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MEE (UBE Bar Prep) > Partnerships > Flashcards

Partnerships Flashcards

Partnerships for MEE

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1
Q

Partnership

A

An association of two or more people to co-own an ongoing business for profit. Distinct legal entity apart from the partners

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2
Q

Types of Partnerships

A
  • General Partnership (GP) = Two or more general partners
  • Limited Partnership (LP) = At least one general partner and one limited partner
  • Limited Liability Partnership (LLP) = Protects general partners from personal liability
    • Any partnership other than an LP can become an LLP Formation
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3
Q

Formation of a General Partnership

A

Formed by an objective agreement between two or more persons to co-own an ongoing business for profit

  • Agreement can be made expressly (oral or written) or implicitly (from the parties’ conduct)
  • Parties’ subjective belief is immaterial
  • No formal or statutory requirements

Proof of Association: Sharing of profits is prima facie evidence that the profit-receiving person is a partner in a GP

  • “Sharing of profits” ≠ being paid for a loan, collecting rent, or earning a salary
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4
Q

Formation of a Limited Partnership

A
  • Formed by complying with statutory requirements:
    • execute a certificate of LP signed by all named general partners, and
    • file a certificate of LP with the secretary of state’s office
  • The name of the LP must say “limited partnership” or an abbreviation (L.P. or LP)
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5
Q

Formation of a Limited Liability Partnership

A
  • Formed by filing with the secretary of state’s office a certificate of registration signed by at least one person •
    • Usually must also pay a filing fee
  • The name of the LLP must say “limited liability partnership” or an abbreviation (R.L.L.P., L.L.P., LP, etc.)
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6
Q

Partnership Agreement

A

In general, relations between partners and the partnership are governed by the PA, or, if the PA is silent, by the default provisions of the UPA

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7
Q

A Partnership cannot opt out of what rules in the partnership agreement?

A

The partnership agreement cannot:

  • unreasonably restrict a partner’s access to the books and records,
  • remove the partner’s duties of loyalty and care, or
  • disallow a partner’s right to dissociate (but can require the partner to give written notice of her intent to withdraw)
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8
Q

Rights of General Partners (GP/LP)

A
  • Each general partner has equal rights to manage the partnership and conduct business
    • Unless the PA says otherwise
  • A general partner binds the partnership when acting within the ordinary course of business
    • Acts outside the ordinary course of business bind the partnership only if all general partners consent to the action
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9
Q

How are disputes between General Partners resolved? (GP/LP)

A
  • Acts within the ordinary course of business = majority vote
  • Acts outside the ordinary course of business = unanimous consent
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10
Q

Rights of Limited Partners (GP/LP)

A
  • Right to seek information for a purpose reasonably related to their interest as a limited partner, including the right to:
    • inspect and copy tax returns and other documents required by law, and
    • obtain true and full information as to the financial condition and state of the partnership’s business
  • No right to co-manage the partnership or engage in partnership business (limited partners aren’t agents of the LP)
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11
Q

Duties Within the Partnership

A
  • A partner is personally liable to the partnership and the other partners for damages caused by a breach of a fiduciary duty
  • Duty of Care
  • Duty of Loyalty
  • Duty to Disclose
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12
Q

Duty of Care

A

Can’t engage in

  1. grossly negligent or reckless conduct,
  2. intentional conduct that harms the partnership, or
  3. a knowing violation of the law
  • Applies to general partners in a GP or LP
  • Applies during the partnership and throughout the winding-up process
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13
Q

Duty of Loyalty

A

Can’t:

  1. compete with the partnership or appropriate a partnership opportunity, or
  2. enter deals with the partnership that are adverse to the partnership’s interest
  • A partner who does must account for any benefit and hold any profit in trust
  • Applies to general partners in a GP or LP
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14
Q

Duty to Disclose

A

Disclosures to General Partners

  • Without demand: Any information related to the partnership and reasonably required to exercise a partner’s rights and duties under the PA
  • On demand: Any other information concerning the partnership if the demand is reasonable and made for a proper purpose o

Disclosures to Limited Partners

  • Must provide the opportunity to inspect financial and tax records, and other documents reasonable related to the limited partner’s interest in the LP (i.e., financial interest)
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15
Q

Duties of Limited Partners

A

Duties of good faith and fair dealing (less demanding than duties of care and loyalty)

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16
Q

Sharing of Profits and Losses

A
  • Profits are shared equally
  • Losses are shared in proportion to the sharing of profits
    • These are the UPA’s default rules; if the partners are silent on this apply default rule
  • If a partner pays more than his portion of losses, they have a right to contribution from any partner who didn’t pay their share
17
Q

