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Agency and Partnership > Partnership > Flashcards

Partnership Flashcards

1
Q

What is a general partnership?

A

A Partnership is an association of two or more persons to carry on as co-owners a business for profit and may exist regardless of whether partnership formation was intentional. No formalities are required.

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2
Q

Who can form a partnership?

A

Individuals, trusts, corporations, partnerships, associations, joint ventures, governments, or any other legal or commercial entity.

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3
Q

Is a joint venture a partnership?

A

Yes – in terms of legal consequence. A joint venture is an association of persons with intent to engage in a single business venture for joint profit.

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4
Q

Does the RUPA definition include limited partnerships?

A

No, but courts will look to RUPA for guidance if there is no other applicable law in a limited partnership issue

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5
Q

What law governs general partnership?

A

The R.U.P.A. (Revised Uniform Partnership Act) which is based on the laws of both contract and agency and provides a default set of rules (some of which may be waived)

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6
Q

Which provisions of RUPA may not be waived in the partnership agreement?

A

(1) A partner’s right of access to books and records
(2) A partner’s duties of loyalty and care (though partnership agreements may reasonably define what does not violate those duties)
(3) The power to dissociate as a partner
(4) The power of a court to expel a partner
(5) The requirement that the partnership business be wound up in the event of either the illegality of the business or certain judicial determinations that continuing the business is not practicable or equitable
(6) The rights of third parties under RUPA
(7) A partner’s duty of good faith and fair dealing

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7
Q

How is a partnership formed?

A

A partnership is formed when 2+ people associate as co-owners. There is no requirement that they subjectively intend to be a partnership, just intend to run a business as co-owners.

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8
Q

Is a writing or formal agreement required?

A

No formal agreement, the intent to run a business may be implied from conduct. If the partnership is going to be covered by the statute of frauds and the partners wish to have an enforceable agreement, it must be in writing, though.

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9
Q

How do courts determine whether a partnership exists?

A

The inquiry is whether they intended to carry on a business as co-owners. The most important factor in deciding whether an association rises to the level of a partnership is the sharing of profits. A person who receives a share of the profits is presumed to be a partner unless the profits were payment of a debt, wages or other compensation, rent, or loan interest. (Gross returns sharing does not establish this presumption.)

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10
Q

What is a partnership’s legal status?

A

Once formed, a partnership is considered to be a legal entity distinct from its partners.

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11
Q

Who may be a partner?

A

Anyone may be a partner who is capable of entering into a binding contract (same as a principal in agency)

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12
Q

What happens when a would-be partner lacks capacity?

A

If a would-be partner lacks capacity, they are not personally liable for the obligations of the partnership or for breaches of the partnership agreement, but remains bound to the extent of their capital contribution.

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13
Q

For what purposes may partnership be formed?

A

Any legal purpose.

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14
Q

How can someone become a partner in a partnership?

A

x

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15
Q

When is a person receiving a share of profits presumed to be a partner?

A

Any person receiving a share of business profits is presumed to be a partner unless the profits are payment of rent, debt, in exchange for services, wages/other compensation, loan interest, sale of goodwill, or of annuity or retirement/health benefit.

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16
Q

What evidence is indicative (but not conclusive) of partnership?

A

(1) joint or common tenancies in property
(2) designation by the parties of their entity as a partnership
(3) the amount of activity involved in the enterprise (the higher the degree of activity, the likelier it is to be a partnership)
(4) sharing gross returns

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17
Q

What is failure to share losses evidence of?

A

Intent not to performa a partnership

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18
Q

What is partnership by estoppel?

A

If no partnership was formed in fact, parties may still be liable as if they were partners to protect reasonable reliance by third parties (where they were held out to them as a partnership).

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19
Q

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

A

When a person represents herself as a partner or consents to be represented by another as a partner, they will be liable to third parties who extend credit to the partnership (actual or apparent) in reliance.

Someone held out by another will only be liable if she actually consented to that (failure to deny representation of partnership does not give rise to liability as a purported partner).

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20
Q

What is the liability of a person who holds another out as a partner?

A

A person who holds another out to be their partner makes the alleged partner her agent with the power to bind them to third parties as if the other were, in fact, a partner.

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21
Q

What are the classifications of partnership property?

A

(1) Partnership capital is the property or money contributed by each partner for the purposes of carrying out the business
(2) Partnership property embraces everything the partnership owns, consisting both of the capital contributed by its members and the properties subsequently acquired in partnership transaction

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22
Q

What is includable in partnership property?

