Partnership

Question 1

What is a general partnership?

Answer 1

A general partnership is an association of 2 or more persons who are carrying on as co-owners of a business for profit; Sharing of profits is the key factor, the contribution of money or services in return for a share of profits creates a presumption that a general partnership exists; not in return for a wage, salary, commissions, etc. . .

Question 2

How are general partnerships formed?

Answer 2

There are no formalities for becoming a general partnership

Question 3

What is the general rule regarding liability for general partners?

Answer 3

Each general partner is personally liable for all debts of the partnership and for each co-partner’s torts in the scope of partnership and for each partner’s authorized contracts.

Question 4

Can a incoming partner be liable under a general partnership?

Answer 4

No. An incoming partner is not personally liable for prior debts or obligations inccureed by the partnership before the person became partner.

Note: However, any money paid into the partnership by the new partner may be used by the partnership to satisfy prior debts. If the new partnership agrees to take over existing obligations of the old partnership then the new partners will be subject to personal liability the same as the partners of the old partnership.

Question 5

Can a dissociating partner be liable after living a general partnership?

Answer 5

Yes. Retiring partners remain liable for all partnership obligations incurred prior to his departure from the partnership. A retiring partner retains liability even on future debts until actual notice of there dissociation is given to creditors or until 90 days after filing a notice of dissociation with the Commonwealth.

Question 6

What is liability by estoppel?

Answer 6

One who represents to a third party that a general partnership exists will be liable as if a general partnership exists.

Question 7

What begins the dissolution process for general partnerships?

Answer 7

Absent an agreement, a GP dissolves upon notice of the express will of any partner to dissociate. Also, it has a limit on its life, it can dissolve upon happening of certain events (begins process of dissolution).

Question 8

What is the “winding up” phase of the dissolution process?

Answer 8

The period between dissolution and termination in which the remaining partners liquidate the partnerships assets to satisfy the partnership’s creditors.

Question 9

What is the order of distribution of assets upon dissolution of a general partnership?

Answer 9

All creditors (including partners who are creditors), all capital, profits, if any, are shared equally w/o agreement; each partner must be repaid there loans and capital plus there share of profits, but also minus there share of losses.

Question 10

What is a limited partnership?

Answer 10

A limited partnership is a partnership with at least one general partner and at least one limited partner.

Question 11

How do you form a limited partnership?

Answer 11

Formation requires that the partnership must file with the Commonwealth a limited partnership certificate that includes the name (and signature) of all general partners.

The certificate must:

• list the address of the LP’s principal office,
• the address of the LP’s registered office,
• the name of the registered agent at the registered office, and
• the name and address of each general partner.

The certificate must be amended within 30 days after such information changes.

Question 12

What is the liability associated with limited partnerships?

Answer 12

Limited partners have limited liability and are not liable for the limited partnership’s obligations, unless she controls the business in a manner that third party person believes that they are just like general partners; General partners are still liable for all limited partnership obligations, but still have the right to manage the business.

Question 13

Under the Revised Uniform Limited Partnership Act (RULPA), what actions by a limited partner will not constitute participation in the control of the businss?

Answer 13

• Consulting with and advising a GP;
• Pursuing a derivative action;
• Requesting or attending GPs’ meetings;
• Proposing, approving, or disapproving changes in the nature of the business or admission or removal of a GP;
• Amendments to the partnership agreement.

Question 14

Can a limited partner withdraw from a limited partnership?

Answer 14

Generally, a limited partner may withdraw from a limited partnership only at the time or upon the happening of events specified in writing in the partnership agreement.

A limited partner’s withdrawal does not cause the partnership to dissolve, BUT may seek judicial dissolution

Question 15

What are causes of nonjudicial dissolution?

Answer 15

(1) Terms in the certificate;
(2) Written consent of all partners;

OR

(3) Withdrawal of a general partner unless there is at least one remaining general partner and the certificate permits that partner to continue the partnership or all partners agree to continue the partnership.

Question 16

When can a limited partnership undergo judicial dissolution?

Answer 16

A circuit court may dissolve a limited partnership if it is no longer reasonably practicable to carry on the partnership business.

Question 17

Who may wind up a limited partnership?

Answer 17

General partners who have not wrongfully dissolved the limited partnership may wind up, or if non, the limited partners may do so.

Question 18

In a limited partnership, what is the distribution of assets upon winding up?

Answer 18

Assets are distributed in the following order:

1. To creditors;
2. To present and former partners for interim distributions and distributions upon withdrawal; and
3. To partners first for the return of their contributions and second for their share of the partnership’s profits, losses, and assets in their distribution ratio.

Question 19

How are registered limited liability partnerships (RLLP) formed?

Answer 19

Register with the Commonwealth by filing a statement of qualification and annual reports.

Question 20

What is the liability associated with Registered Limited Liability Partnerships (RLLPs)?

