Partnerships Flashcards
What is a general partnership?
An association of 2 or more persons to carry on as co-owners a business for profit.
**no formalities, subjective intent irrelevant
Do you need a written agreement to form a general partnership?
No, but the SOF may require (ie. if for more than 1 year).
Profit sharing in a general partnership creates
a presumption of partnership, unless the profits are for: payment of a debt, rent, wages for services.
What is a partnership by estoppel?
When no partnership is formed in fact, persons can be liable as partners to protect reasonable reliance by third parties.
All partners have ________ rights and ________ votes in a general partnership.
Equal
General partners owe the fiduciary duties of:
- Loyalty - to the partnership and partners
- account for benefits, not adverse, not compete
- Care - refrain from gross negligence, recklessness, intentional misconduct, knowing violations of the law (negligent behavior is excused)
- Disclosure - provide complete and accurate information regarding the partnership
- Obedience
A partner can unilaterally transfer his or her _________ rights in the general partnership.
Financial rights, NOT management rights.
Property purchased with general partnership funds is presumed to belong to. . .
The partnership
A new partner must get the consent of ________ the existing partners.
All
T/F: A partner is liable to the general partnership for damages caused by wrongful dissociation.
True
Partners are ____________ for all general partnership obligations?
Jointly and severally liable
The plaintiff must exhaust the partnership resources before seeking to collect individual partner’s assets. A partner is entitled to indemnification.
An express dissociation from a general partnership at will causes. . .
The partnership to dissolve.
A general partnership _________ after dissolution until it is wound up.
Continues
And partners retain the apparent authority to bind the partnership to third parties on new business even after the an event requiring winding up.
A limited partnership has
at least one general partner and one limited partner.
Decisions within the ordinary courses of business require a __________ vote.
Majority
Decisions outside of the ordinary course of business require _________ vote.
Unanimous
General partner’s financial rights (in general partnership)
To share in profits and losses
- profits are shared equally among partners by number (default)
- losses are shared the same as profits
Partner’s tort liability to third parties (in general partnership)
Partnership is liable for loss/injury caused to a person as a result of tortious conduct of a partner/employee acting in the ordinary course of the business of the partnership or with the authority of the partnership
Partner’s contract liability to third parties (in general partnership)
Partnership is liable for all contracts entered into by a partner in the scope of the partnership with actual or apparent authority.
- Actual: partnership agreement, vote, statement of partnership authority
- Apparent: a partner is an agent of the partnership and can bind the partnership within the ordinary course of partnership business
Can the duties of loyalty and care be eliminated in a general partnership?
No.
Dissociation in a general partnership occurs when
a partner withdraws.
Can occur by express notice, the happening of an event, expulsion, partner’s bankruptcy, or partner’s death/incapacity.
When does wrongful dissociation occur (in a general partnership)?
When a partner dissociates in breach of express terms of the partnership agreement.
In a term partnership, dissocation occurs if the partner withdraws, is expelled, or bankrupt before the agreed end.
What are the consequences of dissociation in a general partnership?
- Partnership is dissolved and liquidated
- Partnership continues and the dissociated partner entitled to a buyout of interest
A dissociated general partner remains liable for pre-dissociated partnership obligations and post-dissociation liabilities within ________.
2 years
When does dissolution occur in a general partnership?
- Partner dissociates by express will in an at will partnership
- One partner dissociates wrongfully or by death/bankruptcy in a term partnership AND ½ of the remaining partners agree to dissolve within 90 days of dissociation
Priority of general partnership assets in dissolution
Creditors (outside and inside) → capital contributions → profits and losses
How is a limited partnership formed?
by filing a certification of formation with the Secretary of State
Include: the name of the partnership, name and address of an agent for service, and the name and address of each general partner.
How is a limited partnership managed?
By the general partners. Each have equal rights.
Limited partners have no management rights.
What are the financial rights in a limited partnership?
Distributions are made on the basis of partner’s contributions.
Who is liable in a limited partnership?
General partners are jointly and severally liable.
Limited partners can only lose the value of their investment.
What fiduciary duties are owed in a limited partnership?
- General partners: duties of loyalty and care
- Limited partners: none
What is a limited liability partnership?
A general partnership where all partners have limited liability.
Formation: file a statement of qualification with the Secretary of State.
How is a limited liability company formed?
By filing a certificate of organization with the Secretary of State that states: the name and address of the LLC, the name and address of a registered agent.
What are the options for LLC management?
- member-managed: managed by all members
- manager-managed: managed by outside managers
Each member/manager has equal rights.
How are profits and losses distributed in an LLC?
Based on contributions.
Are LLC members personally liable?
No.
What fiduciary duties are owed in an LLC?
Members/managers owe to the LLC AND members:
- Duty of care
- business judgment rule applies
- Duty of loyalty
When do dissociation and dissolution occur in an LLC?
- dissociation: at any time by express withdrawal
- dissolution: by an event. stated in the operating agreement, by consent of all members, or after 90 days with no members.
