Partnership & Ltd Liab Entities Flashcards
What is a general partnership?
An “association” of 2 or more persons who are carrying on as co-owners of a business for profit
What is necessary to establish a general partnership?
NO FORMAL REQS! There are no formalities to becoming a general partnership NOTE: sharing profits is KEY→contribution of money/services in return for a share of PROFITS (not salary, comission) is prima facie evidence of a GP
What is the liability of a general partner to third parties?
EACH partner is liable for each OTHER partner’s torts in the scope of the partnership business AND for each OTHERS partner’s authorized Ks Coming/going partners Incoming partners are generally NOT liable for PRIOR debts, BUT any money paid into the partnership CAN be used to satisfy those prior debts Dissociating/withdrawing partners retain liability on future debts until ACTUAL notice of their dissociation is going to KNOWN creditors AND until PUBLICATION notice is given to POTENTIAL creditors **General partnership liability by estoppel: one who represents to a 3d party that a general partnership exists WILL BE liable as if the general parntership exists (e.g. “My partner and I….”)
What duties do partners owe each other?
GPs are fiduciaries of EACH OTHER and the Partnership→Owe duty of loyalty No self-dealing No usurping partnership opporunities No secret profits at the partnership’s expense Partnership may bring an “action for accounting” to cover losses that are caused by a breach of duty of loyalty/discorge profits made by breaching partner
What’s the difference b/t partnership property and personal property?
The test is: whose money is being used to buy the property? 1) If partnership money is being used→ specific partnership asset, which req’s partnership authority to transfer Land, leases, equipment Share in mgmt (i.e. the right to vote): cannot be transfered outside the partnership to 3d parties 2) If personal money is being used→ personal property Share in profits and surplus: owned by each ind. partner
How are partnerships managed?
Absent an agmt, EACH partner is entitled to EQUAL control (vote) 1 partner, 1 vote Majority vote governs ordinary partnership matters Unanimous consent needed for FUNDAMENTAL matters
How do partner’s share profits and losses?
Absent an agmt… 1) Profits are shared equally 2) Losses are shared JUST LIKE PROFITS NOTE: if there is a specific agmt on losses, but profits are silent, PROFITS ARE STILL SHARED EQUALLY NOTE: partners DO NOT get salaries; EXCEPTthey do receive a commission to help set up the business
How does a partnership dissolve and liquidate?
STEP 1: Dissolution A GP dissolves AUTOMATICALLY upon any material change in partnership caused by the death or withdrawal of ANY single general partner STEP 2: Winding up phase The pd b/t dissolution and termination in which the remaining partners liquidate the partnership’s assets to satisfy the partnership’s creditors STEP 3:”Termination” (i.e. the real end of the partnership)
What is the liability of the partnership during the “wind up” phase?
“Old business”: the partners are liable forall transactions entered into in orderwind up old business(e.g. paying off creditors) “New Business”: individual general partners still retain liability on brand new business transactions unless notice of dissolution given to all creditors (actual and potential)
What is the priority of distribution when “winding up” a partnership?
FIRST: outside creditors MUST be paid All non-partner, 3d party trade creditors must be paid first SECOND: inside creditors MUST be paid Partners/insiders who have LOANED the partnership money THIRD: partner capital contributions MUST be paid The partnership is liable to its own partners for FULL pmt of its capital contributions If not enough assets, partners have to contribute equally for any deficit FOUTH: net profits (profits – losses), IF ANY Profits/surplus are shared equally among partners (absent an agreement)
What is a limited partnership AND how is it formed?
Defined: Partnership w/ at least 1 General Partner & at least 1 Limited Partner General Ps = personally liable but get to manage Limited Ps = limited liability so cannot manage Formation: file limited partnership certificate that includes names of ALL GENERAL partners w/ Dept. of State
How is a registered ltd liability company (RLLC) formed AND what’s the liability scheme?
Formation: file a certificate of registration w/ Dept. of State that includes the profession you are practicing Liabilities: no partner is liable for the debts & obligations of the RLLP but partners are always liable for their own personal TORTS
What is a ltd liability company (LLC) and how is it formed?
A “hybrid” b/t a corporation (ltd liability) and a partnership (partnership tax treatment) “Members” (i.e. owners) not liable for the debts & obligations of company itself Members control but may delegate to managers (ltd cntrl) Membership interest is NOT freely transferable (ltd liquidity) LLC will dissolve upon majority vote of the membership interest OR as provided in the operating agmt (limited life) Formation: Must file “articles of organization”; AND Must publish a summary of the articlesin at least 2 newspapers NOTE: Members MAY adopt an operating agmt
