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Partnership Rules Flashcards

1
Q

Partnership

A

An association of two or more persons to carry on as co-owners a business for profit (formed immediately) even if subjectively didn’t intend to be partners

Governing law = Revised Uniform Partnership Act (RUPA)

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2
Q

Partnership Requirements

A
  1. No formal writing/agreement; just based on parties’ intent implied from their conduct
  2. Anyone who is capable of entering a binding contract is capable of being a partner
  3. Partnership cannot have illegal purpose
  4. No one may become a partner without consent of all partners
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3
Q

Factors to Imply a Partnership

A
  1. Intent of the parties
  2. Sharing of profits = rebuttable presumption of partnership (except if payments for debt, serviced, rent, annuity/retirement benefits, interest on loan, or sale of goodwill of business)

Additional factors (do not create presumption, but evidence of formation):
- title to property held as joint tenant or tenant in common
- parties designate their relationship as partnership
- venture requires extensive activity
- sharing of gross returns

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4
Q

Partnership by Estoppel

A

When person (words/conduct) represents himself as partner or consents to being represented by another as partner –> liable to third parties that extend credit to actual/apparent partnership in reliance on the representation

When person hold out another as partner –> makes that person his agent to bind him to 3rd parties

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5
Q

Real & Personal Property Belongs to Partnership if:

A
  1. Titled in partnership name; OR
  2. Name of the partnership and instrument transferring title notes titleholders capacity as partner
  3. Presumed partnership property if purchased with partnership funds
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6
Q

Presumptions of Separate Property If:

A
  1. Property held in name of partner
  2. Instrument does not indicate person’s capacity as partner/mention existence of partnership
  3. Partnership funds not used
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7
Q

Factors to apply for untitled property to determine whether partnership or separate property:

A
  1. Use of partnership funds
  2. Use of property by partnership
  3. Listed in partnership books as asset
  4. Close relationship between property/business
  5. Improvement with partnership funds
  6. Maintenance with partnership funds
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8
Q

Partners Rights in Partnership Property

A
  1. Partners are not co-owners of partnership property and have no transferable interest in partnership property
  2. Partners have no right to use partnership property other than for the benefit of the partnership
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9
Q

Rights of Partners; unless Agreement specifies otherwise

A
  1. Equal right to participate in management and control of the partnership
  2. Equal right to share in profits/lossess and receive distributions
    - no right to compensation
  3. Partners not entitled to renumeration except for compensation for services in winding up business
  4. Partnership must indemnify partners for payments reasonably made and obligations reasonably incurred by a partner in carrying on business of the partnership
  5. If partner must pay more than his fair share –> entitled to contribution from other partners
  6. All partners have right to inspect partnership books/records
  7. Partnership can be sued in the partnership name/names of individual partners
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10
Q

Partners Owe These 4 Fiduciary Duties

A
  1. Duty of loyalty
  2. Duty of care
  3. Duty of obedience
  4. Duty to provide complete and accurate information (concerning the partnership)
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11
Q

Duty of loyalty

A
  1. Partners must acorn for all profits/benefits derived by partner in connection with partnership business
  2. Partners may not deal with partnership as one with adverse interest
  3. Partners may not compete with partnership
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12
Q

Duty of Care

A
  1. Partners must refrain from engaging in negligent, reckless, or unlawful conduct
  2. Partners must refrain from engaging in intentional misconduct
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13
Q

Duty of Obedience

A
  1. Partners must obey all reasonable directions of the partnership
  2. Partners must refrain from acting outside the scope of the partner’s actual authority
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14
Q

Contract Liability

A

Partners liable on contracts made by a partner in the scope of the partnership business and on any other contracts expressly authorized by the partners

(joint/several)

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15
Q

Tort Liability

A

Partners are liable for any torts committed by a partner or an employee of the partnership in the ordinary course of partnership business

(joint/several)

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16
Q

Exhaustion Rule

A

Plaintiff must first exhaust partnership resources before seeking to collect from partners individual assets

17
Q

Dissociation (Withdrawal) Occurs Upon Following Events

A
  1. Notice of partner’s express will to withdraw
  2. Happening of an agreed upon event
  3. Valid expulsion of partner
  4. Partner becoming bankrupt
  5. Death of partner, or termination of partner that is a business entity
  6. Court decision that partner is incapable of performing her duties
18
Q

Dissolution

A

Partnership dissolved and business must be wound up when:

  1. At will partnership, when a partner gives notice of her express will to withdraw
  2. In partnership for definite term or particular undertaking, when:
    - in 90 days of partner’s death, bankruptcy, or wrongful dissociation @ least half of partners express will to be bound up
    - all partners express will to be wound up
    - term expires/undertaking is complete
  3. Upon happening of agreed upon event
  4. Upon happening of event that makes it unlawful for partnership to continue
  5. Upon judicial decree
19
Q

