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Partnerships Flashcards

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1
Q

When is a general partnership created?

A

When:

  1. Two or more persons;
  2. As co-owners;
  3. Carry on a business for profit.

*No written agreement or intent is needed.

Priority: HIGH

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2
Q

A person who receives a share of the profits of the partnership business is presumed to be a partner, unless the profits were received in payment of what?

A
  • of a debt;
  • for wages (as an employee/independent contractor);
  • of rent;
  • of an annuity or retirement benefit;
  • of loan or interest charges; OR
  • for the sale of the goodwill of the business.

Priority: HIGH

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3
Q

What information does the Certificate of Limited Partnership include?

A
  1. Name of the partnership;
  2. Address of the partnership’s principal office;
  3. Name & address of partnership’s registered agent;
  4. Name and address of each general partner;
  5. Whether it’s a Limited Liability Limited Partnership (LLLP); AND
  6. Be signed by all general partners.

Priority: Medium

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4
Q

A Limited Liability Partnership (LLP) is where all partners have limited personal liability. Any partnership may become an LLP upon what two factors?

A
  1. Approval by the same vote that is necessary to amend the partnership agreement; AND
  2. By filing a Statement of Qualification with the Secretary of State.

Priority: Medium

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5
Q

What information must a

Statement of Qualification include

A
  1. The name and address of the partnership;
  2. A statement that the partnership elects to become an LLP; AND
  3. A deferred effective date (if any).

*The filing doesn’t create a NEW partnership, it continues to be the same entity that existed prior to the filing.

Priority: Medium

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6
Q

When does a partner have Express Actual Authority to bind the partnership?

A

Upon receiving said authority from the partners.

  • Differences among partners for Acts within the ordinary course of business = approved by a majority vote of partners.
  • Acts outside the ordinary course = can only be approved unanimously.

*If the partnership agreement is silent, a partner has authority for usual and customary matters, UNLESS the partner knows that: (a) other partners might disagree; OR (b) for some other reason consultation with fellow partners is appropriate.

Priority: HIGH

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7
Q

A partner with Apparent Authority will NOT bind the partnership during what circumstance?

A
  1. The partner lacked authority; AND
  2. The third-party knew or had notice that the partner lacked authority.

*For acts outside the scope of business → Need a manifestation by the Partnership that the partner had authority in order to be binding.

Priority: HIGH

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8
Q

A partner has Apparent Authority to bind the partnership, even after dissolution, in what circumstance?

A

If:

  1. The partner’s acts would have normally bound the partnership; AND
  2. The third-party DID NOT have notice of the dissolution.

*If the partnership is bound, then ALL partners will be jointly and severally liable for the obligation.

Priority: Medium

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9
Q

What is the liability for General Partners?

Incoming Partners?

A

General Partners: Personally liable for ALL obligations of the partnership AND jointly and severally liable. (UPA 1997).

Incoming Partners: NOT liable for obligations incurred prior to their admission, but still at risk for losing capital contributions made to satisfy partnership obligations.

Priority: HIGH

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10
Q

When can a judgment creditor levy execution of a judgment against a partner’s personal assets for a partnership debt?

A
  1. When a judgment has been rendered against the partner;
    * *AND**
  2. The partnership assets have been exhausted or are insufficient.

*A judgment against the partnership is NOT itself a judgment against the individual partners.

Priority: HIGH

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11
Q

When are limited partners personally liable for the obligations of the Limited Partnership (LP)?

A
  1. They are ALWAYS liable for their own misconduct (or if they sign a PERSONAL guarantee).
  2. Always at risk for losing any capital contributions made to the partnership.
  3. Generally, if they participate in the management and control of the business they are liable.

(See ULPA 2001, Earlier ULPA, and RULPA)

Priority: Medium

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12
Q

How are profits and losses shared

amongst the partners?

A

Profits are shared EQUALLY, and losses will be shared in the same ratio as profits.

UNLESS there is an agreement to the contrary.

*Any partner who pays more than his fair share is entitled to receive contribution from the other partners.

Priority: Low

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13
Q

What elements of partnership ownership can a partner transfer to another person?

A
  1. His interest in the share of the profits and losses;
    * *AND**
  2. His right to receive distributions.

*ALL other incidents of partnership ownership CANNOT be transferred (unless all partners agree or an agreement states otherwise).

Priority: Medium

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14
Q

When is property acquired in the name of a partner presumed to be separate property?

A
  1. When no partnership assets are used to acquire the property;
    * *AND**
  2. No written title instrument for the property references the partnership or that the person is a partner.

Priority: Medium

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15
Q

When is a partner entitled to remuneration for services performed for the partnership?

A
  • There is an agreement; OR
  • It is for the reasonable compensation of services rendered in winding up the business.

