Partnerships Flashcards
Definition of partnership
A general partnership is an association of two or more persons to carry on a for-profit business as co-owners. To form a general partnership, at least two persons must intend to carry on a business for profit as co-owners but it is not necessary that they specifically intent to form a general partnership. Individuals can inadvertently form a general partnership unless they express their intention to do something else. Their subjective intent is irrelevant.
Profits sharing test - payment of debt
Partnership does not exist between parties when one receives profits in payment of a debt
How do you get to a partner’s personal assets?
must first obtain a judgment against the partner individually and against the partnership. These judgments can be sought in the same action. Unless there is a judgment against the partner, a judgment against a partnership cannot be satisfied from a partner’s assets, only the partnership’s assets. If a claimant first obtains a judgment against the partner individually and the partnership, the claimant generally must exhaust the partnership’s assets before levying on the partner’s personal assets.
New partner liability
New partners are not personally liable for any prior partnership obligations. BUT!!! Any CAPITAL CONTRIBUTION made by an incoming partner is at risk for the satisfaction of partnership debts
When can a partner bind the partnership to a K?
When they act with actual or apparent authority
How does a partnership escape liability for K?
Actual authority: no escape
Apparent authority: third party knows partner doesn’t have actual authority
When can a partner sue another partner? When can a partner sue the partnership?
Partner v. Partner - breach of partnership agreement or breach of care or loyalty.
Partner v. Partnership - enforce partner’s rights under UPA
What happens if a partner wrongfully dissociates from the partnership?
That partner is liable to the partnership and the other partners for damages caused by the dissociation. Doesn’t get to participate in management, conduct partnership business, or participate in winding up
Effects of wrongful dissociation on partnership
Dissociation might dissolve a partnership (doesn’t have to).
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 of proper dissociation on partner
Can trigger dissolution (look for partnership agreement)
Partner is not liable for damages and can participate in dissolution and winding up
Effects of proper dissociation on partnership
Partnership either dissolves or can choose to carry on.
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
Partnerships are not officially terminated until the business is wound up.
Post-dissolution: each partner is liable to the others for their share of partnership liability incurred by post-dissolution acts. Apparent authority to bind the partnership lingers for up to two years.
Transfer of partnership interest
Partner has a transferable interest - can xfer the right to share profits/losses and receive dist.
Rights to books and records (transferee)
A partnership must provide its partners and their agents with access to all its records, however 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.
GP –> LLP
File statement of qualification to transform. Partner liability eliminated.
Conversion from GP to LLP must be approved by _____ of the partners.
All
A general partner who becomes a limited partner as a consequence of a conversion is _________ for any obligation incurred by the partnership before the conversion.
liable
Requirements for limited partnership
2+ people, 1 general partner and 1 limited partner.
File certificate with the state, w/ name + address + signature of general partners.
Partner-authority rule statement
A partner is an agent of the partnership for the purpose of its business and can contractually bind the partnership when the partner acts with either actual or apparent authority.
partnership at will rule statement
A partnership at will is an open-ended partnership that does not have a fixed termination based on a period of time or particular undertaking. It is dissolved when a partner chooses to dissociate from the partnership by giving notice of his withdrawal. Any partner who has not wrongfully dissociated may participate in winding up the partnership’s business. He may also may dispose of and transfer partnership property and may discharge the partnership’s liabilities.
getting to partner’s assets - rule statment
A partnership is an association of two or more persons to carry on a for-profit business as co-owners. 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.
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.
