Partnership Part 4 Flashcards
1
Q
How are the financial rights in the entity handled? 2 questions:
1.
2.
A
- How are profits and losses allocated among partners?
- Who is responsible to pay third parties for partnership liabilities?
2
Q
As a general rule all partners are __________ ________ for all debts and obligations of the partnership. (They can elect in the partnership agreement to change that somewhat).
A
personally liable
3
Q
As a general rule ______ ________ are personally liable for all debts and obligations of the partnership. (They can elect in the partnership agreement to change that somewhat).
A
all partners
4
Q
As a general rule all partners are personally liable for all ______ and ________ of the partnership. (They can elect in the partnership agreement to change that somewhat).
A
debts and obligations
5
Q
As a general rule all partners are entitled to ______ __ ___ ______ of the partnership.
A
share in the profits
6
Q
_______ _______: accounting record that tracks each partner’s equity stake (ownership claim) in the partnership.
A
Capital Account
7
Q
Capital Account: _______ _______ that tracks each partner’s equity stake (ownership claim) in the partnership.
A
accounting record
8
Q
Capital Account: accounting record that ______ ___ ______ equity stake (ownership claim) in the partnership.
A
tracks each partner’s
9
Q
Capital Account: accounting record that tracks each partner’s _____ _______ (ownership claim) in the partnership.
A
equity stake
10
Q
Capital Account: accounting record that tracks each partner’s equity stake (______ ______) in the partnership.
A
ownership claim
11
Q
________ _______– tracks each partners ownership claim in the partnership. You have a spreadsheet, and you are entering stuff into it, part of duty of loyalty to the partnership making sure it is kept up to date. That tracks the ownership claim in the partnership claim in the partnership
A
Capital account
12
Q
Capital account – tracks each partners ownership claim in the partnership. You have a spreadsheet, and you are entering stuff into it, part of _____ __ ______ to the partnership making sure it is kept up to date. That tracks the ownership claim in the partnership claim in the partnership
A
duty of loyalty
13
Q
______ ______: how much of the partnership’s assets a partner is entitled to.
A
Ownership Claim
14
Q
Ownership Claim: ____ _____ of the partnership’s assets a partner is entitled to.
A
how much
15
Q
Ownership Claim: how much of the ________ ______ a partner is entitled to.
A
partnership’s assets
16
Q
Ownership Claim: how much of the partnership’s assets a ______ is ______ to.
A
partner
entitled
17
Q
______ ______ is calculated based on profits and losses and contributions.
A
ownership claim
18
Q
What determines the ownership claim?
A
contributions
profits
losses
19
Q
___________: e.g. each partner contributes $20,000 cash to start the business. This is entered into each partner’s capital account as a credit. Labor is not a capital contribution.
A
Contributions
20
Q
Contributions: e.g. each partner contributes $20,000 cash to start the business. This is entered into each partner’s _____ _______ as a ______. Labor is not a capital contribution.
A
capital account
credit
21
Q
Contributions: e.g. each partner contributes $20,000 cash to start the business. This is entered into each partner’s capital account as a credit. ______ is not a capital contribution.
A
labor
22
Q
is labor a capital contribution?
A
NO
23
Q
(On spreadsheet as credit to capital account. If you give money to partnership, it is something you get back as _______.)
A
credit
24
Q
________: net income after expenses deducted. (Profits are divided among partners by the default rule or by agreement. You can change the partnership agreement if you don’t want to be charged by the default rules of RUPA.