A

There is no restriction on what may be partnership property, but it is not always clear which property is partnership property and which is individual partner’s property. RUPA provides guidelines for titled property and common law provides guidelines for untitled property.

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23
Q

Under RUPA, when is titled property deemed to be partnership property?

A

Under RUPA, titled property is deemed partnership property if (1) titled in there partnership name, or (2) titled in the name of one or more partners and the instrument and the instrument transferring title notes the titleholder’s capacity as a partner or the existence of a partnership

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24
Q

Under RUPA, when is titled property presumed to be partnership property?

A

Under RUPA, property is presumed partnership property if purchased with partnership funds (either cash or credit), regardless of in whose name the title is held.

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25
Q

Under RUPA, when is titled property presumed to be partners separate property?

A

Under RUPA, if property is
(1) held in the name of one or more partners
(2) the instrument transferring title does not mention the titleholder’s capacity as a partner or the existence of the partnership, and
(3) partnership funds were not used
it is rebuttably presumed to be separate property even if used for partnership purposes

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26
Q

What are a partner’s rights in the partnership property?

A

A partner is not a co-owner of partnership property and has no interest in it. A partner’s creditors therefore may not reach it to satisfy personal obligations of the partner.

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27
Q

What is a partner’s ownership interest in the partnership?

A

A partner’s interest in the partnership consists of

(1) management and other rights, and
(2) a right to share in the partnership profits, losses, and distributions

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28
Q

What part of a partner’s ownership interest is transferable?

A

The partner may transfer their interest in profits, losses and distributions, but not their interest in management and other rights. The transferable interest is personalty and may be transferred voluntarily or involuntarily at any time.

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29
Q

What is the effect of a partner’s transfer of their transferable interest?

A

The conveyance does not dissolve the partnership.

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30
Q

What are the rights of a transferee of a partner’s transferable interest?

A

During partnership: the transfer gives the transferee no rights in management or partnership business, but merely entitles them to receive distributions according to the contract.
At dissolution: the transferee is entitled to receive the transferor’s net amount distributable and may require an accounting only from the date of last accounting agreed to by all partners.
Other: a right to seek a judicial determination that it is equitable to wind up the business

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31
Q

Can a partner’s transferable interest be attached to satisfy a judgment?

A

A judgment creditor can, on application to a court, attach a lien on the partner’s transferable interest.

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32
Q

What are a partner’s rights to participate in management?

A

Absent an agreement to the contrary, all partners have equal rights in the management of the partnership business.

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33
Q

How are decisions regarding matters within the ordinary course of business controlled?

A

Decisions regarding matters within the ordinary course of business of the partnership may be controlled by a majority vote of all partners.

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34
Q

How are decisions regarding matters not within the ordinary course of business controlled?

A

Decisions regarding matters not within the ordinary course of business of the partnership must be controlled by consent of the partners.

35
Q

What duties does the partner owe the partnership?

A

They owe four fiduciary duties: duty of loyalty, duty of care, duty of obedience, duty to provide complete and accurate information to the partnership. And must discharge their duties in good faith and with fair dealing.

36
Q

What is a partner’s duty of loyalty?

A

A partner’s duty of loyalty has three components:

(1) to account for profits, property, opportunities, or other benefits
(2) to refrain from dealing with the partnership as or on behalf of a party having an interest adverse to the partnership
(3) to refrain from competing with the partnership

37
Q

What is a partner’s duty of care?

A

Duty of care is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law.

38
Q

What is a partner’s duty of obedience?

A

Under agency principles, a partner is an agent of the partnership and has a duty to obey all reasonable directions of the partnership and must refrain from the acting outside the scope of their actual authority.

39
Q

What is a partner’s duty to provide complete and accurate info?

A

A partner must provide complete and accurate info concerning the partnership.

40
Q

Does a partner have a right to a salary?

A

Absent an agreement to the contrary a partner is not entitled to remuneration except for reasonable compensation for services rendered in winding up the business. Unless otherwise indicated, a partner is expected to devote her entire time and energy to the business.

41
Q

What are a partner’s rights and obligations of indemnification?

A

The partnership must indemnify partners for payments reasonably made and obligations reasonably incurred by a partner in carrying on the business of the partnership or for any payment or advance made by a partner for the partnership.

42
Q

What are a partner’s rights on dissolution?

A

A partner is entitled to settlement of her account.

