Partnership Formation/ money stuff

Question 1

State Statutes role with partnership formation

Answer 1

State Statutes will allow the
partners to alter certain default
rules via agreement amongst
themselves

Question 2

Defintion of Partnership

Answer 2

An association of two or more
persons to carry on as co-owners a
business for profit (UPA 1914 §6 and RUPA 1997 § 202)

unless it fits within another entity

Question 3

Partnership definition

Association

Answer 3

Group of persons with a common goal

Question 4

Partnership definition

Persons

Answer 4

• person includes another business entity
• those persons are called partners

Question 5

Partnership definition

carrying on a business

Answer 5

splitting profits

Question 6

RUPA 1997 adds to the definition of partnership, whether or not the persons intended to form a partnership

Answer 6

“mere words will not bind us to realities”
“call it what you want”

Question 7

General partnerships can be created informally with no

Answer 7

written agreement or any organizational documents filed with the state

Question 8

Read the Partnership Agreement

Answer 8

• Must read the Partnership Agreement to know the rules for a specific partnership.
• Need to know the default rules so you can know how and what you can change.

Question 9

Choice of Law

Look at

Answer 9

1. the partnership agreement
2. where the chief executive office address is

Question 10

Common Themes for Partnerships

6 pts

Answer 10

1. Every partner has the right to perform the partnership’s business and to
   participate in the management of the partnership. Partners have equal voting
   power.
2. Partners share equally in the profits and losses of the partnership.
3. The partnership is liable for contracts entered into by partners acting with actual or apparent authority. The partnership is also liable for torts committed by partners acting with authority or in the ordinary course of the partnership business. Partners are personally liable to third parties for
   the obligations of the partnership.
4. It takes unanimous agreement to admit new partners.
5. Partners owe fiduciary duties to each other.
6. Every partner may dissolve an at-will partnership.

Question 11

4 factors of a partnership

Answer 11

1. Agreement to share profits
2. Agreement to share losses
3. Mutual right of control or
   management of the
   enterprise
4. Community of interest in
   the venture

Question 12

When deciding if something is a partnership what 2 things to look at

Answer 12

1. the defintion of a partnership
2. the 4 factors of a partnership

Question 13

Partnership vs. Joint Venture

Answer 13

• Partnerships are for running a
  business for profit generally.
  Could be for the foreseeable
  future.
• Joint ventures are for pulling
  resources to accomplish a
  specific task or goal (Goal could be to make a profit or something else)

Question 14

In determining whether a partnership exists, these rules shall apply:

Answer 14

1. Persons who are not partners as to each other are not partners as to third persons
2. Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not of itself establish a partnership, whether such co-owners do or do not share any profits made by the use of the property.
3. The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived.

Question 15

Receipt of profits is prima facie/creates a presumption of a
partnership unless profits are payment for:

Answer 15

1. Debt or interest on a loan
2. Wages or compensation of an employee or independent contractor
3. Rent to a landlord
4. Retirement benefits paid to the former employee or their designees
5. Purchase of property that is paid for in installments

Question 16

The sharing of revenue does not by itself establish

Answer 16

a partnership

Question 17

If all the factors of a partnership are not present

Answer 17

a partnership can still exist

Question 18

Partnership by Estoppel

When someone represents themselves or consents to be represented as a partner

Answer 18

they are liable to whoever the representation is made and relies on that representation
- if representation made in a public way, RUPA says only liable to those that rely on the representation
- UPA is vauge if have to rely on the representation

Question 19

Partnership by estoppel

representation can be by

Answer 19

words or conduct

Question 20

Partnership by estoppel

Partnership’s liability for acts of purported partner

Answer 20

• All partners consent to representation – act of
  partnership and purported partner is liable as if a partner
• Only some partners consent to representation –
  purported partner is an agent of those consenting and the purported partner and consenters are jointly and severally liable

Question 21

How partnership formation keeps it casual

3

Answer 21

1. no state filing
2. technically no written agreement
3. no specific intention

Question 22

Showing that a party consented to being held out as partner in general is OK, dont need to consent to being held out

Answer 22

directly to a 3rd party

Question 23

Aggregate v. Entity status

Answer 23

• Entity: 1 entity with multiple parts
• Aggregate: nothing more then a collection of individuals

Question 24

A partnership is an entity distinct from its

Answer 24

partners

Question 25

# Admitting New Partners vs. Assigning

Answer 25

* Horcruxing your rights =Rights to $ =Right to have a say, see what is going on, etc * Admitting a new partner = both * Transferring partnership interest = just $

Question 26

UPA is silent on whether a partnership may sue to enforce its own rights RUPA allows

Answer 26

the partnership to be sued and sue in its own name.

