PARTNERSHIP Flashcards

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1
Q

Definition of a general partnership:

A

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.

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2
Q

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?

A

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.

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3
Q

What are the 2 most important factors in determining whether a partnership exists?

A
  1. sharing of profits

2. right to control

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4
Q

A person who receives a share of the _____ is ________ to be a partner unless the profits were received in payment of :

A

profits; presumed

  1. a debt
  2. wages or other compensation
  3. rent
  4. interest on a loan.
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5
Q

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?

A

Nope. REbuts the presumption because he is getting the profits as repayment of a debt.

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6
Q

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 ____________.

A

right to control; losses

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7
Q

What is partnership by estoppel?

A

If no partnership was formed in fact, parties may still be liable as if they were partners to protect reasonable reliance by 3rd parties.

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8
Q

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?

A

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.

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9
Q

Does partnership law require a writing?

A

No, but SOF might.

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10
Q

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?

A

No.

Yes. Contract cannot be completed w/in 1 year = SOF.

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11
Q

No partnership agreement is required, but be on the lookout for the existence of one because:

A

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.

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12
Q

Once formed, a partnership is considered to be a ___________ distinct from its _________.

A

legal entity; partners

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13
Q

What is the general voting rule for partners in a general partnership?

A

Unless otherwise agreed, all partners have equal rights in teh management of the business with equal votes.

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14
Q

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.

A

majority; all

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15
Q

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.)?

A
  1. B and C win with the majority vote. Other #s don’t matter.
  2. Unanimity req’d so A wins.
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16
Q

As a general rule, do partners have a right to compensation?

A

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.

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17
Q

Unless otherwise agreed, profits are shared _____ among the partners (by number). Unless otherwise agreed, losses are shared in teh _______ manner as profits.

A

equally; same

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18
Q

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?

A

Equally for profits and since losses do whatever profits do, then equally for losses too.

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19
Q

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?

A

60-30-10. Same as profits.

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20
Q

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?

A

Losses will be shared 60-30-10.

Profits will be shared equally. Profits do not follow losses.

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21
Q

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.

A

ordinary course; authority

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22
Q

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.

A

actual; apparent

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23
Q

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?

A

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).

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24
Q

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).

A

agent; apparent

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25
Q

How can actual authority be created in a pship?

A
  1. partnership agreement
  2. requisite vote of the partners (maj. vote for ordinary business matters)
  3. filing of a “statement of partnership authority” with the SoS.
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26
Q

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.

A

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.

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27
Q

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, ___________.

A

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).
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28
Q

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).

A

jointly and severally liable; exhaust.

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29
Q

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?

A

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.

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30
Q

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?

A

No. Partners cannot limit a third party’s rights without the 3rd party’s consent. The agreement is effective, however, among the partners themselves.

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31
Q

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

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.

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32
Q

Partners in general partnerships owe fiduciary duties of _________________ and _________________ to each other and to the partnership. They also owe a statutory duty of _________________________.

A

loyalty; care; disclosure

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33
Q

The duty of loyalty in a partnership requires each partner to:

A
  1. 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
  2. to refrain from dealing with the partnership in the conduct of its business as (or on behalf of) an adverse party; and
  3. to refrain from competing with the pship in the conduct of its business.
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34
Q

The duty of care in a partnership requires each partner to:

A

This duty requires each partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.

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35
Q

The duty of disclosure is a statutory duty that requires each partner and the partnership to furnish to a partner______. Without demand? On demand?

A

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).

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36
Q

A partnership agreement may not eliminate the duties of ______ or _______, but can eleiminate the duty of ______.

A

loyalty; care; disclosure

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37
Q

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).

A

partnership’s; partners

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38
Q

It is ___________________________ to be __________property if
partnership funds are used.

A

presumed; partnership

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39
Q

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.

A

presumed; partner’s

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40
Q

Polly bought a truck in her name with her own money. Her partnership uses the truck for deliveries. Does the truck belong to the partnership or does it belong to Polly?

A

Presumed to belong to Polly becuase she bought in her name without pship funds.

41
Q

If the truck is partnership property, may the partnership pledge it as collateral for a loan?

A

Sure. Rights are totally unrestricted for the partnership to use its property.

42
Q

If the truck is partnership property, may a partnership creditor levy on / attach the truck?

A

Yup. A partnership creditor can seize partnership assets to satisfy the partnership’s debts.

