Partnership Rule Statements Flashcards
general partnership formed
When two or more persons carry on as co-owners of a business for profit, it is presumed that they are partners, whether or not the persons intend to form a partnership.
share in net profits or losses? partnership
this presumption does not apply to creditors who receive profits in payment of a debt.
on essay, explain why pship exists, factors. or why it doesn’t exist
The issue As a transferee of partner x’s right to receive net profits in ___, Y is legally entitled to x’s share of those profits
A partner has a transferable partnership interest, i.e., a partner may transfer the right to share in the profits and losses of the partnership and to receive distributions. The transfer of that partnership interest creates in the transferee a right to receive distributions to which the transferor would otherwise be entitled.
Here, x transferred her right to receive a share of the net profits of ___ to Y when she assigned all of her interest in ____ to him. Therefore, Y is legally entitled to receive x’s share of the net profits of ____
issue is whether the partner has right to inspect books and records. what about transferee?
A partnership must provide its partners and their agents with access to all its records but a transferee is not entitled to participate in the management or conduct of the partnership business or access partnership records.
A transfer of a partner’s partnership interest does not make the transferee a partner unless the other partner or partners consent to making the transferee a partner.
If x did not become a partner, he is not entitled to access information concerning partnership transactions nor to inspect or copy the partnership books or records.
issue is whether partners are allowed to use partnership property for personal use?
Property is partnership property if it is acquired in the name of the partnership. It is property of the partnership and not of the partners individually. A partner may use or possess partnership property only on behalf of the partnership.
Here, ____ was purchased in the partnership’s name and therefore, is partnership property and not X’s individual property.
The issue is whether or not the conversion from a partnership to an LLP relieves the LLP of obligations incurred by the partnership.
The filing of a statement of qualification, which transforms a partnership into an LLP, does not create a new partnership. A limited liability partnership (“LLP”) is a partnership in which a partner’s personal liability for obligations of the partnership is eliminated. In other respects, an LLP is governed by the same rules as a partnership.
Here, since ABC LLP is not a new partnership and is governed by the same rules as the old partnership insofar as they apply to partnership obligations, ABC LLP remains liable to the party for the judgment against the partnership.
The issue is whether the man and the woman can be held personally liable for obligations that pre-existed their conversion to an LLP.
A partner is jointly and severally liable for all partnership obligations. Though a limited partner in an LLP is not personally liable for an obligation of an LLP, limited liability partnership status is generally only effective on the date that the statement of qualification is filed with the state and not before.
before? jointly and severally liable
The issue is whether or not the investor who became a partner in an existing LLP can be held personally liable for the judgment incurred by the former partnership.
A person admitted as a partner into an existing partnership is not personally liable for any prior partnership obligations. However, any capital contribution made by an incoming partner to the partnership is at risk for the satisfaction of such partnership obligations.
Here, the investor became a partner in an existing LLP after contributing $amount to the LLP. Therefore, though the investor has no personal liability for the prior partnership’s obligation, his $amount contribution may be reached.
limited (LP) partnership formed?
A limited partnership is a partnership formed by two or more persons that has at least one general partner and at least one limited partner. To form a limited partnership, a certificate of limited partnership must be filed with the state and must include the name and address of each general partner. In addition, all of the general partners must sign the certificate. The limited partnership comes into existence upon the filing of the certificate of limited partnership. If a certificate is not filed, the limited partnership is not formed.
did not comply with the requirements necessary to form a limited partnership? may be presumed general partership.
issue is whether a general partnership formed between parties
A general partnership is an association of two or more persons to carry on a for-profit business as co-owners. In order to form a general partnership, at least two persons must intend to carry on a business for profit as co-owners but it is not necessary that they have the specific intent to form a general partnership. Individuals can inadvertently form a general partnership notwithstanding their expressed intention to do something else.
passive joint property ownership not enough
issue is whether partners are personally liable for pships debts/judgments?
A partner is jointly and severally liable for all partnership obligations. A judgment against a partnership is not a judgment against its partners. To collect from a partner personally, a party must first obtain a judgment against the partner individually and against the partnership. These judgments can be sought in the same action. Unless there is a judgment against the partner, a judgment against a partnership cannot be satisfied from a partner’s assets, only the partnership’s assets. If a claimant first obtains a judgment against the partner individually and the partnership, the claimant generally must exhaust the partnership’s assets before levying on the partner’s personal assets.
