PARTNERSHIP Flashcards
Definition of a general partnership:
A PS is formed as soon as 2 or more person associate to carry on as co-owners a business for profit, regardless of whether the parties subjectively intended to form a PS. No state filing or other formalities are required.
M and I start a bakery. They split the profits and jointly make decisions for the business. They do not call themselves partners; in fact, they do not even know what a partnership is. Have they formed a GP?
Yup. We don’t care about their subjective intent. Sharing profits.
Even if they signed a paper saying “We are not partners” and repeat it 100 times. Doesn’t matter.
What are the 2 most important factors in determining whether a partnership exists?
- sharing of profits
2. right to control
A person who receives a share of the _____ is ________ to be a partner unless the profits were received in payment of :
profits; presumed
- a debt
- wages or other compensation
- rent
- interest on a loan.
S has loaned money to the M & I Bakery. He is to receive 10% of the profits until the loan is paid off. Is there a presumption he is a partner?
Nope. REbuts the presumption because he is getting the profits as repayment of a debt.
If there is profit-sharing, and therefore a presumption of a PS, one can try to rebut that presumption with evidence suggesting the lack fo a co-ownership relationship, such as ____________ or no sharing of ____________.
right to control; losses
What is partnership by estoppel?
If no partnership was formed in fact, parties may still be liable as if they were partners to protect reasonable reliance by 3rd parties.
Grace applies to Citibank for a loan. Will lets Grace say that he is her partner, even though he is not. Is Will liable to Citibank if it loans money to Grace based on the statement?
Yes, it is only fiar ot hold Will liable to the bank as if he really were her partner.
*Citibank can also recover from Grace.
Does partnership law require a writing?
No, but SOF might.
Ice T and IceCube form a partnership to record several rap albums. Writing required?
What if they agreed that the partnership would last for 2 years?
No.
Yes. Contract cannot be completed w/in 1 year = SOF.
No partnership agreement is required, but be on the lookout for the existence of one because:
Pship law allows the partners to contract around almost all of the statutory provisions. Look for an agreement first, then fall back on the statutory default fules in the absence of an agreement.
Once formed, a partnership is considered to be a ___________ distinct from its _________.
legal entity; partners
What is the general voting rule for partners in a general partnership?
Unless otherwise agreed, all partners have equal rights in teh management of the business with equal votes.
Decisions regarding matters within the ordinary course of the partnership business require a _____ vote of the partners. Matters outsideof the ordinary course of business requires the consent of _______ partners.
majority; all
A, B, and C contribute 60%, 30% and 10% respectively. They also agree to split profits and losses 60-30-10. On an ordinary business matter, A votes against, while B and C votes for. Who prevails.
What if the matter was outside the ordinary course of business (amending the pship agreement, e.g.)?
- B and C win with the majority vote. Other #s don’t matter.
- Unanimity req’d so A wins.
As a general rule, do partners have a right to compensation?
No. Not unless otherwise agreed.
A and B are partners. A works 96 hours a week. B sleeps all day. Does A have a right to a salary? No. Unless otherwise agreed to.
Unless otherwise agreed, profits are shared _____ among the partners (by number). Unless otherwise agreed, losses are shared in teh _______ manner as profits.
equally; same
A, B, and C form a partnership. A contributes 60% of the capital, B contributes 30%, and C contributes 10%. Inexplicably, nothing is said about how profits and losses will be split. How will profits be shared?
How will losses be shared?
Equally for profits and since losses do whatever profits do, then equally for losses too.
A, B, and C form a partnership. A contributes 60% of the capital, B contributes 30%, and C contributes 10%. Assume that they agreed to split profits 60-30-10, but they have no agreement as to losses. How will profits be shared?
60-30-10. Same as profits.
A, B, and C form a partnership. A contributes 60% of the capital, B contributes 30%, and C contributes 10%. Assume that they agreed to split losses 60-30-10, but they have no agreement as to profits. How will losses be shared?
How will profits be shared?
Losses will be shared 60-30-10.
Profits will be shared equally. Profits do not follow losses.
With respect to the pship’s liability in tort, a partnership is liable for loss or injury caused to a person as a result of the tortious conduct of a partner (or an employee) acting in the __________ of business of the pship or with __________ of the pship.
ordinary course; authority
With respect to the pship’s liability in contract, a partnership is liable for contracts entered into on its behalf by partners with __________________or _______________________ authority.
actual; apparent
A, B, and C form a partnership to run a cattle ranch. All agree that A shall have the exclusive authority to enter into grazing leases, B shall have the exclusive authority to purchase and sell livestock, and C shall have the exclusive authority to hire help. A enters into a transaction with T to purchase cattle (B’s authority) on behalf of the partnership. Is the partnership bound because of actual authority? Is the partnership bound by apparent authority?