43
Q

A partner is ____________ a co-owner of partnership property and has no interest in partnership property which can be transferred.

A

NOT

(The partnership is an entity; the partnership itself, not the partners, owns its property!) A partner can simply use partnership property for partnership purposes.

44
Q

Assume a truck is partnership property. May Polly partner use it on her vacation?

A

Nope. Not unless the parternship consents.

45
Q

A partner’s interest in a partnership is called his _______.

A

partnership interest. Like a shareholder’s interest in a corporation is called stock.

46
Q

A partnership interest is comprised of ________ rights and _________ rights.

A

Management rights
• right to participate in the mangement of the business
• right to obtain information about the partnership
• right to be recognized as “partner”

Financial Rights
• partner’s right to receive his share of any profit distributions made by the partnership

47
Q

The pick your partner rule states that:

A

unless otherwise agreed, a partner cannot unilaterally transfer his management rights and thereby make the transferee a partner.

48
Q

The default rule for the admission of a new partner is:

A

that it requires a unanimous vote of the existing partners.

49
Q

Unless otherwise agreed, a partner can unilaterally transfer his ________ rights. The transferee merely has the right to receive profit distributions from teh aprtnership that would have otherwise gone to the partner. The transferee is not a _______; the _________ is still a partner and retains all of the management rights of a partner.

A

financial; partner; transferor

50
Q

A, B, C, and D are partners in the ABCD partnership. B purports to sell his partnership interest to X. X demands to be recognized as a partner and seeks to participate in the management of the partnership (vote, request information, etc). Is X a partner?

A

Nope. X can only be admitted as a partner upon a unanimous partner vote, which did not occur. A partner cannot unilaterally transfer management rights, which means that X is simply entitled to any profit distributions that would otherwise have been paid to B. B is still a partner with all of the rights of a partner (other than the right to profit distributions).

51
Q

Can Polly unilaterally assign her financial interest in the partnership? Can Polly devise it to her husband? Can a judgment creditor attach (“charge”) her financial interest in the partnership?

A

Yes. A partner’s financial rights are personal property and are unilaterally transferable. (either voluntarily or involuntarily). The transferee does not become a partner.

52
Q

What is dissociation?

A

A withdrawal: When a partner dissociates from a partnership, the partner withdraws or “bows out” of the pship.

53
Q

What are some examples of dissociation?

A
  1. a partner giving notice to the partnership of his desire to withdraw (express will)
  2. a partner’s explusion, dealth, or bankruptcy
  3. an agreed-upon event; and
  4. the appointment of a reciver for a partner
54
Q

What is wrongful dissocation?

A

A partner will be deemed to have wrongfully dissociated if the dissociation is in breach of an express term in teh pship agreement.

55
Q

A dissociation is wrongful in a term partnership if the partner ______, ________, or becomes ______ before the end of the partnership.

A

withdraws, is expelled, bankrupt

  • Term
56
Q

A partner who wrongfully dissociates is liable to the pship for any _________ caused by the dissociation.

A

Damages

57
Q

What is an “at-will” partnership?

A

one where the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking. It is the default form of pship.

58
Q

What is a “term partnership”?

A

A pship where the partners have agreed, explicitly or implicitly, to remain partners for a definite term or until the completion of a particular undertaking.

59
Q

When a partner dissociates, one of 2 statutory avenues is implicated. What are the 2 statutory avenues?

A
  1. Pship is dissolved and business must be wound up. Pship business will be liquidated.
  2. Pship continues in existence w/ the dissociated partner becoming entitled to buy out of his partnership interest.

(Dissolution or Buyout)

60
Q

Dissolution and winding up are required only in limited circumstances, such as:

A
  1. agreement requiring winding up
  2. business becomes illegal
  3. issuance of a judicial decree
  4. unanimous consent of the partners in a term p
  5. expiration of a term pship
61
Q

In an at-will pship, any partner who dissociates by __________ may compel dissolution and winding up.

A

express will

62
Q

In a term partnershp, if one partner dissociates wrongfull, or if a dissocation occurs because of one partner’s death or bankruptcy, dissolution and winding up of the partnership are required only if:

A

within 90 days of the dissocation, 1/2 of the remaining partners agree to wind up the pship.

63
Q

Gnerally, a dissociated partner remains liable for ______ partnership obligations.

