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Business Associations > Partnerships > Flashcards

Partnerships Flashcards

1
Q

General Partnership Formation

A

No filing requirements.

Each partner has managerial control, and is subject to unlimited personal liability.

It is a factual inquiry.

Elements of partnership:

J.C.

  1. Joint Intent

Intent of each person to form a partnership, needs to be verbalized OR reduced to writing.
intend to carry on as co-owners of a business for-profit.

  1. Co-ownership

Sharing of profits and losses as well as power of control in management of the business.

(note if the profit was just payment for debt or like service, it doesn’t count.)

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2
Q

General Partnership Profit and Losses

A

Profits and losses are shared equally among partners, regardless of capital contribution.

However, dissolution is when things are not necessarily equal.

A person who receives a share of the profits, is presumed to be a partner.

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3
Q

Partnership Assets

A

Property acquired by the partnership is property of the partnership.

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4
Q

Power of Partners in Partnerships

A

Each partner is an agent of the partnership. In terms of binding power, need to apply agency law principles. Each partner has apparent authority.

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5
Q

Within the scope of partnership business meaning

A

G.A.S.

Elements:

  1. Conduct is of General nature he is employed to perform;
  2. At least in part, by a purpose to serve the employer.
  3. within Spacial and temporal limits of employment (frolic and detour)
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6
Q

Disagreement between partners

A

When a disagreement arises between partners as to a matter within the ordinary course of business, the issue may be decided by a majority of the partners.

Note: when deciding fundamental matters such as amending the partnership agreement, need unanimous consent from the partners. (this unanimity requirement may changed, however).

(Also need unanimity for taking on new partners.)

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7
Q

Partnership agreements.

A

Partnerships are governed by a set of default rules. When a partnership agreement exists, the agreement supersedes the default rules, except those that are immutable.

CANNOT modify the duty of good faith and fair dealing, if modification is manifestly unreasonable. See RUPA 105(c) 17/6/5 for the rest.

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8
Q

Partner’s Duty of Loyalty

A

A partner may not compete with the partnership and/or adversely deal with the partnership.

Also should inform fellow partners of material facts.

can’t take away opportunities from other partners or the partnership.

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9
Q

Partner’s Duty of Care

A

Partner should not engage in grossly negligent or reckless conduct.

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10
Q

Partnership Dissolution

A

Occurs when the partnership is dissolved and business is terminated.

Dissolution can occur when:

  1. a partner informs the other partner(s) that the partnership is over;
  2. upon the happening of an agreed upon event; OR
  3. by judicial decree (RUPA 801)

See RUPA 801.

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11
Q

Partnership dissociation

A

Occurs when a partner ceases to be a co-owner.

May result in either:

  1. mandatory buy-out; or
  2. mandatory dissolution

Note: it is smarter for the partnership to get a life-insurance policy on a partner incase of death.

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12
Q

Dissociation Causes

A
  1. Partner can dissociate rightfully or wrongfully at ANY TIME.
  2. Upon happening of event stated in agreement.
  3. Partner expelled.
  4. Partner bankrupt.
  5. Partner Dead.

See (601.)

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13
Q

Wrongful Dissociation

A

Occurs when:

RUPA 602

dissociation is:

  • in breach of provision of partnership;
  • before end/completion of a term partnership.
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14
Q

Partnership dissolution vs. dissociation

A

Dissociation occurs when a partner withdraws, but the partnership continues.

Wrongful dissociation: When this happens the dissociated partner is liable for damages and may not participate in the winding up of the partnership.

Dissociation may result in:

mandatory buy-out OR mandatory dissolution.

Note: you cannot modify someone’s right to withdraw

Note: the partner may be liable for costs the partnership incurs after disassociation if the third party reasonable believes they are a partner. RUPA 703(b)(2)(b)

Dissolution is when the partnership end. See RUPA 801.

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15
Q

What happens when a partnership dissolution occurs. I.e., what is the order of debt payment?

A

Upon dissolution, partnership debts will be paid in the following order:

  1. Creditors are paid first;
  2. Surplus will than go to reimburse partners for any capital contributions;
  3. Remainder, which indicates the partnership was profitable, will then be split amongst partners equally.

