Partnerships

Question 1

Creation of General Partnerships

Answer 1

General partnerships are created when at least two people agree to engage in a business for profit as co-owners

Share of profits may be presumption of general partnership unless the share is to pay a debt or rent or as wages

Look to the share of control in the partnership – if one does not have much control, then they may not be considered a partner

Formal filing of a certificate not required

Question 2

General Partnership Duties

Answer 2

General partners are agents of the partnership

They may engage in transactions on behalf of the partnership

Transactions within the ordinary course of business require permission of majority of other partners – outside of ordinary course of business require unanimous permission

Duty of Loyalty

Duty of Care (to act in best interests of the partnership)

Duty of Good Faith and Fair Dealing

Duty to Keep Correct Records

Question 3

Rights of General Partners

Answer 3

Management – all partners have the equal right to participate in management and control of partnership (unless specified differently)

Distribution – each partner is entitled to equal share in profits and must contribute to losses in proportion to their share

Interest – partners may transfer their interest to others (the others are only entitled to distribution – transferor retains rights and duties)

Indemnification – partners are entitled to indemnification for their payments and obligations reasonably incurred for the business

No right to remuneration (money paid for their work or services) unless 1) agreed differently; or 2) services regarding winding up the business

Question 4

Liability of General Partners

Answer 4

Partners are liable for all contracts entered into by partner within scope of partnership or authority and torts committed within scope of partnership

Joint and Several Liability for them all (new partner not liable for anything that occurred before he joined)

Question 5

Termination/Dissolution/Disassociation of General Partnership

Answer 5

General partners have power to disassociate or dissolve the GP at any time

Disassociate at any time with notice by: 1) express will; 2) occurrence of agreed upon event; 3) expulsion; 4) incapacity or death

Dissolution occurs upon: 1) disassociation of a partner; 2) occurrence of agreed upon event; 3) business becomes unlawful; 4) judicial dissolution

Once dissolved, the company must be wound up before termination

Question 6

Limited Partnerships

Answer 6

Require formation by at least one general partner and one limited partner

Requires filing of certificate of limited partnership with sec. of state

Limited partners have no fiduciary duties and no personal liability beyond contribution unless a 3rd party reasonably believes the limited partner is a general partner

Limited partners have no control over how the business is managed

Limited partners have right to inspect and copy LP records

Dissolution – occurs upon: 1) occurrence of agreed upon event; 2) consent of all GPs and LPs who have majority interest)