Partnerships Flashcards
When can a partner withdraw or dissociate from a partnership?
A partner can withdraw or dissociate from a partnership at any time, even if the dissociation is wrongful, such as when it violates an express provision of the partnership agreement.
What are the partner’s rights and liability if he wrongfully dissociates?
A partner who wrongfully dissociates is liable to the partnership and the other partners for damages caused by the dissociation. In addition, a dissociated partner generally does not have the right to participate in the management or conduct of the partnership business and cannot participate in winding up the business.
What affect does wrongful dissociation have on partnerships?
Dissociation may, but does not necessarily, result in dissolution of the partnership and the winding up of its business.
Wrongful dissociation creates a possibility of dissolution, if, within 90 days of dissociation, a majority of the remaining partners express a will to wind up the business.
If dissolution results, the dissociated partner is not entitled to any payout until the end of the original term unless the partner can prove to the court that earlier payment would not cause undue hardship to the business.
Effects on rightful dissociation on Partner
Dissociation that complies with the provisions of the partnership agreement may also trigger dissolution, such as when it is an at-will partnership agreement with no definite term or when the partnership agreement so provides.
If the dissociating partner’s withdrawal is not wrongful, the partner is not liable for damages and would retain the right to participate in the dissolution and winding up the partnership.
Effects of rightful dissociation on Partnership
Once a partnership has been dissolved, but before the winding up of its business is complete, the partnership may choose to resume carrying on its business as if dissociation had never occurred.
To do so, all partners (including any rightfully dissociated partners) must agree to waive the right to terminate the partnership within 90 days of dissociation.
A person winding up the partnership business may preserve the business or property as a going concern for a reasonable time to maximize its value.
Dissociated Partner’s liability during Winding-up Process?
The partnership is not terminated until the partnership business is wound up. After dissolution, the partnership is bound by a partner’s act that is appropriate for winding up the partnership. Each partner is liable to the other partners for his share of partnership liability incurred by such post-dissolution acts. Further, although a dissociated partner loses any right to participate in the business, his apparent authority to bind the partnership lingers after dissociation for up to two years.
what is a partner’s liability for partnership obligations?
A partner is jointly and severally liable for all partnership obligations.
Because a partner is an agent of the partnership, the partnership is liable for a partner’s tortious acts, including fraud, committed in the ordinary course of the partnership’s business or with the partnership’s authority, whether actual or apparent.
Is a partner personally liable for a judgment?
Unless there is also a judgment against the partner, a judgment against a partnership cannot be satisfied from a partner’s assets, only from the partnership’s assets.
Even though a partner is personally liable for a partnership obligation, a partnership creditor generally must exhaust the partnership’s assets before levying on the partners’ personal assets.
What is a newly admitted partner’s personal liability to prior obligations of partnership?
A person admitted as a partner into an existing partnership is not personally liable for any prior partnership obligations.
However, any capital contribution made by an incoming partner to the partnership is at risk for the satisfaction of such partnership obligations.
who remains personally liable for an obligation that was incurred before conversion to an LLP?
A partnership may be converted into a limited liability partnership. Unless the partnership agreement specifies otherwise, the conversion must be approved by all of the partners of the general partnership.
Once the conversion is approved, the partnership must file the articles of qualification with the state.
A general partner who becomes a limited partner as a consequence of a conversion remains liable for any obligation incurred by the partnership before the conversion.
Who is personally liable for a partnership obligation that arises after conversion to an LLP?
A limited liability partnership (LLP) is a partnership in which a partner’s personal liability for obligations of the partnership is eliminated.
A limited partner in an LLP is not personally liable for an obligation of an LLP, but can be personally liable for his own personal misconduct including negligence.
Does a partnership exist between persons when one person receives profits in payment of a debt (I.e., creditors)?
NO. A creditor is entitled to receive a share of the net profits of the partnership only until his loan (plus interest) is paid in full.
Partner’s Transferable Partnership Interest
A partner has a transferable partnership interest, i.e., a partner may transfer the right to share in the profits and losses of the partnership and to receive distributions.
The transfer of that partnership interest creates in the transferee a right to receive distributions to which the transferor would otherwise be entitled.
Is a partner entitled to inspect the books?
Is a transferee entitled to inspect the books and records of the partnership?
A partnership must provide its partners and their agents with access to all its records but a transferee is not entitled to participate in the management or conduct of the partnership business or access partnership records.
A transfer of a partner’s partnership interest does not make the transferee a partner unless the other partner or partners consent to making the transferee a partner.
When is property considered partnership property?
Property is partnership property if it is acquired in the name of the partnership. It is property of the partnership and not of the partners individually.
A partner may use or possess partnership property only on behalf of the partnership.