Actual authority: NO
Apparent Authority: Likely, yes.
From T’s perspective, this contract was in the ordinary course of the business of running a cattle ranch (unless T was somehow aware that A lacked actual authority).
The partnership statute states that a partner is an _____________ of the partnership, and that a partner has ______________ authority to bind the partnership to transactions within the ordinary course of the pship’s business (unless the third party is aware that the partner lacks actual authority).
agent; apparent
How can actual authority be created in a pship?
- partnership agreement
- requisite vote of the partners (maj. vote for ordinary business matters)
- filing of a “statement of partnership authority” with the SoS.
Grants of and restrictions on partner authority to transfer partnership real property in the statement are binding on third parties if the statement is also recorded in the _______________ where the property is located.
county.
* In other words, third parties are deemed to have constructive knowledge of the statement if secretary of state and county filings are made. Third parties are benefitted by filed grants of authority (unless they have actual knowledge that the partner lacked authority), and burdened by filed restrictions on authority.
For real property transactions taken by the pship, the pship can file with the county and a 3rd party will be burdened by the restriction.
With all other transactions, ___________.
Restrictions on partner authority in teh statement are not binding on 3rd parties.
- In other words, 3rd parties are only deemed to have constructive knowledge of filed grants of authority–not filed restrictions.
- 3rd parties are benefitted by filed grants (unless they have actual knowledge that the partner lack authority), and are not burdened by filed restrictions (only actual knowledge of restrictions burdens them).
A defining characteristic of the general partnership is that each partner is ________________for all of the obligations of the partnership (whether arising in tort or contract). BUT: the plaintiff must first ___________________ partnership resources before seeking to collect from an individual partner’s assets (so the partners are essentially guarantors).
jointly and severally liable; exhaust.
You pass the bar exam and form a law firm as a general partnership. One of your partners commits malpractice representing a client. Can the client recover from you alone?
Yes. The malpractice by your partner created a partnership obligation. As a partner, you are jointly and severally liable for all partnership obligations. But the plaintiff must first exhaust partnership resources.
*Note: Where one partner pays a partnership obligation, he is entitled to indemnification from the partnership. He may also require the other partners to contribute their pro rata shares of the payment if the partnership is unable to indemnify.
A forms a partnership with B and C. They all agree that C will not be responsible for any partnership losses. Is C shielded from liability to a third party?
No. Partners cannot limit a third party’s rights without the 3rd party’s consent. The agreement is effective, however, among the partners themselves.
If the partnership admits a new partner (unless otherwise agreed, this requires a unanimous partner vote), is that partner liable for debts incurred by the partnership before his admission?
A newly admitted partner is not personally liable for partnership obligations that arose before his admission. He can only lose the amount of his investment in the partnership.
Partners in general partnerships owe fiduciary duties of _________________ and _________________ to each other and to the partnership. They also owe a statutory duty of _________________________.
loyalty; care; disclosure
The duty of loyalty in a partnership requires each partner to:
- account to the pship for any benefit derived by the partner in conducting the parternship business, using the pship’s property, or appropriating a partnership opportunity
- to refrain from dealing with the partnership in the conduct of its business as (or on behalf of) an adverse party; and
- to refrain from competing with the pship in the conduct of its business.
The duty of care in a partnership requires each partner to:
This duty requires each partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.
The duty of disclosure is a statutory duty that requires each partner and the partnership to furnish to a partner______. Without demand? On demand?
Without demand: must furnish any information concerning the pship’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties
On demand: any other information concering the pship’s business and affairs (except to the extent the demand or information demanded is unreasonable or otherwise improper under the circumstances).
A partnership agreement may not eliminate the duties of ______ or _______, but can eleiminate the duty of ______.
loyalty; care; disclosure
It is partnership property if it is acquired in the ________________________ name or in a _____________________ name where it is apparent from the document that she is acting for a partnership (e.g., it mentions a partnership or says she is a partner).
partnership’s; partners
It is ___________________________ to be __________property if
partnership funds are used.
presumed; partnership
It is _______________________________ to be a ______ property if acquired in her name without partnership funds and there is no sign that she is acting for a partnership.
presumed; partner’s
