PARTNERSHIP RULES!

Question 1

General Partnerships

Answer 1

An association of 2 or more persons carrying on as co-owners in a business for profit. No writing required.

Question 2

Determining Partners

Answer 2

Presumed partner if receiving share of PROFITS. Right to control, even if control is never exercised.

Question 3

Partnership by Estoppel

Answer 3

If not formed, parties may still be liable as partners to protect reasonable reliance by third parties. K’s only.

Question 4

Property Interests

Answer 4

Whether property is owned by partnership or individual is determined by intent. Look to (1) who furnished the funds to buy it, (2) how it was used, (3) who paid for upkeep/insurance, (4) agreements. Title NOT dispositive.

Question 5

Rights in Partnership Property

Answer 5

The partnership’s rights are unrestricted and can encumber it. Partners may only use for partnership purposes.

Question 6

Partner’s Economic Interest in the Partnership

Answer 6

Partner may transfer, assign, or encumber his profits like any other asset. But 3rd Party does not become partner.

Question 7

Profits & Losses

Answer 7

Partners split profits/losses equally regardless of capital contributions UOA. But cannot limit 3rd party rights.

Question 8

No Right to Compensation

Answer 8

UOA, a party has no right to compensation.

Question 9

Equal Management Rights

Answer 9

UOA, voting rights are equal regardless of their profit agreement.

Question 10

Indemnification & Interest

Answer 10

UOA, a partner who pays from personal funds on partnership’s behalf has right to collect it from P with interest.

Question 11

Partner Duties

Answer 11

Partners are fiduciaries who owe partnership duty of care & loyalty, & duty to render full info of P on demand. Thus, partners have a right to inspect the partnership’s books and get an accounting when it is just.

Admission of New Partners & Outgoing Partners

UOA, adding new partner requires unanimous consent. If admitted, still liable for past debts, but not personally.

Question 12

Relationship between Partners & Third Parties – Use Agency Law

Answer 12

If K, partnership is P & partner is A. Actual authority created by agreement or vote. Apparent by title/conduct.

Question 13

Partner’s Torts

Answer 13

Partnership is liable for partner’s torts committed w/in ordinary course of P’s business (servant/in scope).

Question 14

Partner’s Liability for Partnership Obligations

Answer 14

Individually, jointly, & severally liable for partnership obligations. P can recover from any partner alone.

Question 15

Dissolution

Answer 15

A partnership can be dissolved upon the date set forth in agreement, particular undertaking is accomplished, or by mutual assent of all partners.

Question 16

Dissolution by Expulsion of Partner

Answer 16

If any partner is expelled from the business in accordance w/ a power to do so by their agreement, it dissolves.

Question 17

Dissolution of Partnership at Will

Answer 17

Dissolved w/o liability by express will of any partner if no definite term or particular undertaking is specified.

Question 18

Dissolution by Operation of Law

Answer 18

On a partner’s death or bankruptcy, partnership’s bankruptcy, or business becomes unlawful, dissolved by law.

Question 19

Old Business

Answer 19

A partner who has not wrongfully dissolved can wind up affairs & P is liable for winding up expenses.

Question 20

Winding Up & Apparent Authority

Answer 20

Apparent authority to bind P on new business after dissolution unless notice given. Prior creditors get personal notice. Others who knew before dissolution get publication. Partners are jointly liable for post-dissolution debts.

Question 21

Contribution upon Dissolution

Answer 21

Partners have no right to contribution unless dissolution caused by partner’s express will, death, or bankruptcy.

Question 22

Distribution of Partnership Assets After Dissolution

Answer 22

(1) 3rd Party Creditors (2) Partner’s unpaid loans and salaries (3) capital contributions (4) profits to partners.

Question 23

Creditor’s Rights After Dissolution

Answer 23

Partnership creditor has priority over Partner’s creditors. Separate creditors have priority on separate property.

Question 24

Continuing Partnership’s Business After Dissolution

Answer 24

All partners who have not wrongfully dissolved must consent & creditors attach to continuing partnership.

Question 25

Buyout

Answer 25

Unless otherwise agreed, a withdrawing partner gets his interest in the partnership plus a pro-rata share of profits. However, a partner who wrongfully dissolves is not compensated for goodwill & is liable for breach.

Question 26

Limited Partnerships

Answer 26

At least 1 general partner who are generally liable & limited partner whose liability limited to their investment.

Question 27

Filing and Name

Answer 27

LP must file a certificate of Limited Partnership. The name must contain Limited Partnership, LP, or L.P.

Question 28

Liability of Limited Partners

Answer 28

A limited partner’s liability is limited to his capital contribution, even if he participates in control of LP.

Question 29

Failure to File

Answer 29

Then it’s not an LP, it’s a GP, & all so called limited partners are personally liable. However, an LP can avoid future liability by filing a certificate or by withdrawing from LP & notifying SOS of Withdraw.

Question 30

Withdrawal

Answer 30

A limited partner may withdraw only at the time or on the happening of an event specified in LP agreement.

Question 31

Liability of General Partners

Answer 31

General Partners are jointly & severally liable UNLESS its LLLP, which shields GP from vicarious liability.

Question 32

Priority for Distribution of Assets

Answer 32

(1) 3rd Party Creditors AND Limited Partner Creditors (2) General Partner Creditors (3) Partners Owed Distributions (4) Capital Contributions (5) Partners who Share in Profits

Question 33

LLCs

Answer 33

Combines best aspects of partnership (flex management, tax), w/ best aspects of a corporation (limited liability).

It must file Articles of Organization & annual reports. Contain, LTC Co., LLC, or LC. May be professional.

In NC, LCCs are member managed unless otherwise stated in Articles of Organization or Operating Agreement.

Non-managers w/ authority to manage are called directors. Executives carry out orders of managers or directors.

Members do not owe a fiduciary duty to anyone. However, managers owe fiduciary duties to LLC. Limit a manager’s liability except for (1) acts he knew were in conflict w/ LLC’s best interest, or (2) personal benefit.

No member liability except for own torts. LLC liable if in scope. Other members not liable. Only LLC if on contract.

Question 34

Comparison of Entities

Answer 34

LLP and LLC’s are the best. All owners shielded from vicarious liability unlike GP’s and LP’s. Flexible management: all owners may exercise control, and control may be allocated by agreement of members. Conversion/Merger: If you choose the form, you can convert to another entity or merge one form into another if all the owners approve (or less if permitted by agreement), and proper docs are filed with Secretary of State.