A

pre-dissociation. ( a creditor can agree to release a withdrawing partner for a specific obligation)

64
Q

A partner might be liable for _______ liabilities incurred within _____ years after the dissociation.
He can protect himself by:

A

post-disssociation; 2

  • notifying creditors directly of his dissociation (effective immediately)
  • filing a public statement of dissociation (becomes effective 90 days after filing.

Pship can also file.

65
Q

A dissociated partner has _____ to bind the pship for a period of time not exceeding __ years after dissociation. The pship can protect itself by_______ or __________.

A
  • apparent authority
  • 2
  • notifying the creditors directly (imm. effective)
  • filing a public statement of dissociation (become effective 90 days after filing
66
Q

When dissolution and winding up occur, pship assets must be applied to the discharge of partnership liabilites. If teh assets are insufficient, individual partners must ______ in accordance with their loss shares. If there are excess assets, they are distributed to partners in cash in accordance with their ______ shares.

A

contribute; profit

67
Q

What is the priority of distribution in pship dissolution?

A
  1. Creditors: include outside creditors & inside creditors (partners who loaned $)
  2. Repay all capital contributions paid into the pship by partners
  3. Profits or Losses, if any.
68
Q

A and B dissolve the AyeBee partnership. In winding up, they liquidate the partnership assets and have a total of $1 million to distribute. How should that amount be distributed if (1) the partnership owes $600,000 to trade creditors; (2) Partner A loaned the partnership $100,000; and (3) Partner B made capital contributions of $200,000?

A
  1. Creditors: 1,000,000-600,000 + 100,000= $300,000
  2. Capital Contributions: $200,000. (so $300,000- 200,000)
  3. $100,000 to split between themselves.
69
Q

Who can participate in the winding up of the pship’s business?

A

partners who have not wrongfully dissociated.

70
Q

A, B, and C are partners in the Ah-Bay-Chay partnership. On May 5, an event requiring dissolution of the partnership occurs. On June 1, A contracts with TP for new business (the contract does not involve winding up).

  1. Is the partnership liable to TP on the contract?
  2. Are the partners liable to TP?
  3. Would the partnership be liable to TP if B had filed a statement of dissolution on May 6?
  4. If the partnership is liable, does it have any rights against A?
A
  1. Yes, assuming apparent authority was established. Was within the ordinary course of pship business.
  2. Yes. Partners and jointly and severally liable for obligations of pship, but TP must exhaust pship resources first.
  3. Yes, because statement of dissolution is not effective until 90 days after filing.
  4. Only if A knew about the dissolution when she entered the k.
71
Q

A partnership has a two-year term. May a partner dissociate before the term is up?

A

Yes, but the dissociation will be wrongful and the partner will be liable for damages since she agreed to stay for two years. The other partners can continue the business without dissolution and winding up; a buyout of the dissociated partner will be required.

72
Q

A partnership is formed to buy a piece of land, subdivide it, and sell off the lots. Can a partner dissociate before the last lot is sold off?

A

Yes, but the dissociation will be wrongful. This is a term partnership because it is a partnership to accomplish a particular undertaking. The partner will be liable for damages since she agreed to stay until the undertaking was completed. The other partners can continue the business without dissolution and winding up; a buyout of the dissociated partner will be required.

73
Q

A partnership is formed to operate a bar. May a partner dissociate after one week? ____________. This is an _____________________ partnership from which any partner may withdraw at any time without penalty.

A

Yes; at will The dissociating partner may compel dissolution and winding up of the partnership.

74
Q

A partnership has a two-year term. One of the partners dies. May the business continue, or must the partnership dissolve and wind up?

What if it was an at-will partnership?

A

The business may continue unless, within 90 days after the dissociation, 1/2 of the remaining partners agree to wind up the partnership.

This would not be considered a dissociation by express will, so the business can continue.

75
Q

What is a limited partnership?

A

A pship with at least one general partner and at least one limited partner. Because it is a Pship, general partnership prinicples typically apply unless displaced by LP specific provisions.

76
Q

How do you form a LP?

A

Must file a certificate of limited partnership with the Secretary of State. The information req’d in teh certificate is minimal:

  1. name of the LP
  2. name and address of the agnet for service/ process
  3. the name & address of each general partner

*The name must contain the phrase “limited partnership” or “L.P.” or “LP”. Warn the public of limited liability.

77
Q

The real detail on the operation and governance of a LP is typically found in a _________. It can be _______, _______, or _______.

A

partnership agreement; oral, written, or implied

*As in a general partnership, the agreement can displace almost all of the statutory provisions.

