Partnership FINANCIAL RIGHTS AND OBLIGATIONS

Question 1

Unless otherwise agreed, how are profits shared?

Answer 1

Unless otherwise agreed, profits are shared equally among the partners (by number).

Question 2

Unless otherwise agreed, how are losses shared? What if there is an agreement for sharing profits?

Answer 2

Unless otherwise agreed, losses are shared equally among the partners (by number). If there is an agreement for profits, losses are shared in the same manner as profits.

Question 3

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?

Answer 3

Equally.

Question 4

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? How will losses be shared?

Answer 4

60-30-10 for losses and profits.

Question 5

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?

Answer 5

Losses will be shared 60-30-10 pursuant to agreement.
No agreement for profits so profits will be shared equally.
Losses follow profits, profits do not follow losses.

Question 6

Partner A puts up all of the money. Partner B does all of the work. Partner C gives the partnership its fine name. Partner D does nothing. How are profits shared?

Answer 6

Assuming no agreement, Equally.

Question 7

When is the partnership liable for tortuous conduct?

Answer 7

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 ordinary course of business of the partnership or with authority of the partnership.

Question 8

When is the partnership liable for contracts?

Answer 8

a partnership is liable for contracts entered into
on its behalf by partners with actual or
apparent authority.

Question 9

How an actual authority be created in partnership?

Answer 9

Actual authority can be created by the partnership agreement or by the requisite vote of the partners (e.g., majority vote for ordinary business matters).

Question 10

How an apparent authority be created in partnership?

Answer 10

The partnership statute states that a partner is an agent of the partnership, and that a partner has apparent authority to bind the partnership to transactions within the ordinary course of the partnership’s business (unless the third party is aware that the partner lacks actual authority).

Question 11

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?

Answer 11

No, Only B has actual authority to purchase cattle.

Question 12

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 by apparent authority? Why or why not?

Answer 12

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).

Question 13

What is the single biggest downside to a partnership?

Answer 13

each partner is jointly and severally liable for all of the obligations of the partnership (whether arising in tort or contract)

Question 14

What does the plaintiff need to do before going after the partner’s personal assets?

Answer 14

the plaintiff must first exhaust partnership resources before seeking to collect from an individual partner’s assets (so the partners are essentially guarantors).

Question 15

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? Why? What must the P do first?

Answer 15

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 (i.e., the plaintiff must first try to recover from the partnership’s assets before seeking to recover from your personal assets).

Question 16

Where one partner pays a partnership obligation what is he entitled to?

Answer 16

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.

Question 17

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?

Answer 17

No Partners cannot limit a third party’s rights without the third party’s consent.

Question 18

A forms a partnership with B and C. They all agree that C will not be responsible for any partnership losses.Who is the agreement effective on?

Answer 18

The agreement is effective among the partners themselves.

Question 19

In the absence of an agreement what is needed to add a partner to a general partnership?

Answer 19

A unanimous vote

Question 20

If the partnership admits a new partner is that partner liable for debts incurred by the partnership before his admission? (what can he lose)

Answer 20

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.

Question 21

Partners in general partnerships owe fiduciary duties to who?

Answer 21

The partnership and to each other.

Question 22

What fiduciary duties do the partners owe to each other?

Answer 22

Duties of care, loyalty
And disclosure (by statute)

Question 23

What does the duty of loyalty require in partnership?

Answer 23

This duty requires each partner (1) to account to the
partnership for any benefit derived by the partner in
conducting the partnership business, using the partnership’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) a party having an interest adverse to the partnership; and (3) to refrain from competing with the partnership in the conduct of its business.

Question 24

What does the duty of care require in partnership?

Answer 24

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

Question 25

What does the duty of disclosure require in partnership?

Answer 25

The partnership statute states that each partner and the partnership shall furnish to a partner

(1) without demand, any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties; and
(2) on demand, any other information concerning the partnership’s business and affairs (except to the extent the demand or the information demanded is unreasonable or otherwise improper under the
circumstances) .

Question 26

What duties in partnership can’t be eliminated? What duty in partnership can be eliminated by partnership agreement?

Answer 26

A partnership agreement may not eliminate the duties of loyalty or care. The duty of disclosure may be eliminated.