A
Profits
25
Profits: _____ ______ ______ ______ _______. (Profits are divided among partners by the default rule or by agreement. You can change the partnership agreement if you don’t want to be charged by the default rules of RUPA.
net income after expenses deduced
26
Profits: net income after expenses deducted. (Profits are divided among partners by the ______ ______ or ____ _______ You can change the partnership agreement if you don’t want to be charged by the default rules of RUPA.
default rule or by agreement
27
Profits: net income after expenses deducted. (Profits are divided among partners by the default rule or by agreement. You can change the ________ _______ if you don’t want to be charged by the default rules of RUPA.
partnership agreement
28
_______: when deductions exceed profits. Divided among partners by agreement or default rules
Losses
29
Losses: when ______ ____ _____. Divided among partners by agreement or default rules
deductions exceed profits
30
Losses: when deductions exceed profits. Divided among partners by ________ or _____ ______.
agreement or default rules
31
If your revenue is coming in but your output to get to that place was more than the revenue you are getting back, you have a ____.
Divided among partners by agreement or the default rules. You have to draft the partnership agreement accordingly.
loss
32
If your revenue is coming in but your output to get to that place was more than the revenue you are getting back, you have a loss.
Divided among partners by agreement or the default rules. You have to draft the partnership agreement accordingly. !!
!!
33
_______: income generated from the business operations.
Revenue
34
Revenue: _____ _______ from the business operations.
income generated
35
Revenue: income generated from the _____ ________.
business operations
36
(________ is an umbrella term and everything that comes in. Income that is generated for the business.)
Revenue
37
_______ ___ _____: “draws”; periodic distributions to partners; akin to wages/salary. Charged to capital accounts.
Withdrawals of Funds
38
What is akin to wages/ salary?
Withdrawals
39
Are withdrawals charged to capital accounts?
Yes
40
_______ (are not considered an ownership claim, but a separate obligation of the partnership. Not on capital accounts.)
Loans
41
Are loans considered an ownership claim?
NO they are a separate obligation of the partnership.
42
Are loans put on capital account spreadsheet?
No
43
______ or _______ (if sale of partnership/assets)
gains or losses
44
Your friendly neighborhood lemonade stand sold 500 cups of lemonade for $0.50 each.
They are taking their stand down. What is their revenue?
$250
45
The _______ is the income generated from the business operations.
revenue
46
Your friendly neighborhood lemonade stand sold 500 cups of lemonade for $0.50 each.
Your friendly neighborhood lemonade stand spent $50.00 on supplies
What are the profits?
$200
47
Your friendly neighborhood lemonade stand sold 500 cups of lemonade for $0.50 each.
Your friendly neighborhood lemonade stand spent $300.00 on supplies.
What are the losses?
$50
48
A ________ may consist of property transferred to, services performed for, or another benefit provided to the partnership or an agreement to transfer property to, perform services for, or provide another benefit to the partnership.
contribution
49
A contribution may consist of _____ ________ to, services performed for, or another benefit provided to the partnership or an agreement to transfer property to, perform services for, or provide another benefit to the partnership.
property transferred
50
A contribution may consist of property transferred to, ______ ________ for, or another benefit provided to the partnership or an agreement to transfer property to, perform services for, or provide another benefit to the partnership.
services performed
51
A contribution may consist of property transferred to, services performed for, or ______ _______ provided to the partnership or an agreement to transfer property to, perform services for, or provide another benefit to the partnership.
another benefit
52
A contribution may consist of property transferred to, services performed for, or another benefit provided to the partnership or an _______ to _____ _______ to, perform services for, or provide another benefit to the partnership.
agreement
transfer property
53
A contribution may consist of property transferred to, services performed for, or another benefit provided to the partnership or an agreement to transfer property to, _____ _______ for, or provide another benefit to the partnership.
preform services
54
A contribution may consist of property transferred to, services performed for, or another benefit provided to the partnership or an agreement to transfer property to, perform services for, or provide ______ _______ to the partnership.
another benefit
55
A contribution may consist of property transferred to, services performed for, or another benefit provided to the partnership or an agreement to transfer property to, perform services for, or provide another benefit to the partnership.
But note! “A person may become a partner without making or being obligated to make a _________ to the partnership.” RUPA § 402(c)(2).
contribution
56
Can a person become a partner without making or being obligated to make a contribution to the partnership?