Question 27

Partnerships (all 4 kinds) are taxed on a

Answer 27

pass-through basis

Question 28

Partnerships (all 4 kinds) are taxed on a pass-through basis meaning

Answer 28

* File information * Partners pay on their individual returns

Question 29

* Advantages of pass-through tax treatment

Answer 29

* No double tax * Partners can use losses to offset other income

Question 30

Disadvantages of pass-through tax treatment

Answer 30

Partners are taxed regardless of if the partnership distributes the income

Question 31

Partners as Agents of Partnership | 4 pts

Answer 31

1. Every partner is an agent of the partnership. 2. If the partnership agrees the partners doesn’t have authority to act, even in the ordinary course, no actual authority. 3. Each partner has apparent authority for acts in the ordinary course of business except if other party knew or received a notification of the lack of authority. 4. Acts not in the ordinary course bind the partnership only if authorized by other partners (default is all partners) (RUPA specifically says ordinary course or business of the kind carried out by the partnership. UPA has been interpreted to look at the businesses in the industry as well as the particular business.)

Question 32

Unless authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to:

Answer 32

* (a) Assign the partnership property in trust for creditors or on the assignee’s promise to pay the debts of the partnership, * (b) Dispose of the good-will of the business, * (c) Do any other act which would make it impossible to carry on the ordinary business of a partnership, * (d) Confess a judgment, * (e) Submit a partnership claim or liability to arbitration or reference

Question 33

10 Rules that Apply to General Partnerships

Answer 33

1. Equal rights to management and voting (default rule) 2. Equal rights to profits and losses (default rule) (If this is tweaked, losses follow in the same percentage as profits as a default rule) 3. Liability (Partners are personally liable to third parties for liabilities of the partnership) 4. Unanimous agreement to admit new partners (default rule) 5. Partners owe fiduciary duties to each other (can be tweaked but not eliminated under the uniform act) 6. Every partner has the power to leave the partnership 7. Majority rule for ordinary course matters where there is a difference of opinions (default rule) 8. No act in contravention of any agreement between the partners without unanimous consent. (default rule) 9. Unanimous consent for acts outside ordinary course (default rule) 10.Partnership must indemnify partners for payments made and personal liabilities reasonably incurred in the ordinary course of business (default rule)

Question 34

No person can become a member of a partnership without the

Answer 34

consent of all the partners.

Question 35

ny difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners; but no act in contravention of any agreement between the partners may be done rightfully without the

Answer 35

consent of all the partners.

Question 36

What are Contributions?

Answer 36

* What the owners put into the company in exchange for ownership in the company * Can occur periodically after the initial contribution

Question 37

Types of Contributions

Answer 37

* Cash * Property * *Services * Intangibles

Question 38

Captital account reflect the

Answer 38

value of what the partners contributed to the business

Question 39

Share of profits

Answer 39

* Income the partnership has made that year * Contributions of services = right to share in profits

Question 40

Contributions of services=

Answer 40

right to share in profits

Question 41

share of the capital

Answer 41

* What the partnership has * Contributions of services might not = right to share in capital

Question 42

Default Rules for Sharing Profits and Losses

Answer 42

1. profits shared equally (can agree otherwise) 2. Losses are shared like the profits are (can agree otherwise)

Question 43

Draw

Answer 43

is a cash distribution to partners

Question 44

Draw default rule

Answer 44

a majority vote of the partners determines that draw of each partner

Question 45

Draw is deducted from

Answer 45

the capital accounts