Partnerships

Question 1

Creation of a Partnership

Priority: High

Answer 1

A general partnership is the default legal entity for all businesses where:
1. two or more co-owners; and
2. intend to carry on a business for profit

A person who recieves a share of the profits is presumed to be a partner unless profits are:
1. payment of debt;
2. wages;
3. rent;
4. retirement benefit;
5. interest/loan charges; or
6. sale of the goodwill

• Joint venture is not a partnership (non owners)
• Common Ownership is not a partnership (no intent)

Question 2

Authority to Bind Partnership

Priority: High

Answer 2

All partners are considered agents of the partnership. When the partnership agreement is silent, all partners have the actual authority to bind the partnership to usual and customary matters and those reasonably incidental or necessary, unless that partner knows:
1. other partners might disagree
2. consultation with other partners would be expected/appropriate

For ordinary acts, the majority of partners must agree. For extrodinary acts, the partners must be unanimous.

• Partnership agreements can modify these presumptions

Question 3

Personal Liability of General Partners

Priority: High

Answer 3

General partners are jointly and severally liable for all obligations of the partnership undertaken while they are a partner.

A general partner may seek contribution from unsued partners for liabilities sustained beyond his share.

• New partners are not liable for prior obligations beyond their capital contribution to the partnership.
• Generally must exhaust all partnership assets before attaching to partner’s personal assets.
• Must get a judgement against each individual partner that you want to get personal assets from.

Question 4

Duty of Care

Priority: High

Answer 4

A partner owes a limited fiduciary duty of care to the partnership and other partners. A partner is only in breach of this duty if:
1. grossly negligent or recless conduct;
2. intentional misconduct; or
3. knowing violation of the law

Question 5

Priority: HighDuty of Loyalty

Priority: High

Answer 5

Partners owe a fiduciary duty of loyalty to the partnership and other partners, which requires them to act in the best interest of the partnership. This duty includes:
1. accounting for any profit obtained from the partnership
2. not having a conflict of interest
3. not competing with the partnership

Duty of loyalty errors are cured by:
1. partner full disclosure
2. partnership agreement is amended or partners otherwise consent to the transaction.

• Breach of the duty of loyalty could leave the partner personally liable to the partnership for losses suffered as a result

Question 6

Withdrawl of a Partner

Priority: High

Answer 6

A partner may withdrawl at any time, unless otherwise provided in the partnership agreement. Dissassociation of the partner will be deemed wrongful if there is a breach of an express provision of the partnership agreement or withdraws before agreed upon term.

Common Reasons for Withdrawl
* express will
* triggering event/date
* expulsion by agreement or unanimous vote
* judicial expulsion
* bankruptcy
* incapacity or death
* appointment of a personal representative or reciever
* termination of an equity organizational partner

Question 7

Dissolution of a General Partnership

Priority: High

Answer 7

A partnership may be dissolved at any time. A dissolved partnership enters a windup phase where partner’s rights, duties, and power continue. The partnership is terminated when the windup process is complete.

Common Reasons for Dissolution of Partnership
* express will
* event agreed to in the partnership
* partnership activities become unlawful
* judicial dissolution on application of a partner or transferee