Partnership - General Partnerships Flashcards
How is a general partnership formed?
By two or more people with the intent to carry on as co-owners of a business for profit. Can be very informal.
What is the key to determining whether people have formed a general partnership?
Profit sharing!
Profits are NOT wages, salary, commissions, etc.
What is the general partnership’s liability to third parties?
Think of Partners as Agents of the Partnership!
Partnership is liable for the torts of partners when committed in scope of the partnership.
Partnership is liable for authorized contract entered into by partners.
What is the liability to third parties of partners in a general partnership?
- personally liable for all debts of the partnership
2. personally liable for all torts of co-partners
What is the liability to third parties of incoming general partners?
they are not personally liable on pre-existing debts, but they money they pay in to enter the partnership can be used to pay those debts.
What is the liability to third parties of general parties who are withdrawing/dissociating from the partnership?
They retain liability until (1) creditors have actual notice of the withdrawal, and (2) potential creditors have publication notice.
Define general partnership liability by estoppel.
When a person holds his or herself out as general partner, even though they’re not. They will be estopped from disclaiming the partnership, and will be liable just like a general partner.
What duties to general partners owe to each other and the general partnership?
The duty of loyalty, because they are fiduciaries.
- No self dealing
- No usurping opportunities
- No secret profits
What is the partnership’s remedy for a general partner’s breach of fiduciary duty?
An action for accounting:
- recoup losses that result from the breach
- disgorge partner of the profits
Define specific partnership assets.
Assets acquired and owned by the partnership. Individual partners may not independently transfer these to third parties (partnership assets are not liquid).
What are general partners’ rights in the partnership?
- share the profits and surplus (this is liquid, and the partner can transfer their share at any time)
- share in management
- right to vote
How do you know whether an asset belongs to the partnership or is a personal asset?
If the partnership paid for the asset, it belongs to the partnership.
If the individual partner paid for the asset, it is personal property.
What is the general rule about management rights in a general partnership?
All partners share the right to manage equally (equal voting rights) - unless specifically agree otherwise.
What percentage of partner votes is required for ordinary partnership matters?
A majority
What percentage of partner votes is required for fundamental partnership matters?
Unanimity
What is the rule about salary for partners?
The default is that partners do NOT get a salary. Look out: doesn’t matter who works or doesn’t.
This can be changed by agreement.
Exception: partners will be compensated for work done during windup.
What is the exception to the general rule that partners do not receive salary?
Partners will be compensated for the work they do during windup.
How are profits shared in a general partnership?
If the agreement is silent: profits are shared equally (no matter how much or little work anyone does)
How are losses shared in a general partnership?
If the agreement is silent: loss division follows profit division.
When is a general partnership automatically dissolved?
When there is a material change in the partnership, like the death or withdrawal of any partner.
Define termination.
The real end of the partnership (after windup).
What is the period between dissolution and termination called?
Windup
During windup, what is the partnership’s liability for business entered into prior to windup?
Partnership and partners are liable for all of it.
During windup, what is the partnership’s liability for new business?
Partnership and partners retain liability until actual dissolution notice to creditors and publication notice to potential creditors.