Partner’s Interest in the Partnership

A
  • A partner’s interest in partnership is personal property, which includes:
    • the financial interest in his share of the profits and losses, and
    • the right to receive distributions
  • Interest in the partnership is freely transferable, but the transferee has no right to:
    • participate in the management and control of the partnership, and
    • demand access to the partnership’s information, books, and records
  • A transfer of a partner’s partnership interest does not automatically dissolve the partnership
18
Q

General Partners Liability to Third Parties

A
  • Personally liable for all partnership debts, which includes torts committed by a partner if done:
    • in the ordinary course of business, or
    • with authority from the partnership
  • The general partners are jointly and severally liable
    • A partner may sue partners who didn’t pay their pro rata share for contribution
  • Applies to all general partners in a GP and an LP, but not an LLP
19
Q

Limited Partners Liability to Third Parties

A

Not personally liable (except the partner’s capital contribution) for debts of the LP, even if the limited partner participated in the management

20
Q

Partner’s Power to Dissociate

A
  • Partners always have the power to dissociate upon giving notice to the partnership
  • Wrongful dissociation = dissociation in violation of an express provision of the PA
    • The partner who wrongfully dissociates is liable for any damages caused
21
Q

Events causing a partner’s dissociation

A
  • death
  • bankruptcy
    • Wrongful if the partnership is for a definite term or undertaking
  • appointment of a guardian
  • a judicial determination that a partner is incapable of performing the duties of a partner
  • occurrence of an event specified in the PA that triggers dissociation
  • expulsion from the partnership pursuant to:
    • a provision in the partnership agreement,
    • unanimous vote of the other partners, or
    • judicial determination made upon application of a partner
22
Q

Dissociation of a Partner in a Limited Partnership

A
  • General Partner: dissociation is wrongful if it occurs before the termination of the LP
  • Limited Partner: no right to dissociate
23
Q

Consequences of Dissociation

A
  • Ends the partner’s rights to co-manage and conduct partnership business
    • Still liable for partnership obligations incurred before dissociation
  • Ends the partner’s duties of loyalty and care going forward (still under duty for matters occurring before dissociation)
    • May compete with the partnership
24
Q

Causes of Dissolution (all partnerships)

A
  • It becomes illegal to carry on the partnership’s business
  • Upon occurrence of an event agreed upon and specified in the PA
  • A partner may file an application to dissolve the partnership, which will be granted if:
    • The economic purpose of the partnership is likely to be unreasonably frustrated,
    • Carrying on the business in conformity with the PA isn’t reasonably practicable, or
    • Carrying on the business with that particular partner is no longer reasonably practicable because of that partner’s conduct
  • Application to dissolve by a transferee of a partnership interest may be made only on the ground that equity demands the partnership be wound up
    • In a partnership at-will –> the transferee can file the application at any time
    • In a partnership for a definite term or particular undertaking –> transferee can file only after completion of the term or undertaking
25
Q

Dissolution Cause Applicable to At-Will Partnerships Only

A

Dissolution occurs if one partner gives the partnership notice of his express will to withdraw

26
Q

Dissolution Cause Applicable to Partnership for Definitely Term/Particular Undertaking Only

A

If a partner wrongfully dissociates –> automatic dissolution in 90 days unless a majority of partners vote to continue the partnership

27
Q

Dissolution of Limited Partnerships

A
  • If the sole general partner dissociates –> automatic dissolution in 90 days unless a majority of limited partners vote to continue the business and a general partner is appointed
  • If only one of multiple general partners dissociates –> no automatic dissolution unless the majority of all partners (general and limited) vote to dissolve the LP
  • If the sole limited partner dissociates –> automatic dissolution unless a limited partner is admitted within 90 days
28
Q

Consequences of Dissolution

A
  • Partnership continues to exist only for the purpose of winding up the business (paying debts and distributing assets)
    • Partnership terminates after the winding-up process
  • Partnership’s liability on post-dissolution contracts: liable if the transaction would have bound the partnership before dissolution and the other party did not have notice of the dissolution
  • Partnership’s assets are distributed
29
Q

Order a Dissolved Partnership’s Asssets Are Distributed:

A
  • First, pay creditors (including partners who are creditors)
    • If not enough to pay creditors, partners are jointly and severally liable for the entire amount of the outstanding debt (but may seek contribution from other partners)
  • Second, reimburse partners for their capital contributions
  • Third, pay the balance to partners in accordance with their share of profits

MEE (UBE Bar Prep) (8 decks)

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