Partnerships Flashcards
A Partnership is…
An association of two or more persons’
To carry on as co-owners of a business;
For Profit
Does the association have to be in a contract?
The associations between or among partners must be Voluntary, although it does Not need to be with the Knowledge or Intent to form a partnership. The association does not need to be in the form of a contract. (Ace33)
Does the ‘persons’ in a Partnership have to be individuals?
No. The association may involve any two entities that are considered “persons” under law.
Features that are indications of a General Partnership
-Partnership cannot be another entity such as an LLC
-Owners generally make some contribution to the P-ship
-Generally share in the profits
-Jointly share in the management , but equal votes or control is not necessary
-Others can be hired that are not hired as partners (associates)
Does joint ownership definitely mean a partnership exists?
No. Joint ownership ALONE dies Not automatically mean that a partnership exists. (Acing34)
Is the sharing of gross returns an indication that a partnership exists?
No. Neither sharing gross returns nor giving capital to an enterprise, independently, is sufficient to create a partnership. (Ace34)
Prima Facie + Sharing of Profits
Sharing of profits in a business is prima facie evidence that a partnership exists, Except where those profits are received as (a) debt service, (b) wages, (c) rent, (d) annuity. (Ace34)
What are the Elements of a Partnership?
2+ people
-intent to carry on
-as co-owners
-of a business
-to make a profit
When is money shared between two people Not a sign of the evidence of a Partnership?
Repayment of a debt, interest on a loan, payment of rent.
What features might be present, but do not necessarily create a Partnership?
-Joint ownership alone does NOT automatically mean that a partnership exits.
-Neither sharing gross returns no giving capital to an enterprise, independently is sufficient to create a Partnership.
-Sharing profits in a business is prima facie evidence that a partnership exists, EXCEPT where those profits are received as (a) a debt service, (b) wages, (c) rent, (d) annuity.
Note: that a prima facie evidence creates a rebuttable presumption, not a conclusive presumption. (Ace34)
How do you measure the value of a Partnership capital account?
Money contributed as an investment + the fair share market value of property contributed + the share of income - the amount of losses - the amount of distributions = the partners capital investment. (Aud)
When is unanimity of the partners required?
In cases where there is an act outside the course of the business of a Partnership or amendment to the Partnership agreement, consent of very sing partner is required.
Ex. Assignment of Partnership property in trust for creditors. (Aud)
What question should you ask to evaluate whether a Partnership exists/
“Is it the intent of the parties to carry on as co-owners, a definite business”? (Ace 34)
Characteristics of a Partnership
-A Partnership cannot be another entity, like a corp, or LLC
-Owners generally make some contribution that is not necessarily money
- Share in profits of the business
- Share in the risk of financial loss
- Jointly share in management ** But equal votes or control is not necessary!
- Associates can be hired. (Ace 34)
Issuer Responsibility
If you are the issuer, you have strict liability for anything misleading (whether because of omission or mis-statement) in the registration statement.
Others = Negligence standard.
