Partnership Terms

Question 1

Partnership Definition

Answer 1

an association of (1) two or more persons (2) carrying on as co-owners (3) for profit

Question 2

Partnership Formation Requirements

Answer 2

No formal requirements required!
if there is a question as to a partnership’s formation, prima facie evidence may be needed to support its establishment

Question 3

Partnership Liability to Third Parties

Answer 3

partners are AGENTS of a partnership for carrying on the USUAL PARTNERSHIP BUSINESS
Agency principles apply
- A, B, C
-bound by torts committed within the scope
-bound by contracts of authorized parters

Question 4

Joint and Several Liability

Answer 4

Partners are jointly and severally liable for PARTNERSHIP debts.
Partnership creditors must exhaust partnership resources before recovering from partners individually

Question 5

Partner Indemnification

Answer 5

a partner who is help personally liable for a partnership debt has a right to indemnification from the partnership as well as contributions from the other parties

Question 6

Pre-Existing Debt for New Partners + Exception

Answer 6

General rule is that incoming partners have no liability for pre-existing debt.
The exception here is that any capital contributed by an incoming partner (i.e., their buy in) may be used to pay pre-existing debt

Question 7

Exception to Outgoing Partner Liability for Subsequent Debt

Answer 7

Exceptions:
(1) if the outgoing partner files a notice of withdrawal and if that notice is given to all known and future potential creditors, then the outgoing partners cannot be liable for future debts, OR
(2) The outgoing partner can protect themselves by filing a notice of dissociation with the Department of State which is effective 90 days after file

Question 8

Outgoing Partner Liability for Subsequent Debt

Answer 8

Outgoing partner remains liable to ALL future creditors

Question 9

Limited Partner Liability

Answer 9

Limited partners are only liable to the extent of their capital contribution
Whatever money they put in is also the cap of their liability

Question 10

Limited Partner Rights

Answer 10

No management rights or any rights other than receiving profits

Question 11

Partnership by Estoppel

Answer 11

One who represents to a third party that a partnership exists will be liable as if a partnership does, in fact, exist.
bound if they hold themselves out as being a partnership

Question 12

Fiduciary Duties of Partners (3)

Answer 12

• partners are fiduciaries of each other AND the partnership and the partnership CANNOT eliminate these duties *
  (1) Duty of Loyalty
  (2) Duty of Good Faith and Fair Dealing
  (3) Duty of Care

Question 13

Duty of Loyalty Breach Action

Answer 13

If this is violated, the enforcement is an Action for an Accounting
The partnership may recover losses caused by the breach of loyalty and may disgorge profits made by the breaching partner
This is the only form of an action that can be brought by a partnership against its own partners for breach of loyalty.

Question 14

Duty of Loyalty

Answer 14

duty owed to the partnership AND other partners
No usurping of partnership opportunities, no self-dealing, and no secret profits at the partnership’s expense

Question 15

Partnership Information for Partners

Answer 15

(1) Partner must provide, without demand, information about the partnership reasonably required for another partner to exercise her rights under the partnership agreement
(2) Partner must provide, on demand, any other information about the partnership unless it is unreasonable §408(c)(2)

Question 16

Duty of Care

Answer 16

Partner must refrain from grossly negligent or reckless conduct or intentional misconduct
No liability to other partners for ordinary negligence

Question 17

Individual Rights of Partners

Answer 17

A partner can inspect the books of the partnership §408(b)
A partner can get a formal accounting when reasonable §408(c)
A partner can sue the partnership or another partner during the life of the partnership even if the claim is related to partnership affairs

Question 18

Specific Partnership Property

Answer 18

Includes land, leases, equipment (PPE) owned ONLY by the partnership §203 and §501 UPA
Individual partners may not transfer the specific ownership property unless you have a majority vote of the partnership to transfer the asset

Question 19

Partner Share of Profits/Surplus

Answer 19

Each partner’s share of profits is personal property owned as such by each individual partner §502 UPA
transferred at the will of individual partners

Question 20

Partner Share in Management

Answer 20

The right to management (and share of management) is a partnership asset that belongs to the partnership along, not even the individual partner
- Individual partners may not transfer the share in management because it is a partnership asset

Question 21

Partnership v. Personal Property

Answer 21

Partnership funds = partnership presumed
partner funds = partner property presumption
*** presumption exception for partner funds ONLY: UNLESS the instrument transferring title suggests otherwise making it partnership property

Question 22

Partner Control of Org

Answer 22

default 1:1 voting in which each partner is entitled to equal control

Question 23

Partner Pay Structure (Salary/Share of Profits/Loss)

Answer 23

Absent an agreement, partners do NOT get a salary
Absent agreement, profits are shared equally
Absent agreement, losses are shared like profits

Question 24

Types of Dissociation

Answer 24

Express
Expulsion
Appointment of receiver
Death
Distribution of all partners’ interest
[EEADD]

Question 25

Wrongful Dissociation

Answer 25

Breach of the partnership agreement will cause you to wrongfully dissociate

Question 26

Dissociating Partner Consequences (With and Without Dissociation)

Answer 26

If it is NOT wrongfully dissociated the remaining partners may continue the partnership and buy out the withdrawing partner
If it is a wrongful dissociation—the rule is that the remaining partners can continue the partnership and buy out the partner BUT there will be NO payment to the dissociating partner until the completion of the project

Question 27

Partnership Consequences for a Dissociating Partner

Answer 27

the dissociated partner retains the ability to bind the partnership for 2 years after the dissociation
Partnership can prevent this by notifying people or filing a statement of dissociation with the department of state to put all potential creditors on notice

Question 28

Dissolution

Answer 28

Occurs upon any material change such as death, withdrawal, or insolvency of any single general partner
Dissolution is the PROCESS leading to termination

Question 29

Termination

Answer 29

Termination is the actual end of the partnership

Question 30

Winding Up

Answer 30

Period between dissolution and termination in which partners liquidate partnership assets to satisfy creditors

Question 31

Exception to general ‘no salary rule’ for partners

Answer 31

partners MAY receive compensation for winding up

Question 32

Partner Distribution Structure

Answer 32

Each partner must be repaid their loans and capital contributions PLUS that partner’s share of the profits MINUS that partner’s share of the LOSS

Question 33

Priority of Distribution of Assets

Answer 33

1. creditors (first outside then inside)
2. capital contributions of partners must be repaid
3. partners then share remaining profit

Question 34

Partnership Liability for Winding Up (New/Old Businesses)

Answer 34

old (2 years+): Partnerships and general partners retain liability on all contracts entered into to wind up an old business with existing creditors
new: Partnerships and all general partners retain liability on new businesses and business transactions until NOTICE of dissolution has been given to actual and potential creditors by filing a statement of dissolution with the department of state