Answer 20

No partner, including general partners, is individually liable for its debts, liabilities, or obligations chargeable to the partnership. This applies to matters sounding in tort, contract, or otherwise. BUT a partner remains liable for his own wrongful acts.

Question 21

Who may wind up a general partnership?

Answer 21

As a general rule, all living partners have a right to participate in the winding up of the partnership’s business except partners who have wrongfully dissociated and bankrupt partners.

If all partners have dies, the legal representative of the last surviving partner may wind up and is liable for the deceased partner’s obligations to the partnership.

Question 22

Under a general partnership, can partners waive dissolution and continue the business?

Answer 22

Any time before the winding up of the partnership business is complete, the partners may decide to waive the dissolution and continue the partnership by unanimous vote of the partners who have not wrongfully dissolved. Such waiver does not affect the rights of persons who have relied on the dissolution before receiving notice of the waiver.

Question 23

What are events causing dissociation of a partner from the partnership?

Answer 23

A partner becomes dissociated from the partnership by:

1. notice of the partner’s expres will to withdraw;
2. happening of an agreed event;
3. expulsion of the partner pursuant to agreement, by unanimous vote if unlawful to continue business with the partner, or judicial decree;
4. the partner’s bankruptcy;
5. the partner’s death or incapacity to perform partnership duties;
6. appointment of a receiver; or
7. termination of a business entity that is a partner

Question 24

What is dissociation?

Answer 24

Dissociation is a change in the relationship of the partners caused by any partner ceasing to be associated in the carrrying on of the business. Dissociation of a partner does not necessarily cause a dissolution and winding up of the partnership business.

Question 25

What are the events causing dissolution?

Answer 25

The following events trigger dissolution under the RUPA: 1. In a partnership at will, ***notification by any partner of an intent to withdraw***; 2. In a partnership for a definite term or particulr undertaking: (i) ***expiration of the term*** or completeion of the underaking, (ii) ***consent of all of the partners*** to dissolve, or (iii) expiration of a 90-day period after a partner's ***death, bankruptcy, or wrongful dissociation*** unless during the 90 days a majority in interest of the remaining partners agree to continue the partnership. 3. The ***happening of an event agreed to in the partnership agreement*** that requires winding up the parnership business; 4. The ***happening of an event that makes it unlawful*** for the partnership to continue; 5. ***Issuance of a judicial decree on application by a partner*** that (i) economic purpose of the partnership is likely to be grustrated, (ii) a partner has engaged in conduct making it not reasonably practicable to carry on the business, or (ii) the business cannot practicably be carried on in conformity with the partnership agreement; and 6. ***Issuance of a judical decree on application by a transferee*** of a partner's interest that it is equitable to wind up the partnership (i) after the term expires or the undertaking is completed in a partnership for a definate term or particular underking or (ii) at any time in a partnership will.

Question 26

In a general partnership, what are the duties owed to partners and the partnership?

Answer 26

General partners are fiduciaries of each other and the partnership and owe each other the duties of care, obedience, and loyalty.

Question 27

In a general partnership, what is the rule regarding management of the partnership?

Answer 27

Absent an agreement, each partner is entitled to EQUAL control, one vote each: * Majority vote typically controls ordinary matters * Unanimous consent is required for fundamental matters; Fundamental matters are substantial acts outside of the ordinary course of business or amendments to the partnership agreement

Question 28

What is the rule regarding salary in a general partnership?

Answer 28

Absent an agreement, partners get no salary.

Question 29

In a general partnership, what is the rule regarding profits made and losses incurred by the partnership?

Answer 29

Partner’s share of profits and losses - absent agreement profits shared equally and losses shared like profits.

Question 30

Does a partner have right to indemnification?

Answer 30

A partner has a right to be indemnified by fellow partners for expenses incurred on behalf of the partnership. A partnership must indemnify every partner with regard to payments made and obligations reasonably incurred in carrying on the partnership business. NOTE: If a partner makes a payment or advance on behalf of the partnership beyond the contribution the partner agreed to make, the payment or advance consitutes a loan which must be repaid with interest.

Question 31

What does the duty of loyalty require?

Answer 31

The duty of loyalty requires that the partner (i) account for all profits or other benefits derived by the partner in connection with the partnership business; (ii) not deal with the partnership as one with an adverse interest; and (iii) not compete with the partnership.

Question 32

What does the duty of care require?

Answer 32

The duty of care requires the partner to refrain from engaging in negligent, reckless, or unlawful conduct or intentional misconduct.

Question 33

When a breach occurs by a partner, what remedies are avialable to the partnership?

Answer 33

The partnership may recover loses that are caused by the breach and/or may disgorge profits made by the breaching partner.

Question 34

In a general partnership, what are the partner's rights to partnership property and liquidity?

Answer 34

Specific partnership assets, share of profits, share in management; only share of profits is liquid. Test = who’s money was used to buy the property?