Partnership Flashcards
Formalities of formation of general parnership
None
Definition: general partnership
Association of two or more persons who are carrying on as co-owners of a business for profit. Contribution of money or services in return for a share of profits is prima facie evidence of general partnership
Liabilities of general partners to third parties
(1) agency principals apply
(2) generally liable for each co-partners torts
Incoming partner’s liability for pre-existing debts
(1) generally not liable for prior debts (pre-investment)
(2) can use money to pay prior debt
Disassociating partner’s liability for subsequent debts
(1) retain liability until actual notice of dissociation is given to known creditors and publication notice is given to potential creditors
General partnership liability by estoppel
One who represents to a third party that a general partnership exists will be liable as if the general partnership exists
Duties of general partners
(1) loyalty: (i) self-dealing; (ii) no usurping; (iii) secret profit
Remedy for partner’s breach of duty
(1) Action for accounting: losses caused by breach and disgorge profits
Partners’ rights in partnership property
(1) specific partnership assets: may not be transferred without partnership’s authority
(2) share of profits and surplus: personal property owned by each individual partner and may be transferred by individual partners
(3) share in management: may not be transferred by individual partners
Management (who controls?)
Absent agreement each partner entitled to equal control
Salary
absent an agreement partners get no salary
Profits and losses
(1) absent agreement, profits are shared equally
(2) absent agreement, losses are shared like profits
Dissolution
Automatically upon any material change in partnership caused by death or withdrawal of any single general partner
Termination
Real end of partnership
Winding up
period between dissolution and termination where remaining partners liquidate partnership’s assets to satisfy creditors
Liability for old business (pre-dissolution)
Individual partners are liable on all transactions entered into to wind up old business by satisfying creditors who existed when winding up began
Liability for new business
liable until actual notice of dissolution is given to known creditors and publication to potential creditors
Priority of distribution
(1) outside creditors must be paid
(2) inside creditors must be paid
(3) capital contributions by partners must be paid
(4) profits and losses are shared equally
Limited partnership
(1) at least one general partner and at least one limited partner
(2) must file a limited partnership certificate that includes names of all general partners
(3) general partners are liable for all obligations; limited partners have limited liability and may not manage
Registered limited liability (RLLP)
(1) formed by filing a certificate of registration with label of RLLP
(2) no partner is liable for debts and obligations of this partnership
Limited liability company (LLC)
(1) hybrid between corporation and partnership (corporation liability, partnership tax)
(2) must file articles of organization and must publish a summary of articles in at least 2 newspapers; may adopt operating agreement
(3) owners may control, but can also delegate to managers
(4) limited liquidity: full membership interest may not be transferred w/o majority consent of membership interest or as provided in op agreement
(5) limited life: company will dissolve upon majority vote of membership interest or as provided in operating agreement
