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MEE 2021 > Partnership > Flashcards

Partnership Flashcards

1
Q

Partnership definition

A

An association of 2+ legal persons who carry on a for-profit business as co-owners

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2
Q

LP limited partners’ liability for LP obligations

A

Not personally liable unless

(1) he serves as general partner or
(2) participates in the control of the business

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3
Q

LP Limited partner’s “participation in the control of business”

A

“Participation in the control of business” does NOT include: being officer/shareholder of general partner, consulting GP, acting as a surety of the partnership, winding up partnership, proposing/approving partnership matters.

© If control of business, liable only to 3rd p who reasonably believe LP is a GP

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4
Q

LP general partners’ liability for LP obligations

A

personally liable. (can limit by becoming corporations)

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5
Q

General partner of LP can terminate its GP status by

A

voluntary withdrawal, removal (if GP tries to assign partnership interest), removal after bankrupt, death/incapacitation, termination of business-entity partner

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6
Q

Partnership formation requirement

A

(a) intent to carry on business for profit as co-owners (not intent to form a partnership); and (b) sharing of profits © receipt of profit as payment of debt, interest, rent

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7
Q

Partnership formation presumption

A

Presumption of a partnership if 2+ persons share profits © no division of control

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8
Q

Partnership partner

A

anyone with legal capacity to contract with intent to carry on as co-owners for profit.

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9
Q

At-will partnership definition

A

open ended partnership with no fixed termination based on a period of time or particular undertaking

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10
Q

Partners personal liability

A

partners are personally, jointly and severally liable for partnership obligations

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11
Q

Partners personal liability: creditors of partnership can reach individual partner assets when

A

To reach partner’s assets, creditor must ∑2

(a) obtain a judgment against the partner individually; AND
(b) must first exhaust partnership assets unless © (1) partner consented (2) is the primary tortfeasor or (3) partnership is a debtor in bankruptcy

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12
Q

Partners personal liability: incoming partner

A

Incoming partner is not personally liable for prior partnership obligations, but his capital contributions to the partnership can be used to satisfy those obligations

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13
Q

Partners personal liability: dissociated partner

A

Dissociated partner when bought out are not liable for partnership obligations © post-dissociation conduct under apparent authority

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14
Q

Partner’s fiduciary duty

A

Every partner owes duties of loyalty and care to the partnership and other partners

No duty to prospective or former partners

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15
Q

Partner’s fiduciary duty: loyalty

A

Duty of loyalty—3 components:

(1) cannot compete with partnership business,
(2) cannot usurp a business opportunity,
(3) cannot advance an interest adverse to the partnership

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16
Q

Partner’s fiduciary duty: loyalty safe harbor

A

© Partner makes full disclosure of material facts and other partners authorize the transaction

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17
Q

Partner’s fiduciary duty: care

A

act as a reasonable partner.

cannot engage in (1) grossly negligent/reckless conduct; (2) intentional misconduct (3) knowing violation of law

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18
Q

Partner dissociation: possible ways

A

voluntary (notice or specified event in agreement) or

involuntary 
1. expulsion
2, court order 
3, bankruptcy 
4, death/adjudicated incapacity
5. dissolution of a partner entity
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19
Q

Partner dissociation by expulsion

A

Expulsion by unanimous vote if unlawful to carry on the partnership business

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20
Q

Partner dissociation by court order

A

Court order to dissociate if partner misconduct that

(1) adversely and materially affect partnership
(2) willful and persistent material breach of partnership K; OR
(3) breach of duty

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21
Q

Wrongful dissociation

A

if at-will, wrongful ONLY IF breach of express provision

If definite undertaking/term: expulsion, bankruptcy, court order, partner entity’s willful dissolution

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22
Q

Dissociated partner right to buyout

A

Right to buyout—if the partnership continues after dissociation, partnership must buy out the dissociated partner’s interest.

© Wrongful dissociation: Liable for damages; Not entitled to buyout until expiration of the term/partnership undertaking is completed, UNLESS proves early payout is not unduly burdensome

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23
Q

Dissociated partner right to participate in winding up

A

can participate © wrongful dissociation

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24
Q

Dissociated partner liability for partnership obligations incurred after dissociation

A

Not liable after bought out

© post-dissociation conduct that bind partnership

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25
Q

Partnership liability for dissociated partner’s post-dissociation conduct

A

partner can bind partnership under apparent authority for 2 years © filed statement of dissociation (90 days)

26
Q

Partnership dissolution following wrongful dissociation

A

Wrongful dissociation will dissolve partnership IF a majority of remaining partners express a will to wind up the business within 90 days

If not, partnership continues and wrongfully dissociated partner not entitled to buyout until the end of the term/undertaking UNLESS early payout is not unduly burdensome

27
Q

Partnership dissolution following rightful dissociation

A

Rightful dissociation will dissolve at-will partnership UNLESS all partners (including any rightfully dissociated partners) express a will to continue partnership within 90 days

28
Q

Partnership agreement limitations

A

partnership agreement (written or oral) controls, except

(1) can’t waive liability to 3rd party
(2) must allow partners and agents to access records
(3) can’t eliminate fiduciary duty © may modify if reasonable

29
Q

Partnership default rule: division of profits and losses

A

Profits are divided equally and losses follow profits. © LP: based on contribution

30
Q

Partnership default rule: distribution of assets

A

partners have no right to demand a distribution

31
Q

Partnership default rule: transfer of interest

A

Partners can transfer their partnership interests, but remains a partner with remaining rights and obligations.

