the partnership that remains unsatisfied for 90 days, the creditor and the partnership have agreed that obtaining a judgement against the partnership is not required, or the partnership is bankrupt.

Question 10

Liability of partners-criminal

Answer 10

the mutual agency of partners is not sufficient to make other partners criminally responsible for the crime of a partner committed within the scope of the partnership business, unless the other partners participated in the commission of the crime either as principals or accessories.

Question 11

partners’ duties

Answer 11

a partner owes the partnership and other partners two duties: the duty of loyalty and the duty of care.

Question 12

duty of loyalty in general partnership

Answer 12

a partner’s duty of loyalty is threefold: (!) to account to the partnership for any benefit derived by her from the use of its property

(2) to refrain from dealing with the partnership on behalf of a party having an interest adverse to the partnership; and
(3) to refrain from competing or dealing with the partnership in a manner adverse to the partnership.

Question 13

duty of care

Answer 13

a partner’s duty of care requires the partner to act with the degree of care an ordinarily prudent person would use in similar circumstances. a partner is presumed to have satisfied her duty of care if she acted on an informed basis, in good faith, and in a manner she believes to be in the best interest of the partnership.

Question 14

Does an agreement limit partner’s liability to the partnership or other partners in a general partnership?

Answer 14

it depends. generally, the partnership agreement may limit or eliminate a partner’s liability to the partnership or other partners for any act in the partner’s capacity as a partner.

however, liability for the following may not be limited by agreement:

1. breach of the duty of loyalty
2. a receipt of an improper personal benefit
3. intentional misconduct or a knowing violation of the law or
4. an act for which liability is provided for by statute.

Question 15

liability to third parties for LLC

Answer 15

a member or manager of an LLC is not liable for the debts, obligations, or liability of an LLC, including a judgement decree or order of a court.

Question 16

Whether a principal is liable on a contract entered by an agent in an LLC

Answer 16

yes. The extent of an individual member’s agency power, to act on behalf of an LLC and to bind it contractually, depends on whether management authority is vested in the members or in the elected managers.
a. management by membership: if the certificate of formation vests management of the company in its members, each member is an agent of the LLC for the purpose of the LLC’s business.

b. centralized management: if the certificate of formation vests management of the company in elected managers, nay one manager is an agent of the LLC. similarly, an officer or other agent who is vested with actual or apparent authority is also deemed an agent of the LLC.
c. power to bind the LLC: any person above is an agent of the LLC, and any action an agent takes for the purpose of appearing in carrying on in the usual way the business of the LLC will bind the LLC, unless the officer, agent, manager, or member lacked the authority to act, and the third party with whom the officer was dealing had knowledge that he lacked such authority.

Question 17

LLC May limit manager’s liability to LLC or members

Answer 17

Generally, the certificate of formation or company agreement may limit or eliminate the liability of a manager in a manager-run LLC to the LLC or its members for any act in the manager’s capacity as a manager. However, LLC following acts may not be limited by agreement:

1. breach of the duty of loyalty
2. a receipt of an improper personal benefit
3. intentional misconduct or a knowing violation of the law or
4. an act for which liability is provided for by statute.

Question 18

Assignee of a membership interest in an LLC

Answer 18

may become a member on the approval of all the existing members.

Question 19

Ownership interest in a PLLC

Answer 19

May only be transferred to an individual who is licensed to render the same professional services rendered by that professional entity.

Question 20

Liability and Taxation-Corporation

Answer 20

A corporation would shield one from liability for mistakes or malpractice of the other because shareholders are not liable on corporate obligations.

Taxes: although corporations usually pay federal income tax, members could avoid entity-level taxation by selecting to have the corporation taxed under subchapter S of the Internal Revenue Code, assuming the members meet all the requirements (only one class of shares; all shareholders must consent).

Question 21

Liability and Taxation-General partnership

Answer 21

Liability: partners in a GP are jointly and severally liable for the firm’s obligations. Thus, if the GP were liable to the third party for the mistake or malpractice, the partners would be jointly and severally liable to the injured party for it, too.

Taxes: a GP does not pay federal income tax; its income is passed through to the partners.

Question 22

Liability and Taxation-LP

Answer 22

Taxes: an LP does not pay federal income tax; its income is passed through to the partners.

Liability: GP in an LP are jointly and several liable, so are limited partners who participate in control.

Question 23

Liability and Taxation-LLP

Answer 23

an LLP’s members are not vicariously liable for its obligations

Taxes: LLP is not taxed at the entity level; it is taxed like a partnership, unless it elects to be taxed like a corporation, which is rare.