78
Q

The LP is managed by the __________________ partner(s). Each general partner has equal rights in the management and conduct of the LP’s activites. The vote of a _____________________ of the general partners is necessary for ordinary business activities. Limited partners usually have ____________ management rights unless the partnership agreement grants them rights.

A

general partners; majority; no

79
Q

Unless otherwise agreed, the vote of all partners (general and limited) is necessary for certain extraordinary activities, including

A
  1. amendment of pship agreement
  2. admission of new general or limited partner
  3. sale of all or substantially all of LP’s property (if sale is oustide the ordinary course of business).
80
Q

Unless otherwise agreed, distributions from a LP are made on the basis of the ___________.

A

partner’s contributions. (i.e. in proportion to the value of each partner’s contribution.

(compare to GP where default rule is equal share of profits).

81
Q

General partners ________ for the obligations of the LP, just as they are in a GP.

A

are liable.

82
Q

A limited partner is _______________ personally liable for an obligation of the LP solely by reason of being a limited partner. Limited partners have __________________________, meaning that they can only lose the value of their investments.

A

not; limited liability

83
Q

A general partner owes the LP and the other partners the same fiduciary duties of loyalty and care that general partners owe in a general partnership. A limited partner does ___________ have any fiduciary duty to the LP or to any other partner solely by reason of being a limited partner.

A

not

84
Q

Definition of a limited liability partnership (LLP)

A

a general partnership where all of the partners have limited liability. In general, you apply general partnership rules to LLPs, with some exceptions.

85
Q

How to form an LLP?

A
  1. Must file a statement of qualification with the SoS

Minimal information includes:

  1. name and address o fthe pship
  2. statement that the pship elects to be an LLP
  3. deferred effective date, if any

P ship becomes LLP at the time of the filing of the statement or on the date specified in teh statement.

  • Name requires LLP, RLLP, Registered Limited LIability Partnership, etc.
86
Q

A partner in a LLP is _________ for the obligations of the LLP, whehter arising in tort, contract, or otherwise.

A

not personally liable.

  • Note: a partner always remains personally liable for her own wrongful acts.
87
Q

Definition of an LLC:

A

A hybrid between a corporation and a partnership in which the owners (called “members”) have limited liability as well as the benefits of pship tax treatment. Not a corporaiton, not a partnership.

88
Q

How to form an LLC?

A
  1. File Articles of Organization with the SoS

Information req’d is minimal and includes:

  1. name of the LLC
  2. address of the LLC’s registered office
  3. Name of its registered agent

*Name must include indication that it is an LLC. Limited liability company or LLC.

89
Q

The real detail on the operation and governance of the LLC is typically found in an ____________.

A

operating agreement

90
Q

Mangement of the LLC is presumed to be by __________. Other management arrangements can be made but they must be specified in the ___________.

A

all the members; articles of organization

91
Q

If management of an LLC is by the members, then:

A
  1. a majority vote is required to approve most decisions, and
  2. each member is an agent of the LLC
92
Q

Unless otherwise agreed, profits and losses are allocated on the basis of __________.

A

contributions

93
Q

Members are generally ___________ for the LLC’s obligations. They have __________ and can only lose the amount of their investments.

A

not personally liable; limited liability

As always, members are liable for their own torts.

94
Q

The fiduciary duties owed by a member (if member- managed) or a manager (if manager-managed) to the LLC and to its members are the fiduciary duties of __________________ and _________________________.

A

care; loyalty

95
Q

Essentially the partnership rule applies to an LLC –________ rights are unilaterally transferable, but __________ rights are not. One can become a member (i.e., management rights can be transferred) only with the consent of ___________________ of the members.

A

financial; management; all

96
Q

Partnerships and LLCs are taxed on a _________ basis.

A

pass through

97
Q

For pass through taxation, there is ______ entity-level tax; instead, business income is passed- through to the owners and reported on the owners’ tax returns (regardless of whether that business income is actually distributed to the partners).

A

no.

Compare to corproations where there is double taxation. corporation pays taxes on its income and shareholder pay taxes on that income again when and if it distributed to them.

98
Q

Note: LLPs and LLCs are generally the best vehicles for closely held businesses. They protect _________________ of the owners from liability for the obligations of the business; they allow the owners to contract around almost all of the statutory provisions (so that the business can be run as the owners desire); they allow all of the owners to participate in the management of the business; and they provide ______________________________________ income tax treatment.

A

ALL; PASS THROUGH