Partnership Flashcards
Partnership
A partnership is an association of 2+ competent persons to carry on as co-owners a business for profit.
- Formed through an express OR implied agreement
- Must have consent of ALL partners to form LEGAL partnership
- Must be a person legally able/competent to enter a contract
Formalities of Partnership
- No writing unless by Statute of Frauds
- May file a “statement of partnership” with the superior court clerk of ANY county - Filing means you don’t have to analyze whether someone is a partner.
Partnership Factors
To determine who is a partner, look at the following:
- Capital - Capital contribution not required
- Control - The right to control the business even if never exercised
- Profit - A person receiving a share of profits is presumed to be a partner - rebuttable presumption
*No presumption when it is wages, rent, repayment of debt, sharing gross receipts (but, you can still use this to try and prove partnership despite NO presumption)
Partnership Property
*Rebuttable Presumptions
Partnership: Property is presumed to belong to the partnership if it is characterized as such in the partnership agreement; acquired in the partnership’s name; or acquired with partnership funds.
Partner: Property is presumed to belong to a partner if it’s acquired in the partner’s name without partnership funds, even though the partnership uses it.
Partnership by Estoppel
- Partnership by estoppel - Works the same way as apparent authority.
- If no partnership is formed, parties may still be liable as they are partners to protect reasonable reliance by third parties
- Estopped from denying partnership. ONLY applies to CONTRACTS.
RIghts in Partnership Property
Partnership’s Rights: Totally unrestricted (it owns the property!) - Partnership can: pledge property, can be attached by partnership creditors, etc.
Partner’s Rights: Very limited! She can use partnership ONLY for partnership purposes. This right is nontransferable!
Partner’s Economic Interest in the Partnership
The partner’s share of the profits (e.g., 25% stake)
- This IS transferable, just like any other financial asset
Liability in Partnerships
*Of course, the partnership is liable, but partners are too
General Rule: Joint and several liability
*Applies to torts AND contracts
Exceptions: LLP - Partners are not liable for partnership obligations except their own torts
LLP
Where partners are not liable for partnership obligations except their own torts
*Liability is only difference between general partnership and LLP
Formation:
1. File an election with superior court clerk of any county where the LLP has an office, and pay a fee.
2. Name: must include the words “Limited Liability Partnership,” “LLP,” “L.L.P.”
Otherwise, it operates just like a general partnership
Partnership Dissolution
A change in the relationship of the partners caused by any partner ceasing to be associated in the carrying of the partnership - distinguished from the winding up of the business.
Causes:
- End of Definite Time
- Accomplishing a particular undertaking
- A partner’s express will or withdrawal - Partnership at-will
- Expulsion of a partner
- By operation of law
- Entry of judicial decree
Dissolution DOES NOT EQUAL termination (Termination only occurs after winding up)
Distribution Partnership Assets After Dissolution
- Third Party Creditors
- Partner Creditors (Partners who made loans to partnership)
- Partners for Capital
- Partners for Profits - Partners will also have to divide losses if there is a deficit after dissolution
Distribution Partnership Assets After Dissolution
- Third Party Creditors
- Partner Creditors
- Partners for Capital
- Partners for Profits
Limited Partnerships
Definition: A partnership that has one or more general partners [generally liable for firm obligations] and one or more limited partners [limited liability]
Filing: Must file certificate of L.P. with Secreary of State, and pay a fee.
Name: Must contain the words “limited partnership” or the initials “L.P.” (notice)
Law: General partnership law governs except where LP statute is inconsistent
Liability of Limited Partners in LP
Limited Partners -
- General Rule: A limited partner can only lose its capital contribution.
- Exception: If no certificate is filed (it will be a General Partnership) and partners are jointly and severally liable - A limited partner can avoid future liability by filing and withdrawing from LP within reasonable time.
Limited Partner’s Promise to Contribute
- Promise to Contribute - enforceable only if in signed writing
- BUT - partners CAN agree to reduce or eliminate a limited partner’s promise to contribute
- This agreement is effective even against creditors who relied on the contribution - very unusual)
