Partnerships Flashcards
Gernal Partnership
A general partnership is a type of business structure in which two or more individuals (referred to as “partners”) come together to start and run a business. Each partner contributes resources (such as money, property, or skills) to the partnership and shares in the profits and losses of the business.
One of the main characteristics of a general partnership is that all partners have equal authority to manage the business and make decisions on behalf of the partnership. Each partner is responsible for the actions of the other partners in relation to the business, and the actions of one partner can legally bind the entire partnership.
In addition, each partner is personally liable for the debts and obligations of the partnership. This means that if the partnership is sued or cannot pay its debts, the partners’ personal assets may be used to satisfy the partnership’s obligations.
General partnerships are typically easy and inexpensive to form, and they do not require any formal paperwork or government filings. However, it is always a good idea for partners to create a partnership agreement that outlines the terms of their partnership, including each partner’s responsibilities, profit and loss distribution, decision-making process, and procedures for adding or removing partners.
Overall, general partnerships are a popular choice for small businesses and professional practices that want to combine resources and expertise. However, it is important for partners to understand the potential risks and liabilities associated with this business structure before entering into a partnership.
Gernal Partnership
Partnership Financial Structure
In a general partnership, the partners usually contribute capital to the business in proportion to their ownership interest or partnership agreement. This capital can be in the form of cash, property, or other assets that the partners bring into the partnership.
The partnership’s profits and losses are shared among the partners according to their agreed-upon ownership interest or partnership agreement. Each partner’s share of the profits or losses is calculated based on their contribution to the partnership.
The partnership agreement also determines how the partners will be compensated for their work in the business. Partners can receive a salary or other forms of compensation for the services they provide to the partnership. However, any compensation paid to partners is considered an expense of the partnership and reduces the overall profits available for distribution.
Additionally, partners in a general partnership are personally liable for the debts and obligations of the partnership. This means that each partner’s personal assets can be used to satisfy the partnership’s debts if the business cannot pay its creditors.
It’s important to note that a general partnership is not a separate legal entity from its owners, so the partnership itself does not pay taxes. Instead, the partnership’s profits and losses are reported on the partners’ individual tax returns, and each partner pays taxes on their share of the partnership’s profits.
In a general partnership, the financial structure is relatively simple. Each partner contributes capital, which is the money or assets that the partner puts into the business, and this capital is used to fund the operations of the partnership.
The profits and losses of the partnership are then allocated among the partners according to the partnership agreement, which outlines how the profits and losses will be divided.
In terms of liability, each partner is personally liable for the debts and obligations of the partnership, which means that their personal assets can be used to satisfy any debts or legal claims against the partnership.
Overall, the financial structure of a general partnership is based on the contributions of each partner and the allocation of profits and losses among the partners.
A partner’s individual creditor may not execute upon the partnership’s property to satisfy the partner’s personal debt or obligation. Rather, the only time that a partner’s individual creditor may execute upon the partnership’s property at all is if both: (1) the creditor is also a creditor of the partnership, and (2) the underlying obligation is a partnership obligation.
Partnership Fiduciary Duties
In a general partnership, each partner owes certain fiduciary duties to the other partners and to the partnership itself. These duties are based on the legal principle of “fiduciary duty,” which requires partners to act in the best interests of the partnership and its partners.
The main fiduciary duties of partners in a general partnership include:
Duty of Loyalty: Partners have a duty to act in good faith and with loyalty to the partnership and its other partners. This means that a partner must not engage in any activity that conflicts with the partnership’s interests, or compete with the partnership without the consent of the other partners.
Duty of Care: Partners have a duty to use reasonable care and skill in managing the partnership’s affairs. This includes making informed decisions, keeping accurate records, and seeking professional advice when necessary.
Duty of Disclosure: Partners have a duty to disclose all material information that could affect the partnership’s affairs to the other partners. This includes disclosing any conflicts of interest or personal interests that may conflict with the partnership’s interests.
Duty of Good Faith and Fair Dealing: Partners have a duty to act in good faith and deal fairly with each other in all partnership matters. This includes avoiding any conduct that would be considered unfair or oppressive to the other partners.
These fiduciary duties are intended to ensure that each partner acts in the best interests of the partnership and its partners, and that they are accountable to each other for their actions. Partners who breach their fiduciary duties can be held liable for any damages caused by their actions, and may also be subject to legal action by the other partners or the partnership itself.
Also, remeber a partneship maybe dissolved upon notice by any partner when there there is no definite term set for the partnship.