Note: new partners are not personally liable for any preexisting debts, unless partnership agreements requires this of the partner.

Note: Services are not considered capital contributions, upon dissolution.

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16
Q

Partner Buyouts?

A

Occurs when a partner (disassociates) from a law firm in a way that that does not cause dissolution.

According to default rule, the partnership must make a buyout price according to disassociating price.

17
Q

Personal Liability of a Partner

A

In a general partnership, each partner is subject to “unlimited” joint and several personal liability for all debts and obligations incurred by the partnership.

Additionally, the partnership is personally liable.

RUPA 306

18
Q

Partner vicarious liability

A

Partnership is liable for torts committed by partner or employee acting in “ordinary course” of partnership business. in General partnership.

Note: In a LLP, a partner cannot be personally liable for acts of other partners even if they were in the course of ordinary business.

19
Q

Order of judgment preference in partnerships.

A

The partnership is first primarily liable.

If partnership ran out of assets, then judgement may be enforced against a partner personally. In other words, a creditor must exhaust the assets of the partnership before going after the partners personally.

RUPA 307

Note: If an “innocent” partner ends up paying for the wrongdoing of another partner, that partner may seek indemnification from either the partnership or the partner who is primarily responsible for the harm.

20
Q

Limited Liability Partnerships (LLPs)

A

Consists of:

a General Partner – has complete control over the business, manages the enterprise, and is subject to full liability. GPs owe partnership fiduciary duties.

a Limited Partner – has limited liability and usually very little managerial control.

21
Q

Limited Liability Partnerships (LLPs) filing Requirements?

A

Need a statement of qualification with the secretary of state.

22
Q

Qualities of Limited Liability Partnerships (LLPs)?

A

LLPs enable LPs to invest and share in the profits, without taking on personal liability for the partnership debts.

The partnership is still liable.

23
Q

Limited Partner Qualities

A
  1. Interests are freely transferrable.
  2. Limited partners have no management rights.
  3. Limited partners’ liability is limited to the amount of their investment.
  4. No agent partnerships

No personal liability.

However, the personal liability shield may be pierced if there are facts to show that the LP started controlling the business like a GP.

24
Q

Main differences between GPs and LLPs

A

LLPs must be filed with the secretary of state.

and there is a shield of limited liability in LLPs

25
Q

Joint Venture?

A

A joint venture is formed to carry out a particular venture, which dissolves upon completion.

No formal requirements for formation.

26
Q

Limited Liability Companies? (LLCs)

A

All members in LLCs have a shield limited liability.

Benefits: Has protection of corporation and the tax advantage of a partnership.

Requires formal filing with the secretary of state.

27
Q

Partnership taxes rule

A

The partnership doesn’t pay taxes, only the partners.

28
Q

Sole Proprietorship?

A

Business that has 1 owner. Owner gets all the profit and is liable for all debts of business.

29
Q

Partner allocation v. distribution

A

Allocation: profits are allocated to each partner equally, unless agreement says otherwise.

     allocations must be reported as income, therefore, parters pay taxes for allocations even if they don't receive it as a distribution.

Distribution: each partner is entitled to equal share of partnership. This is the portion that a partner actually receives in cash.

30
Q

Transferring / Selling your partnership interest?

A

You can transfer your financial interest (share of profits/losses AND right to receive dist.), but not your managerial interest. I.e., the transferee (the new partner) will get a right to the profit/loss but cant make business decisions.

Note: By default, adding a new partner requires unanimity.

31
Q

Partnership Agreements – Duty of Good Faith and Fair Dealing?

A

You may not modify the duty of good faith and fair dealing if the modification is manifestly unreasonable.

RUPA 105(c)

32
Q

Types of Partnerships

A

At will Partnership – Partnership term is indefinite.

Term Partnership – Partnership limited to certain amount of time.

33
Q

Exhaustion Rule

A

Partnership creditor may not levy on assets of partners until:

  1. assets of Partnership are exhausted; AND
  2. creditor obtains a judgment against the PARTNER.

Business Associations (4 decks)

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