Partnership Formation

Question 1

What is a partnership?

Answer 1

A partnership is an association of two or more “persons” to carry on as co-owners of a business for profit.

For purposes of this rule on partnership formation, a “person” refers to individuals, associations, and corporations. In other words, a partnership can include among its partners another partnership or even a corporation.

Question 2

Is a partnership a distinct legal entity with its own existence that’s separate from the individual partners?

Answer 2

Yes.

Question 3

Can a partnership be “at will?”

Answer 3

yes

Question 4

Can a partnership be formed for a fixed/definite term?

Answer 4

yes

Question 5

Can a partnership be formed for a specific undertaking?

Answer 5

Yes

Question 6

What is a general partner?

Answer 6

General partners are agents of the partnership who:

1. co-manage the partnership business,
2. share in the profits and losses of the business, and
3. are generally exposed to personal liability for partnership debts and obligations.

Question 7

What is a limited partner?

Answer 7

Limited partners, who only have a role in limited partnerships, are passive investors in the partnership business;

Question 8

Are limited partners considered agents of the partnership?

Answer 8

No

Question 9

Do limited partners participate in the management of the partnership or business?

Answer 9

No

Question 10

In general, are limited partners exposed to personal liability for the debts and obligations of the partnership?

Answer 10

No

Question 11

What are the three main types of California Partnerships?

Answer 11

1. General Partnerships
2. Limited Partnerships
3. Limited Liability Partnerships

Question 12

In an LLP, are general partners personally liable for risks that would ordinarily expose them to liability as a regular partnership?

Answer 12

No

Question 13

EXAM TIP:

If an essay prompt says that there is a “California partnership” or a partnership “properly formed under the laws of the State of California,” does the issue of partnership formation need to be discussed in the essay?

Answer 13

No.

Question 14

EXAM TIP:

When partnership law is tested on the California Bar
Exam, the formation of a___________is usually tested.

Answer 14

general partnership

Question 15

Can a partnership only exist between people (i.e. humans)?

Answer 15

No.

It can consist of individuals, associations, and corporations. In other words, a partnership can include among its partners another partnership or even a corporation.

Question 16

The association of two or more persons to carry on as co- owners of a business for profit will form a partnership regardless of:

Answer 16

what these persons intended.

Question 17

A general partnership is formed by:

Answer 17

Agreement among those who would co-own an on-going business for profit.

Question 18

How can a general partnership be formed?

Answer 18

1. expressly (by oral or written agreement) or

2. implicitly (from the conduct of the parties).

Question 19

Are there formal/statutory requirements to forming a general partnership?

Answer 19

No

Question 20

In general, the sharing of profits is:

Answer 20

prima facie evidence that a partnership exists.

Question 21

Is someone presumed to be a partner in a business if he is sharing profits with the business?

Answer 21

Yes

Question 22

If a business uses its profits to reimburse a lender (for a loan), is the lender presumed to be a partner?

Answer 22

No

Question 23

If a landlord is collecting rent that’s paid with a business’ profits, is the landlord presumed to be a partner?

Answer 23

No

Question 24

If someone is being paid a salary out of a business’ profits, is that person presumed to be a partner?

Answer 24

No

Question 25

Does evidence of a person not sharing in the business’ losses effectively rebut the presumption that the person is a partner (assuming they’re profit-sharing with the partnership)?

Answer 25

Yes

Question 26

Does evidence that a person doesn’t share in managing the business effectively rebut the presumption that the person is a partner (assuming they’re profit-sharing with the partnership)?

Answer 26

Yes

Question 27

The formation of a limited partnership requires that there be:

Answer 27

1. a partnership agreement; and

2. a filing of a certificate of limited partnership.

Question 28

What’s required for a certificate of limited partnership to be effective?

Answer 28

Must be:
1. completed on a form prescribed by the Secretary of State; and

2. signed by all general partners listed in the certificate of limited partnership.

Question 29

According to California statute, the name of a limited partnership must contain:

Answer 29

The phrase “limited partnership” or the abbreviation “L.P.” or “LP” at the end of its name.

Question 30

A limited partnership is effectively formed on:

Answer 30

• the date the Secretary of State files the certificate; OR

* if not more than 3 months after filing: any later date specified in the certificate.

Question 31

What’s the effect of a failed attempt to form a limited partnership?

Answer 31

The parties formed (or continued as) a general partnership.

Question 32

The only types of limited liability partnerships that California will recognize are:

Answer 32

Partnerships other than limited partnerships in which each partner is a licensed professional authorized to engage in the practice of law, accounting, or architecture.

Question 33

Unless a different vote is required by the partnership agreement, a California (or domestic) partnership other than a limited partnership may convert to a limited liability partnership by:

Answer 33

the vote of the partners holding a majority interest in the partnership.

Question 34

Can a partnership agreement change the voting requirements to make business decisions?

Answer 34

Yes

Question 35

To become a registered limited liability partnership, a partnership must:

Answer 35

submit a completed registration (with the required fee) to the Secretary of State’s office.

Question 36

According to California statute, the name of a registered limited liability partnership must contain AS THE LAST WORDS OR LETTERS IN ITS NAME one of the following:

Answer 36

“Registered Limited Liability Partnership,” 
“Limited Liability Partnership,” 
“L.L.P.,” 
“LLP,” 
“R.L.L.P.” or 
“RLLP.”

Question 37

A failed attempt to form a limited liability partnership will in all likelihood mean: that the parties have formed or continued as a general partnership.

Answer 37

That the parties have formed (or continued as) a general partnership.