Explusion
Expulsion is a legal process in corporate law that involves the removal of a partner from a partnership. This typically occurs when one partner has violated the partnership agreement, engaged in wrongful conduct, or breached their fiduciary duties to the partnership.
The fiduciary duties of partners include a duty of loyalty, a duty of care, and a duty of good faith and fair dealing. Partners owe these duties to each other and to the partnership as a whole. Breaching these duties can lead to expulsion, as well as other legal consequences.
Expulsion can be initiated by the other partners in the partnership, usually by following the procedures set out in the partnership agreement. The reasons for the expulsion must be clearly stated and documented, and the expelled partner must be given the opportunity to defend themselves.
Whether expulsion constitutes a breach of fiduciary duty depends on the circumstances. If the expulsion was based on discriminatory or retaliatory grounds, or if the procedures were not followed correctly, then it may constitute a breach of fiduciary duty. However, if the expulsion was based on legitimate reasons and conducted in accordance with the partnership agreement and the law, then it would not constitute a breach of fiduciary duty.
Overall, partners in a partnership must act in good faith and adhere to their fiduciary duties to avoid situations that may lead to expulsion. It is important to consult with legal counsel if there are any concerns about potential breaches of fiduciary duty or the expulsion process.
Please explain the phases when a partnership ends
There are typically three phases when a partnership ends in corporate law: dissolution, winding up, and termination.
Dissolution: This phase marks the end of the partnership’s business activities. It occurs when a partner decides to leave the partnership, dies, or if the partnership agreement specifies a certain end date or purpose for the partnership. Dissolution can also be triggered by a court order or a mutual agreement among the partners.
Winding Up: This phase involves the process of settling the partnership’s debts and obligations. The partnership’s assets are sold or distributed to the partners, and any outstanding debts or liabilities are paid off. The partnership may also file its final tax returns and pay any taxes owed.
Termination: This phase occurs when all debts and obligations have been settled and all assets have been distributed to the partners. At this point, the partnership officially comes to an end.
It’s important to note that the phases of ending a partnership may differ depending on the jurisdiction and the terms of the partnership agreement.
Limited partnership
A limited partnership is a type of business structure where there are two types of partners involved - general partners and limited partners. General partners are responsible for running the business on a day-to-day basis and are personally liable for the company’s debts and obligations. On the other hand, limited partners are passive investors who do not participate in the management of the business and are only liable for the amount of money they have invested.
Limited partnerships are commonly used in investment scenarios where the limited partners provide the capital while the general partners manage the investments. This allows the limited partners to reap the benefits of the investment without getting involved in the management of the business, while the general partner assumes the management responsibility and risks.
The terms and conditions of a limited partnership are typically laid out in a partnership agreement. In addition to the partnership agreement, limited partnerships must also adhere to the laws and regulations governing partnerships in their state and country.
LLP
- A limited liability partnership (LLP) is a type of partnership where the partners have limited liability for the debts and actions of the partnership. This means that if the partnership is sued or can’t pay its debts, the partners’ personal assets are generally protected, and they can’t be held personally liable.
- In an LLP, partners share profits and losses, and each partner has a say in the management of the business. However, unlike a general partnership, each partner’s personal assets are protected from the business’s liabilities, meaning that they are not personally responsible for the debts and obligations of the partnership.
3.In an LLP, the partners typically have more flexibility in how they manage and operate the business compared to a traditional partnership. For example, partners may have different levels of involvement in day-to-day operations, and they may also have different levels of authority and decision-making power.
- One important thing to note is that while partners in an LLP have limited liability protection, they may still be held personally liable for their own negligent or wrongful actions.
What is the difference of LP v. LLP
- In an LLP, all partners have limited liability for the actions of other partners. This means that each partner is not personally liable for the debts and obligations of the LLP, including the malpractice of other partners, except to the extent of their own negligence or wrongful acts. This structure is commonly used in professional services firms, such as law or accounting firms.
- in an LLP, all partners have limited liability for the partnership’s debts and obligations. This means that each partner’s personal assets are protected from the partnership’s liabilities, and they are only liable for the partnership’s debts to the extent of their investment in the partnership. Additionally, unlike in an LP, all partners in an LLP have the ability to participate in the management of the partnership.
- In contrast, a Limited Partnership (LP) consists of one or more general partners who manage the business and are personally liable for the debts and obligations of the partnership, and one or more limited partners who invest in the partnership but have limited liability for the debts and obligations of the partnership. Limited partners are typically not involved in the day-to-day management of the business and their liability is limited to the amount of their investment in the partnership.
The owners of a limited liability company are typically referred to as:
Members