43
Q

What are a partner’s rights to books and information?

A

The partnership’s books must be kept (subject to an agreement to the contrary) and every partner has the right to inspect and copy them. Each partner, on the demand of another partner, must provide complete and accurate information concerning the partnership

44
Q

May a partnership be sued in its own name?

A

Yes (but a judgment against the partnership alone is not judgment against the partners)

45
Q

How can a partner’s personal assets be reached?

A

The judgment must also be against the partner. A judgment against the partnership alone cannot touch the partners’ assets

46
Q

Can a partnership bring an action against a partner?

A

Yes, for breach of the partnership agreement or violation of a duty owed to the partnership

47
Q

Can a partner bring an action against a partnership?

A

Yes, for legal or equitable relief to enforce any right created by RUPA, created by the partnership agreement, or otherwise belonging to the partner.

48
Q

How does RUPA interpret a partner’s power to bind the partnership?

A

Using agency law, the partner is an agent of the partnership for the purpose of the business. RUPA’s focus is mostly on apparent authority

49
Q

What does RUPA provide with regard to apparent authority?

A

The act of any partner for apparently carrying on in the ordinary course of the partnership business or business of the kind carried out by the partnership will bind the partnership, unless (1) the partner had no authority to act for the partnership on the particular matter, and (2) the person with whom the partner was dealing knew or had received notification that the partner lacked authority

50
Q

Is apparent authority in partnership law limited to transactions in the ordinary course of business for the partnership?

A

No, it also includes transactions that would;d be apparently for carrying on business of the kind run by the partnership

51
Q

When does a third party know or have notice of a partner’s lack of actual authority?

A

Under RUPA, this means subjective knowledge rather than what a person should have known under the circumstances and notification will be effective when delivered or when read

52
Q

How can actual authority be created in a partnership?

A

Actual authority is the authority the partner reasonably believes he has based on communications with the partnership. It can be granted in the partnership agreement or by vote (usually majority unless for an act outside the scope of the business or an amendment to the agreement) of the partners.

53
Q

What must a plaintiff do before seeking to collect from an individual partner’s assets?

A

Exhaust the partnership assets.

54
Q

What is a newly admitted partner’s liability?

A

Not personally liable for any partnership obligation incurred by the partnership prior to their admission (but any contribution to the partnership is at risk of satisfying any of the partnership’s obligations).

55
Q

How may a partnership expand or curtail a partner’s authority to enter into transactions on its behalf?

A

By filing a statement of authority with the secretary of state. A partner may deny authority by filing a statement of denial.

56
Q

What is the effect of statements of authority with regard to transfers not of real property?

A

If a statement of authority filed with the secretary of state grants authority to enter into partnership transactions other than real property transfers, the grant is conclusive in favor of a person who gives value for the property without knowledge that the partner lacked authority. A limitation on the partner’s authority to enter into the transaction will not create constructive knowledge in third parties, though.

57
Q

What is the effect of statements of authority with regard to transfers of real property?

A

A grant of authority to a partner to transfer real property of the partnership is conclusive if filed with the secretary of state and county recording office, and the transferee gives value without knowing the partner lacked authority. A person will be consider to have constructive knowledge of a filed limitation of authority.

58
Q

When does a partner have notice of a fact?

A

(1) actual knowledge
(2) is notified (effective when it either comes to the partner’s attention or is delivered to a place of business held out by the partner as a place for receiving communications)
(3) they have reason to know based on circumstance

Their notice will be imputed to the partnership immediately unless they are participating in a fraud against the partnership.

59
Q

What is a partner’s contract liability?

A

Partners are liable on contracts made by a partner in the scope of the partnership business and on any other contracts expressly authorized by the partners.

60
Q

What is a partner’s tort liability?

A

Partners are liable for any torts committed by a partner or a partnership employee in the ordinary course of partnership business. This includes a copartner’s frauds, even if the partner had no knowledge of or participation in it.

61
Q

What is the nature of a partner’s liability?

A

All partners are jointly and severally liable for the obligations of the partnership in tort or contracts. A judgment will not be personally binding on a partner unless served and a judgment creditor may not levy against a partner’s individual assets unless (1) the partnership assets have been exhausted (2) the partnership is a bankruptcy debtor (3) the partner has agreed the creditor need not exhaust assets, (4) a court grants permission, or (5) the partner is independently liable

62
Q

What is the extent of a partner’s liability?

