Partnerships

Question 1

characteristics of General Partnership

Answer 1

easy, inexpensive.
Formed by agreement.
No filing or insurance.
Flexible, partners can determine by agreement how the firm will be managed.
Not subject to fed income tax, so firm and owners will owe less tax than incorporation.

But personally liable for obligations

look for agreement to contribute money/participate in control

Question 2

joint venture

Answer 2

requires an express agreement as to how losses are shared

Question 3

partnership property

Answer 3

land taken in the name of the partnership is partnership property.

This means that the individual partners are not considered owners of the property, and therefore do not have any interest to transfer

Assumed partnership property if bought with partnership funds

Question 4

transferring partnership interest

Answer 4

In a partnership, a partner can transfer part or all of his interest in the partnership.

A transfer like this entitles the transferee only to get the distributions the transferor would get, and doesn’t give the transferee any right to participate in the partnership business.

not jointly and severally liable like partner

can make inspection of books only for proper purpose

Question 5

rule to add another partner

Answer 5

Absent any other provisions, a new partner can only be added with a unanimous vote of all existing partners

Question 6

rule on redemption of partnership interests

Answer 6

A partnership must redeem for fair value the partnership interest of a transferee, if the interest was transferred when:
the partnership was for a definite term that had not yet expired, AND
the definite term has since expired, AND
the transferee makes a written demand for redemption.

Question 7

withdrawing from partnership for particular undertaking

Answer 7

partner may withdraw from a partnership for a particular undertaking before the undertaking is accomplished

but he will be liable for damages caused by the early/wrongful withdrawal.

He is also not entitled to receive any of the redemption (which in this case would be less damages of the wrongful withdrawal) until the undertaking of the partnership is complete,

unless he can establish there would be no harm to the partnership if it were to pay sooner.

Question 8

keeping partnership for particular undertaking alive

Answer 8

if the undertaking/duration ended the partnership can avoid dissolution by unanimously agreeing to continue the business

or just stay in business for 90 days w/o settlement or objection from a partner

Question 9

death and partnership interest

Answer 9

on death a partner’s surviving spouse/devisee is considered a transferee of the partner’s interest in the partnership.

As such, the transferee has no right to participate n the management or conduct of the partnership’s business,

only a right to receive distributions that would otherwise have gone to the transferor.

Question 10

liability of gen partners

Answer 10

General partners are jointly and severally liable for all partnership obligations.

Partners can’t limit the rights of third partiers by agreement among themselves

Question 11

partnership salaray

Answer 11

Unless it is otherwise stated in the partnership agreement or unanimously decided later,

a partner is not entitled to compensation for his day-to-day management of the partnership business.

Question 12

default rule for dividing up partnership assets

Answer 12

partners split profits equally in a partnership, unless otherwise agreed.

Question 13

rule for winding up partnership at will

Answer 13

partner’s withdraw doesn’t make the partnership wind up unless the majority of partners agree to wind up.

Question 14

rule for winding up partnership for duration

Answer 14

a decision to wind up the partnership requires unanimous consent

winding up costs are partnership obligations, which partners must bear

Question 15

duty of care/loyalty

Answer 15

partner to use care an ordinary prudent person would exercise under similar circumstances.

Duty of loyalty: partner to account to the partnership for any benefit derived by her from the use of it’s property,
refrain from dealing with the partnership on behalf of a party having an interest adverse to partnership,
refrain from competing/dealing with partnership in manner adverse to partnership.

Breach duties, court will issue injunction

Question 16

withdrawing partners ability to bind partnership (apparent authority)

Answer 16

for 1 year after withdrawal, a partner can bind the partnership to a transaction that would have bound the partnership if it occurred before withdraw.

That is, the partner was acting under his apparent authority.

This will occur if third party did not have notice of withdraw and had done business with the partnership before, so as to be reasonable in its belief this transaction was normal for the partnership.

Question 17

rule on withdrawn partners liabilities

Answer 17

a withdrawn partner remains liable to third parties for partnership obligations incurred prior to the withdrawal,

unless the creditor discharges him from the liability.

For 2 years

Question 18

order creditors can take partnership and partner assets

Answer 18

a creditor must exhaust all partnership assets before recovering on a debt from the partners individually

Question 19

limited partner in LLP

Answer 19

only liable for contributions if didn’t participate in control (safe harbor)

Question 20

LLP characteristics

Answer 20

same advantages as GP and partners of LLP are not personally liable for the firm obligations.

Disadvantage is the req formalities and added expense—file and pay fee and maintain registered office and agent.

Question 21

The Limited Partners Contributions:

Answer 21

promise to make a contribution is enforceable only in writing

Question 22

LLLP

Answer 22

a registered limited liability partnership shields partners from vicarious liability for firm contracts and for torts committed by another partner or firm employee

Question 23

PLLP

Answer 23

professional limited liability partnership.

Generally, partner in a limited liability partnership is not liable for the negligent acts of other partners or employees of the partnership unless

she was directly involved in the negligence,
was supervising the negligent person when it occurred,
or knew of the persons negligence and did nothing to prevent it

Question 24

LLC

Answer 24

An LLC is a flexible business entity. Members can manage it, if they so provide in the certificate of formation, or managers can manage the LLC.

members not personally liable for debts
not req to buy insurance
can opt how to be taxed

must pay fee, maintain office/agent

managers can manage

Question 25

Member Contributions for LLC

Answer 25

member’s signed written obligation to make a contribution can be enforced by LLC or by a creditor of the LLC who reasonably relies on the obligation

Member’s obligation to make contribution can be released only on consent of all members

However release is not binding on a creditor who extended credit or otherwise relied on the members obligation

Question 26

PLLC

Answer 26

professional limited liability company.

May render only one kind of professional service.

Must contain it in the name.

gen rule: members are liable for own negligence and PLLC is also liable for a member’s negligence w/in the ordinary course of business, but a member of a PLLC is not liable for the acts of another ember