YES
57
It doesn’t matter if only one party made a ________, you can still form a ________.
contribution
partnership
58
_______ of ______ and ______
(a) Each partner is entitled to an equal share of the partnership distributions and, except in the case of a limited liability partnership, is chargeable with a share of the partnership losses in proportion to the partner’s share of distributions. RUPA § 401.
share of profits and losses
59
Share of Profits and Losses
(a) Each partner is entitled to an _____ ______ of the partnership distributions and, except in the case of a limited liability partnership, is chargeable with a share of the partnership losses in proportion to the partner’s share of distributions. RUPA § 401.
equal share
60
Share of Profits and Losses
(a) Each partner is entitled to an equal share of the ______ _________ and, except in the case of a limited liability partnership, is chargeable with a share of the partnership losses in proportion to the partner’s share of distributions. RUPA § 401.
partnership distributions
61
Share of Profits and Losses
(a) Each partner is entitled to an equal share of the partnership distributions and, except in the case of a _____ ______ ________, is chargeable with a share of the partnership losses in proportion to the partner’s share of distributions. RUPA § 401.
limited liability partnership
62
Share of Profits and Losses
(a) Each partner is entitled to an equal share of the partnership distributions and, except in the case of a limited liability partnership, is chargeable with a share of the partnership _______ in proportion to the partner’s share of distributions. RUPA § 401.
losses
63
Share of Profits and Losses. This is the default if you want to escape the default write it into the ________ _______ You cannot get rid of the duty if care or duty of loyalty or the duty of good faith and fair dealing. You can modify but not extinguish them.
Partnership agreement
64
Capital Accounts (Check State Law) Tenn. Code. Ann § 61-1-401.
(a)Each partner is deemed to have an account that is:
(1) _________ with an amount equal to the money plus the value of any other property, net of the amount of any liabilities, the partner contributes to the partnership and the partner’s share of the partnership profits; and
Credited
65
Capital Accounts (Check State Law) Tenn. Code. Ann § 61-1-401.
(a) Each partner is deemed to have an account that is:
(1) Credited with an amount equal to the money plus the value of any other property, net of the amount of any liabilities, the partner ___________ to the partnership and the partner’s ______ of _________ profits; and
contributes
share of partnership
66
Capital Accounts (Check State Law) Tenn. Code. Ann § 61-1-401.
(a) Each partner is deemed to have an account that is:
(2) ________ with an amount equal to the money plus the value of any other property, net of the amount of any liabilities, distributed by the partnership to the partner and the partner’s share of the partnership losses.
Charged
67
Capital Accounts (Check State Law) Tenn. Code. Ann § 61-1-401.
(a) Each partner is deemed to have an account that is:
(2) ________ with an amount equal to the money plus the value of any other property, net of the amount of any liabilities, _________ by the partnership to the partner and the partner’s _______ of the _______ ______.
charged
distributed
share of the partnership losses.
68
Example: Henry and Sally agree to open a Clam Shack and will operate their business as a Partnership. Henry and Sally each agree to contribute $10,000 to the Partnership.
Opening Capital Account Balance is 10K each
69
The Clam Shack is a great success, and at the end of year one, the partnership has realized $10,0000 in profits. What happens to the profits?
The Default Rules
Each partner is entitled to an equal share of the partnership distributions and, except in the case of a limited liability partnership, is chargeable with a share of the partnership losses in proportion to the partner’s share of the distributions. RUPA § 401(a).
5K each into Henry and Sally's capital accounts
70
The Default Rules
Each partner is entitled to an ______ ______ of the partnership distributions and, except in the case of a limited liability partnership, is chargeable with a share of the partnership losses in proportion to the partner’s share of the distributions. RUPA § 401(a).
equal share
71
A partner is not entitled to __________ for services performed for the partnership, except for reasonable compensation for services rendered in _____ _______ the business of the partnership. RUPA § 401(j)
remuneration
winding up
72
Some Hard Times
The Clam Shack continues to succeed, but the refrigerator just stopped working! Thinking quickly, Sally purchased a new unit for the Clam Shack for $5,000.00. She pays the money out of her own pocket.