Here, Andy, Ben, and Carol are jointly and severally liable for MLP’s obligations as general partners of MLP. To collect from Andy, Ben, and Carol, Marketing must first obtain a judgment against each of them individually and against MLP. If Marketing only gets a judgment against the partnership, it can only satisfy its judgment from the partnership’s assets and not those of the individual partners. Marketing must first exhaust MLP’s assets to satisfy the judgment. If MLP’s assets are insufficient to satisfy the judgment, Marketing can recover from Andy, Ben, and Carol personally so long as Marketing has first obtained a judgment against each of them individually.
Effects of Wrongful Dissociation on Dissociating Partner
A partner can withdraw or dissociate from a partnership at any time, even if the dissociation is wrongful, such as when it violates an express provision of the partnership agreement. A partner who wrongfully dissociates is liable to the partnership and the other partners for damages caused by the dissociation. In addition, a dissociated partner generally does not have the right to participate in the management or conduct of the partnership business and cannot participate in winding up the business.
Here, if Adam dissociates immediately, he would be in violation of the partnership agreement’s requirement that a withdrawing partner give the partnership six months’ written notice. His dissociation would therefore be deemed wrongful and he would be liable to the partnership for any damages caused by his wrongful dissociation. In addition, Adam would not be permitted to participate in winding up the partnership’s business, should the remaining partners decide to wind up the business.
Effects of Wrongful Dissociation on Partnership
Dissociation may, but does not necessarily, result in dissolution of the partnership and the winding up of its business. Wrongful dissociation creates a possibility of dissolution, if, within 90 days of dissociation, a majority of the remaining partners express a will to wind up the business. If dissolution results, the dissociated partner is not entitled to any payout until the end of the original term unless the partner can prove to the court that earlier payment would not cause undue hardship to the business.
Here, if Adam’s dissociation is wrongful, Beth and Chris alone would decide whether to express a will to wind up the business. If they decide to continue the business, they could buy out Adam’s interest, less any damages caused by his wrongful dissociation, and continue the business as is. Further, payout to Adam would wait until the end of the original term, and the burden would be on Adam to prove that early payout is not unduly burdensome on the partnership.
Effects of Rightful Dissociation on Partner
Dissociation that complies with the provisions of the partnership agreement may also trigger dissolution, such as when it is an at-will partnership agreement with no definite term or when the partnership agreement so provides. If the dissociating partner’s withdrawal is not wrongful, the partner is not liable for damages and would retain the right to participate in the dissolution and winding up the partnership.
Here, if Adam complied with the partnership agreement’s provision of six months’ notice, his dissociation would not be wrongful, and he would be able to participate in the winding up of the business and the disposition of partnership assets. He would not be liable to the partnership for any damages caused by his withdrawal. If the PPS agreement is at will (i.e., not for a set term), or if dissociation was a dissolution-triggering event within the agreement, then Adam’s dissociation would trigger dissolution.
Effects of Rightful Dissociation on Partnership
Once a partnership has been dissolved, but before the winding up of its business is complete, the partnership may choose to resume carrying on its business as if dissociation had never occurred. To do so, all partners (including any rightfully dissociated partners) must agree to waive the right to terminate the partnership within 90 days of dissociation. A person winding up the partnership business may preserve the business or property as a going concern for a reasonable time to maximize its value.
Here, Adam’s proper dissociation would cause the partnership to be dissolved, and winding up would commence, unless Beth, Chris, and Adam express their will to continue the partnership within 90 days. Otherwise, Adam would be able to participate in the winding up, although his desire to force the immediate cessation of business and sale of assets would not necessarily be achieved if Beth and Chris outvoted him. Chris and Beth could preserve the assets for a reasonable time in order to maximize the partnership’s value.
Dissociated Partner’s Liability during Winding-Up Process
The partnership is not terminated until the partnership business is wound up. After dissolution, the partnership is bound by a partner’s act that is appropriate for winding up the partnership. Each partner is liable to the other partners for his share of partnership liability incurred by such post-dissolution acts. Further, although a dissociated partner loses any right to participate in the business, his apparent authority to bind the partnership lingers after dissociation for up to two years. Thus, regardless of the characterization of his dissociation, Adam will be liable for partnership debts incurred during the winding-up.
