Partnership law Flashcards
Liability of incoming and outgoing partners in a general partnership?
Partners may come and go but there are rules concerning the liability.
For incoming partners, the rules surrounding liability depends on whether it is a civil law country or a common law country
-In civil law countries (Italy, France, etc), the incoming partner is also liable for past debt.
-In common law countries (USA, etc), the partner is only liable for debts that have occurred from the time they join
For outgoing partners the rules are the same in every country. The outgoing partner is liable for debts and payments existing when they went out of the partnership. The contract with creditors will stay in place for 10 years for the outgoing partner if creditors don’t choose to release him. If you want to remove your liabilities before exiting, you have to pay a release.
Please explain the concept of limited liability and how it applies in partnerships and corporations?
Limited liability is a concept of when investors/partners are only liable for what they have contributed to the business. This means their risk is kept at the investment, and they can never lose more than their contribution was.
In partnerships, limited liability is only possible for limited partners, not for general partners. Limited partners get to enjoy the benefit of limited liability, but they are not allowed to be part of the management of the business.
In corporations, limited liability means that it is only the corporation that is liable for its own debts. As a shareholder you enjoy the benefit of having limited liability as you are only responsible for the money you have invested in the company.
Please explain the concept of majority and unanimity and how they apply in partnership?
The concept of majority means that more than 50 % of the partners agree on a decision, while the concept of unanimity means that all partners agree on the decision. In partnerships, there is a unanimity principle regarding alterations in the partnership agreement, which means that all partners have to agree on decisions that alters the agreement. Majority amongst the partners is required for any decisions about the business and the organization, where the decisions are made in favor for the majority.
What are the contributions from the partners to the partnership?
The contributions from partners/investors in a partnership are the resources of value they make available to the enterprise. The resources can be money, assets, contracts, the right to use something, etc.
What can be contributed in a corporation and in a partnership?
In a corporation, contributions from shareholders can be in either cash or in other assets through the acquisition of shares, but it is most common that contributions are made in cash.
In partnerships it is everything of value, and can also be the contribution of specific knowledge or ideas.
