Partnerships Flashcards
Define partnership
An association of two or more persons to carry on a for-profit business as co-owners.
Is a writing required to form a partnership?
No, but the partnership agreement is subject to the statute of frauds because it is a contract that cannot be performed within one year.
What is the key test to ascertain whether a business arrangement is a partnership?
Whether there is a sharing of profits from the business.
When does profit sharing NOT create a presumption of a partnership?
- Debt payments
- Interest or loan charges
- Rent
- Wages
- Goodwill payments from the sale of the business
- Annuities or other retirement health benefits
Partner by Estoppel
(a) there is a representation that a person is a partner in a partnership;
(b) the person makes or consents to the representation;
(c) a third party reasonably relied on the representation; and
(d) the third party suffered damages as a result of that reliance
If a person is found to be a Partner by Estoppel, is liability imposed?
Yes, liability is imposed as if the purported partner were a partner.
A partner is an _________________ of the partnership.
Agent
What duties does a partner owe to the partnership?
Duty of loyalty, and duty of care.
Under the duty of loyalty, a partner is required to refrain from:
(a) competing with the partnership business;
(b) advancing an interest adverse to the partnership; and
(c) usurping a partnership opportunity, or using partnership property for personal benefit, without notifying the partnership.
Under the duty of care, a partner is required to refrain from:
engaging in grossly negligence or reckless conduct, intentional misconduct, or a knowing violation of the law.
Does a partner have an obligation of good faith and fair dealing?
Yes.
Must profits and losses be shared equally among partners?
Not if the agreement states otherwise. If the agreement is silent, then the partners share equally in the profits and losses.
Can a partner demand a distribution of profits?
No, but she is entitled to have her account credited with a share of the profits.
Does the transfer of a partner’s interest to a third party trigger the partner’s dissociation from the partnership?
No. The partner retains all rights and duties of a partner, the interest in the distributions just goes to the third party.
What are the transferee’s rights when a partnership interest in transferred to a third party?
- right to receive distributions;
- to seek a judicial order for dissolution; and
- to an accounting upon dissolution
- NOTE: No right to participate in management or demand information.
