Partnership MBE

Question 1

What is a partnership?

Answer 1

An association of two or more persons who have agreed to co-own an ongoing business for profit.

Question 2

What is the legal status of a partnership?

Answer 2

A distinct legal entity with a separate legal existence apart from the partners.

Question 3

What are the two types of partners in a partnership?

Answer 3

• General partners
• Limited partners

Question 4

What is the role of general partners in a partnership?

Answer 4

Agents of the partnership who co-manage the business and share in the profits and losses.

Question 5

What is the liability exposure of general partners?

Answer 5

Generally exposed to personal liability for partnership debts and obligations.

Question 6

What distinguishes limited partners from general partners?

Answer 6

Limited partners are passive investors, not agents, do not manage the business, and have limited liability.

Question 7

What are the types of partnerships?

Answer 7

• General Partnerships (GP)
• Limited Partnerships (LP)
• Limited Liability Partnerships (LLP)

Question 8

What is a General Partnership (GP)?

Answer 8

Consists only of two or more general partners.

Question 9

What is a Limited Partnership (LP)?

Answer 9

Consists of at least one general partner and one limited partner.

Question 10

What is a Limited Liability Partnership (LLP)?

Answer 10

Any partnership other than a limited partnership eligible to become an LLP.

Question 11

What are the formation requirements for a general partnership?

Answer 11

An objective agreement between two or more persons to co-own a business for profit.

Question 12

What constitutes prima facie evidence that a partnership exists?

Answer 12

The sharing of profits.

Question 13

What payments are not considered sharing of profits?

Answer 13

• Receiving payment of a loan
• Collecting rent
• Earning a salary

Question 14

What is required to form a Limited Partnership under ULPA?

Answer 14

Filing a certificate of limited partnership with the secretary of state’s office.

Question 15

What must the name of a limited partnership include?

Answer 15

The phrase ‘limited partnership’ or the abbreviation ‘L.P.’ or ‘LP’.

Question 16

What is required for a partnership to convert to a Limited Liability Partnership?

Answer 16

A vote of the partners holding a majority interest.

Question 17

What must a registered limited liability partnership file?

Answer 17

A completed registration executed by at least one partner and payment of the required fee.

Question 18

What are the four basic characteristics of a general partnership?

Answer 18

• Right to co-manage the business
• Fiduciary duties
• Sharing of profits and losses
• Unlimited liability for debts

Question 19

What governs the relations among partners in a partnership?

Answer 19

The partnership agreement or the Uniform Partnership Act (UPA) if silent.

Question 20

What is a non-waivable provision in a partnership agreement?

Answer 20

A partner’s right to access the partnership’s books and records.

Question 21

What rights do general partners have in managing the partnership?

Answer 21

Each general partner has an equal right to manage and conduct the partnership’s business.

Question 22

What rights do limited partners have regarding management?

Answer 22

Limited partners do not have the right to co-manage the partnership business.

Question 23

What is the duty of care in a partnership?

Answer 23

Partners must not engage in grossly negligent or reckless conduct.

Question 24

What is the duty of loyalty in a partnership?

Answer 24

Partners must not compete with the partnership or appropriate partnership opportunities.

Question 25

What must partners disclose to each other?

Answer 25

Any information related to the partnership business reasonably required for the proper exercise of rights and duties.

Question 26

How are profits and losses generally shared among partners?

Answer 26

Equally in profits and in proportion to their share of profits for losses.

Question 27

What distinguishes a partner's personal property from partnership property?

Answer 27

Personal property includes a partner's interest in profits and distributions, but not partnership property.

Question 28

What is the liability of general partners to third parties?

Answer 28

Liable jointly and severally for all obligations of the partnership.

Question 29

What is the liability of limited partners?

Answer 29

Limited to their capital contribution.

Question 30

What happens if a partner's individual creditor seeks satisfaction from the partnership?

Answer 30

The creditor is limited to the individual partner’s personal property.

Question 31

What is the liability of a limited partner in a partnership?

Answer 31

Limited to their capital contribution. ## Footnote Limited partners are passive investors and are not personally liable for the obligations of the partnership.

Question 32

Can a limited partner participate in managing a limited partnership?

Answer 32

No, they cannot manage or conduct partnership business. ## Footnote Limited partners have the right to inspect partnership records but cannot bind the partnership.

Question 33

What happens to a limited partner's liability if they participate in management?

Answer 33

They remain liable only to their capital contributions. ## Footnote Even if a limited partner participates in management, their liability does not extend beyond their capital contributions.

Question 34

What does LLP stand for?

Answer 34

Limited Liability Partnership. ## Footnote An LLP protects partners from personal liability for partnership obligations.

Question 35

In an LLP, who is liable for obligations incurred by the partnership?

Answer 35

Solely the partnership. ## Footnote Partners are not personally liable for obligations incurred by the LLP.

Question 36

True or False: Partners in an LLP are liable for the negligence of those under their supervision.

Answer 36

True. ## Footnote Under some statutes, partners might be liable for wrongful acts of persons they supervise.

Question 37

What is a partner's power to dissociate?

Answer 37

A non-waivable right to withdraw from the partnership at any time. ## Footnote The partnership must be notified of the partner's intent to dissociate.

Question 38

What constitutes wrongful dissociation?

Answer 38

Dissociating in violation of a partnership agreement. ## Footnote A partner may be liable for damages caused by wrongful dissociation.

Question 39

List events that can cause a partner's dissociation.

Answer 39

* Partner's death * Partner's bankruptcy * Appointment of a guardian * Judicial determination of incapacity * Specified event in partnership agreement ## Footnote Dissociation can also occur upon expulsion from the partnership.

Question 40

What happens to a partner's liability for partnership obligations after dissociation?

Answer 40

They do not discharge liability for obligations incurred before dissociation. ## Footnote The partnership must buy out the dissociated partner's interest.

Question 41

What is the buyout price for a dissociated partner's interest based on?

Answer 41

The greater of liquidation value or value based on sale of the business. ## Footnote The buyout price includes interest.

Question 42

What causes a partnership to dissolve?

Answer 42

Multiple factors including court application, unlawful business conduct, or events in the partnership agreement. ## Footnote A partnership at will also dissolves with notice of a partner's express will to withdraw.

Question 43

What is the consequence of a partnership's dissolution?

Answer 43

Continues for winding up business only. ## Footnote Partners must discharge debts and distribute assets.

Question 44

What can a partner who properly withdraws from a partnership do during winding up?

Answer 44

Participate in the winding up process. ## Footnote A partner who wrongfully withdraws cannot participate.

Question 45

How are partnership debts shared during the winding up phase?

Answer 45

Shared by all partners, including those who dissociate. ## Footnote Partners may seek contribution from those who haven't paid their share.

Question 46

What must be done with the partnership's assets during winding up?

Answer 46

* Discharge obligations to creditors * Reimburse partners for capital contributions * Allocate balance to partners according to profits ## Footnote Partners are jointly and severally liable for outstanding debts.

Question 47

What happens when the winding up of a partnership is complete?

Answer 47

The partnership terminates. ## Footnote This involves finalizing debts and distributions.