Limited Partnership Formation & Governing Law

A
  1. Governed by Uniform Limited Partnership Act “ULPA”
  2. Need one or more general partners plus at least one limited partner
  3. Formation occurs upon filing a certificate of limited partnership w/ Secretary of State
    LP’s can only be formed by statute
    - name of partnership
    -name/address of agent for service of process
    - name/address of each general partner
20
Q

Limited vs. General Partner Liability

A

Limited Partner: no personal liability for obligations of the partnership

General Partner: jointly/severally liable for partnership obligations

21
Q

Rights of BOTH General & Limited Partners

A
  1. Right to distributions, transferred in whole or in part
  2. May transact business with the limited partnership
  3. May maintain a derivative action on behalf of the partnership if the partner first makes demand on general partners or demand would be futile
  4. May apply for decree of dissolution whenever not reasonably practicable to carry on business in conformity w/ partnership agreement
22
Q

Limited vs. General Partner Duties

A

General partners: owe limited partnership fiduciary duties of care and loyalty

Limited partners: owe no fiduciary duty to the partnership and are free to compete with the partnership, unless otherwise provided by agreeement

23
Q

Rights of GENERAL Partners

A
  1. Equal rights in management
  2. Right to partnership’s business information
  3. Not entitled to remuneration for services performed for the partnership
  4. Entitled to indemnification for liabilities incurred in the ordinary course of the partnership’s activities
24
Q

Rights of LIMITED Partners

A
  1. No right to participate in management, unless otherwise indicated in partnership agreement
  2. Have right to inspect/copy certain partnership records that are required to be kept in records office
25
Dissociation/Dissolution of Limited Partnership
1. Events that cause dissociation of a partner in a general partnership will also cause dissociation in LP 2. Limited partner has no right to dissociate before termination of LP 3. May be judicially/administratively dissolved; otherwise only by occurence of one of the following: - happening of agreed upon event; - consent of all partners "majority of interest" (those w/ right to receive distributions) - after dissociation of general partner and consent of majority in interest, if no general partner remains, after 90 days unless a new partner is admitted - 90 days after dissociation of last limited partner, unless new limited partner admitted *Assets distributed to creditors first (including partners who are creditors) Then to partners as distribution
26
Formation of Limited Liability Partnership
General partnership, without the liability; all partners have limited liability! 1. File statement of qualification with Secretary of State including: - name/address of partnership - statement of election to be LLP - deferred effective date, if applicable -LLP, RLLP, in name 2. Must be executed by at least 2 partners
27
Liability in an LLP
1. Partner not personally liable for obligations of the partnership 2. Partner remains personally liable for her own wrongful acts
28
LLC Formation
Hybrid business organization where members are taxed like partnership, but enjoy limited liability like shareholders in a corporation; distinct from the members Governed by Revised Uniform Limited Liability Company Act (RULLCA) *Formed by filing a certificate of organization with the Secretary of State - Name of LLC (including LLC) - Address of LLC's registered office - Name/address of registered agent
29
Management Rights in LLC
1. All members participate in management unless otherwise specified in operating agreement 2. Each member of member-managed LLC has authority to bind company to contracts, unless member lacks actual authority to do so and other party has notice
30
Duties of Members in LLC
1. Member-Managed LLC - Members owe duties of care and loyalty to each other and LLC - Must discharge duties consistently with contractual obligation of good faith/fair dealing 2. Manager-Managed LLC - Only the managers are subject to duties of care and loyalty - Only members may authorize or ratify an act by a manager that would otherwise violate the duty of loyalty
31
Piercing LLC Veil
Courts may pierce LLC veil to reach personal assets of members similar in justification with piercing corporate veil
32
LLC Distributions
Distributions in equal shares unless the operating agreement provides otherwise; most states allocate distributions on the basis of contributions unless otherwise indicated in operating agreement
33
Rights to Information in LLC
Member-Managed LLC: - Member has right to inspect/copy any record concerning the LLC's business that is material to the member's rights/duties Manager-Managed LLC: - Managers have same right to information and duty to furnish information as discussed above
34
Dissociation in LLC
1. Member has power to dissociate at any time 2. Wrongfully dissociating member may be liable to LLC for damages 3. Events that cause dissociation of partner generally cause dissociation of member
35
Dissolution of LLC
Will dissolve when any of the following events occur: 1. Agreed upon event of dissolution; 2. Consent of all members; 3. Passage of 90 consecutive days which LLC has no members; 4. Judicial decree; 5. Administrative dissolution by Secretary of State
36
LLC Operating Agreement
Real details of the LLC on operation/governance are within operating agreement - Can displace statutory provisions - May eliminate duty of loyalty/duty of care if doing so is not reasonable - CANNOT eliminate duty of good faith and fair dealing
37
Liability in LLC
Generally not personally liable for LLC obligations! - Can lose only amount of their investment - unless corporate veil pierced
38
Transferring Interests
Management rights CANNOT be transferred Financial rights can be unilaterally transferred
39
LLC Taxation
Taxed on "pass-through" basis No entity level tax; business income passed through to owners and reported on owners individual tax returns

Rule Statements (13 decks)

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