Priority: Medium

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16
Q

When is a Partnership entitled to the patent of a partner that is a result of his invention?

A

When:

  • Partnership facilities or business time is used for its creation; OR
  • The partner is employed to do the inventive work.

Priority: Low

17
Q

What is the difference between general and limited partners in a Limited Partnership?

A

General partners: have FULL management rights and control.

Limited partners: have NO say or control, and DO NOT have the right to manage day-to-day business (generally passive with limited voting rights).

Priority: Medium

18
Q

Under RULPA, what are a limited partner’s rights regarding inspection of records?

A
  1. The right to inspect and copy (during business hours) any records the LP is legally required to keep.
  2. The right to obtain upon demand:
    • True & full information regarding the state of the business and financial condition.
    • Copies of the LP’s tax returns.
    • Any other information that is just and reasonable.

Priority: Medium

19
Q

Under RULPA, when does a partner

breach his duty of care?

A

When he engages in:

  • Grossly negligent or reckless conduct;
  • Intentional misconduct; OR
  • A knowing violation of law.

Examples include: violating a partnership policy, failing to thoroughly investigate facts before entering into a contract, acting outside the scope of the business without consent from the other partners.

Priority: HIGH

20
Q

Under RULPA, what must a partner do to satisfy his duty of loyalty?

A
  1. Account for any property, profit, or benefit derived by the partner from the partnership property;
  2. Not have an interest adverse to the partnership; AND
  3. Not compete with the partnership.

Priority: HIGH

21
Q

When is a partner NOT liable for conduct that would otherwise breach his duty of loyalty?

A
  1. If the partner fully discloses the information; AND
  2. Either:
    • The partnership agreement is amended; OR
    • All partners consent to the transaction.

*The partnership agreement must be amended by a unanimous vote (unless it provides otherwise).

Priority: HIGH

22
Q

Under RUPA, what must a partner disclose without demand?

What happens if he breaches this duty?

A

He must disclose FULL information concerning the partnership’s business and affairs.

If he breaches, he may be held PERSONALLY liable to the partnership for any losses suffered as a result.

Priority: Medium

23
Q

How does a partner become dissociated from a partnership?

A
  • Notice of the partner’s express will to withdraw;
  • Occurence of an agreed upon event in the agreement;
  • Expulsion per the agreement or by judicial means;
  • Expulsion by unanimous vote, if it’s:
    • Unlawful to carry on business with that partner; or
    • If there has been a transfer of his interest.
  • Bankruptcy;
  • Incapacity or Death;
  • Appointment of a personal representative/receiver; OR
  • Termination of an entity partner.

Priority: HIGH

24
Q

When will a dissociation be deemed wrongful?

A
  • If it’s in breach of an express provision of the partnership agreement; OR
  • If the partnership is for a definite term or particular undertaking, and the partner:
    • Withdraws;
    • Is expelled by judicial determination; OR
    • Becomes a debtor in bankruptcy.

*A wrongful dissociation bars a partner from management and the winding up process.

Priority: HIGH

25
Q

When does dissolution of a General Partnership occur?

A
  • Upon notice of the partner’s express will to withdraw;
  • Upon an event agreed upon in the agreement;
  • Upon an event that makes it unlawful to continue;
  • Judicial dissolution on application of a partner; OR
  • Judicial dissolution on application of a transferee.

Priority: HIGH

26
Q

When does dissolution of a

Partnership for Definite Term occur?

A
  • Within 90 days of a partner’s dissociation by death or wrongful dissociation;
  • Upon the express will of ALL the partners to wind up the business; OR
  • Upon the expiration of the term or completion of purpose.

*A partner may dissociate at any time by providing notice to the other partners.

Priority: HIGH

27
Q

What does dissociation by one partner allow the other partners to do?

A

It allows ALL of the remaining partners to waive winding up and termination, and instead gives them the option to continue the partnership by buying out the dissociated partner’s interests.

Priority: HIGH

28
Q

When does a non-judicial dissolution

of a Limited Partnership occur?

A

Upon:

  • The occurrence of an event specified in the agreement;
  • The consent of all general partners and of all limited partners owning a majority of rights to distributions;
  • After dissociation of a general partner;
  • 90 days after dissociation of the last limited partner; OR
  • The filing of a declaration of administrative dissolution by the Secretary of State (for failure to pay fees, etc.).

Priority: Low

29
Q

During the winding up process, partnership assets are converted to cash and distributed in what order?

A
  1. Creditors;
  2. Partners’ capital contributions; AND
  3. Profits to be distributed among the partners.

*Some states require that non-partner creditors (outside creditors) be paid first before partner creditors (inside creditors).

Priority: Medium

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