A

Each partner is personally and individually liable for the entire amount of all partnership obligations (meaning a partner asked to pay all the partnership’s obligations is entitled to indemnification from the partnership or pro rata contribution from the partners.

63
Q

What is the liability of an outgoing partner?

A

An outgoing or dissociated partner remains liable on all obligations incurred by the partnership while they were a member (unless there has been payment, release, novation or material alteration of the obligation without the partner’s consent). In general, liability extends for 90 days past the filing of a notice of dissociation with the secretary of state.

64
Q

What are partners’ criminal liabilities?

A

The mutual agency of partners is not sufficient to make other partners criminally responsible for one partner’s crimes committed within the scope of the business unless they participated.

65
Q

What is dissociation?

A

A change in the relationship of the partners caused by a partner ceasing to be associated with the carrying on of the business.

66
Q

What are the events of dissociation?

A

A partner is dissociated upon

(1) notice of express will to withdraw (written or oral)
(2) The happening of an agreed-upon event in the partnership agreement
(3) the valid expulsion of the partner
(4) the partner’s bankruptcy
(5) the death of a partner (or termination if the partner is a business entity)
(6) the decision of a court that they are incapable of performing partnership duties

67
Q

When is a partner deemed to have wrongfully dissociated?

A

If the dissociation is a breach of the express term of the agreement. If it is a partnership for a definite period or specific purpose and the partner withdraws, is expelled, or becomes bankrupt before the end of the term or completion of the undertaking, they will have wrongfully dissociated.

Wrongful dissociation creates liability for damages.

68
Q

What are the general consequences of dissociation?

A

A dissociated partner’s right to participated in management ends, along with their continuing duties of cared and loyalty. It does not necessarily dissolve the partnership

69
Q

What must happen if a partnership continues after a partner dissociates?

A

The partnership must buy out the dissociated partner’s entered based on the greater of the (1) partnership’s liquidation value or (2) the value of the business as a going concern without the partner (determined as if the partnership assets were sold at dissociation). Interest must be paid on the buyout price. Wrongful dissociation damages will be offset against the buyout price.

70
Q

What must a partnership do when it purchases a dissociated partner’s interest?

A

It must indemnify the dissociated partner against all known partnership liablilities incurred before dissociation and those after except those incurred by the acts of the dissociated partner.

71
Q

When is a partner who wrongfully dissociated entitled to a buyout price?

A

If the partner wrongfully dissociates before the expiration of a definite term or completion of an undertaking, then they are not entitled to the buyout until the end of the term or completion of the undertaking, unless she can show undue hardship. Deferred payments must be secured and bear interest.

72
Q

What is a dissociated partner’s power to bind the partnership?

A

If a partner dissociates without a dissolution/winding up, the partnership will be bound by any acts of the dissociated partner which would have bound the partnership prior to dissociation if the other party reasonably believed the dissociated partner was a partner and did not know or have notice of the dissociation. This lasts for 2 years.

73
Q

What is a dissociated partner’s liability to third parties?

A

(1) A dissociated partner remains liable for obligations incurred by the partnership prior to dissociation (unless the partnership creditor knows of the dissociation and materially alters the obligation without consent of dissociated partner)
(2) A dissociated partner may remain liable for obligations arising within two years after dissociation if the other party reasonably believed the dissociated partner was still a partner and did not have notice. The other party is considered to have notice 90 days after it is filed with the secretary of state

74
Q

What is dissolution?

A

The end of a partnership

75
Q

What are the types of dissolution?

A

(1) At will

- —

76
Q

What events cause dissolution?

A

(1) Notification by an at will partner of express will to withdraw
(2) In a definite term/particular undertaking partnership,

77
Q

What is a partner’s power to bind the partnership after dissolution?

A

x

78
Q

When does a partnership determine at dissolution?

A

x

79
Q

Who may wind up?

A

c

80
Q

Can partners waive dissolution?

A

x

81
Q

If partners waive dissolution, what is the effect on third parties?

A

x

82
Q

What is the order of distribution when a solvent partnership is dissolved?

A

x

83
Q

Under common law, what factors tend to indicate that property is partnership property?

A

(1) acquisition with partnership funds
(2) use in conducting the partnership’s business
(3) entry on the books as a partnership asset
(4) close relationship between the property and the partnership’s business operations
(5) improvement of the property with partnership funds
(6) maintenance of the property with partnership funds

Agency and Partnership (4 decks)

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