Transferee doesn’t become a partner but can seek judicial dissolution. Partner’s creditor can seek judgment against partner’s interest

32
Q

Partnership default rule: new partner

A

every existing partner must consent

33
Q

Partnership default rule: expulsion

A

unanimous vote if its unlawful to carry on partnership business with partner

34
Q

Partnership default rule: right to management/control

A

every partner has equal rights

35
Q

Partnership default rule: right to vote

A

ordinary business matters: requires majority vote of partners.

extraordinary business: every partner must consent

36
Q

Use of partnership property

A

A partner CAN ONLY use partnership property only on behalf of the partnership.

If deriving a personal benefit from use/possession of partnership property, must compensate the partnership.

37
Q

Partnership property

A

all property acquired by partnership (whether by contribution or transfer)

Partnership property if it is purchased in partnership’s name (titled). If not titled, intent of the partners controls. Presumed to be partnership property if purchased with partnership assets

38
Q

Partnership’s liabilities for partner’s K

A

Partner is an agent of the partnership.

partner can enter K for which they have authority

39
Q

Partner express authority

A

Partnership agreement or authorization

40
Q

Partner implied authority

A

based on partner’s reasonable belief that action is necessary to carry out express authority

41
Q

Partner apparent authority

A

based on

(a) partner acting in the ordinary course of partnership and
(b) partnership causes 3rd party to reasonably believe that P consents partner to act on its behalf

42
Q

Partnership’s liabilities for partner’s torts

A

liable for partner’s torts committed when

(1) acting within the scope of the partnership or
(2) acting with partnership authority

43
Q

Partnership termination

A

consists of ∑ (a) dissolution and (b) winding up

44
Q

Partnership dissolution 5 ways

A

Dissolution can occur when

(1) dissolving event specified in the agreement
(2) any event that makes it unlawful to continue if not cured within 90 days (e.g. not making state filings)
(3) judicial determination

(4) at-will: when any partner chooses to dissociate by giving notice © wrongful
(5) term/undertaking: can also dissolve when term expires or when undertaking is complete

45
Q

Partnership winding up

A

Winding up is a process that entails liquidating partnership assets, pay debt, distribute assets to settle partner’s accounts.
A dissolved partnership only continues to wind up its business

46
Q

Partnership winding up: who can wind up

A

Any partner that has not wrongfully dissociated. Legal representative of last surviving partner. Judicial supervision

47
Q

Partnership winding up: partner liability

A

Each partner, including dissociated partners (both rightful and wrongful), are personally liable for his share of partnership liability incurred during winding up (e.g., improper distribution)

48
Q

Partnership winding up: fiduciary duty

A

duties of loyalty and care are generally applicable, with the exception of the noncompete aspect of the duty of loyalty

49
Q

Partnership liability after dissolution:

A

apparent authority

© Statement of dissolution limits partners’ apparent authority and liabilities to up to 90 days after filing

50
Q

Partnership winding up: distribution of partnership assets

A

Creditors have priority over partners to partnership assets

51
Q

LLP partners liability

A

: partner has no personal liability for partnership liability © personal liability for their own personal misconduct or negligence

52
Q

LLP Creation

A

(a) Filing—file with the state, effective on the date of filing unless specified otherwise.
(b) Name—must include LLP or RLLP

53
Q

To transform general partnership to LLP:

A

all partners must vote to authorize before filing

54
Q

LP

A

a partnership formed by 2+ persons with at least one general partner and one limited partner

55
Q

LP creation

A

Filing—certificate of limited partnership, incl. instate address, name of agent, name/address of all GP, statement of duration, signed by GP.

Effective on the date of filing unless specified otherwise

56
Q

Limited partners voting right:

A

unless agreement, a limited partner does not vote

57
Q

Limited partner liability to 3rd party:

A

Not personally liable unless (1) he serves as general partner or (2) participates in the control of the business

58
Q

Limited partner liability to 3rd party: “Participation in the control of business”

A

safe harbor activities: does NOT include:
being officer/shareholder of general partner,
consulting GP,
acting as a surety of the partnership, winding up partnership,
proposing/approving partnership matters

© liable only to 3rd p who reasonably believe LP is a GP

59
Q

Limited partner withdrawal

A

6 months prior written notice to each GP unless agreement

60
Q

General partner liability to 3rd party:

A

personally liable. (can limit by becoming corporations

61
Q

Termination of GP status

A
  1. voluntary withdrawal (written notice)
  2. removal (if GP tries to assign partnership interest),
  3. removal after bankrupt,
  4. death/incapacitation,
  5. termination of business-entity partner
62
Q

Withdrawal of a sole GP and dissolution

A

Triggers dissolution UNLESS majority of LPs within 90 days consent to continue the business and appoint GP

MEE 2021 (7 decks)

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