Despite its success, the Clam Shack experienced higher than expected costs one month. Henry offers and Sally agrees to advance $5,000.00 of his own funds to cover payroll.
Assume that neither actions violated the partners’ fiduciary duties.
What happens?
5K each + interest is the loan balance for both Henry and Sally
73
RUPA § 401
(b) A partnership shall reimburse a partner for any________ made by the partner in the course of the partner’s activities on ________ of the ________, if the partner complied with this section and Section 409 in making the payment.
(c) A partnership shall indemnify and hold harmless a person with respect to any claim or demand against the person and any debt, obligation, or other liability incurred by the person by reason of the person’s former or present capacity as a partner, if the claim, demand debt, obligation, or other liability does not arise from the person’s breach of this section or Section 407 or 409.
(f) A partnership shall reimburse a partner for an ________ to the partnership beyond the amount of capital the partner agreed to contribute.
(g) A payment or advance made by a partner which gives rise to a partnership obligation under subsection (b) or (f) constitutes a ______ to the partnership which accrues interest from the date of the payment or advance.
payment
on behalf of the partnership
advance
74
Extra contribution or buy a fridge it is all going to be seen as a _______.
loan
75
During Year 2, some negative news reports about clams came out, and the Clam Shack’s business suffered as a result. The Clam Shack realized a loss of $8,000.00 during Year 2. Assuming the default rule, how does this affect Henry’s and Sally’s capital accounts?
If you don’t change the _______ ________ you are 50/50 for profits and 50/50 for losses.
partnership agreement
76
During Year 2, some negative news reports about clams came out, and the Clam Shack’s business suffered as a result. The Clam Shack realized a loss of $8,000.00 during Year 2. Assuming the default rule, how does this affect Henry’s and Sally’s capital accounts?
Capital Account Balance - End of Year/ Beginning of Year 2
Henry = 15K
Sally = 15K
Share of Losses (50/50 Split) 4K each
Capital Account Balance - End of Year 2 11K each
77
Notice: What if Henry contributed $10,000, but Sally contributed $20,000? The $10,000 profits in Year 1?
Operating Capital Account Balance
10K Henry
20K Sally
78
If you contribute more, you want the ______ ________ to show more.
partnership agreement
79
"_________” means a transfer of money or other property from a partnership to a partner in the partner’s capacity as a partner. RUPA § 102(4).
Distribution
80
"Distribution” means a ______ of _______ or other ________ from a partnership to a partner in the partner’s capacity as a partner. RUPA § 102(4).
transfer of money
property
81
Distribution Default Rules
*________ _________ (i.e., distributions made before the partnership is wound up and terminated) must be equal shares among the partners. See RUPA § 405(a).
*No right to receive a distribution prior to the winding up and termination of the partnership. RUPA § 405(b).
Interim distributions
82
Distribution Default Rules
*Interim distributions (i.e., distributions made before the partnership is wound up and terminated) must be equal shares among the partners. See RUPA § 405(a).
*No ____ ___ _____a distribution prior to the winding up and termination of the partnership. RUPA § 405(b).
right to receive
83
Interim distributions means money that the partners are getting during the course of the business of the partnership before the dissolution and winding up. They are interim meaning during the operation of the business.
You cannot demand distribution in the form of anything other than _____.
money
84
During Year 3, Henry and Sally agreed to each take a $2,000 distribution. How does this affect their Capital Accounts?
Capital Account Balance End of Year 2. 11K each
Capital Account Balance 9K each
85
Suppose that instead of each making an initial contribution, Sally contributes $10,000 and Henry agrees to manage the Clam Shack. They agree to split the profits equally, but they didn’t discuss losses. Both perform as agreed.
Unfortunately, six months in, Henry and Sally realize the Clam Shack is not doing well and has experienced losses of $8,680.00. Henry and Sally decide to close the business.
86
