Partnerships

Question 1

definition of partnership

Answer 1

partnership: an association of two or more legal persons who carry on a for profit business as co-owners.
* legal person = anyone with legal capacity
* co-owners = if share profits, there is a presumption of co-ownership. look for share of control
* NO need to intend to form a partnership

Question 2

are partnerships a separate legal entity?

Answer 2

yes. partnerships can hold property and sue and be sued in its own name.

Question 3

are partners within a partnership personally liable for the partnership’s obligations?

Answer 3

Yes. There is no limited liability (unlike a corporation)

Question 4

do partnerships have entity level taxation?

Answer 4

No. There is no entity level taxation (unlike a corporation)

Question 5

What general principal determines the law of partnerships?

Answer 5

The partnership agreement is the law of partnerships.

Question 6

Do partnership agreements have to be written?

Answer 6

No.

Question 7

What governs a partnership if there is no partnership agreement?

Answer 7

state law default rules

Question 8

What is mandatory state law relating to partnerships (aka that can’t be modified by a partnership agreement)?

Answer 8

• liability to third parties (or personal liability)
• can’t deny partners access to books and records
• fiduciary duties cannot be eliminated

Question 9

who do partners owe fiduciary duties to?

Answer 9

the partnership only (not to prospective or past partners)

Question 10

What fiduciary duties do partners owe?

Answer 10

• duty of loyalty AND
• duty of care

Question 11

duty of loyalty

Answer 11

partners must not
* compete with the partnership business
* advance an interest that is adverse to the partnership
* usurp a partnership opportunity

Question 12

what limitations can a partnership put on the duty of loyalty?

Answer 12

• cannot elimiate the duty of loyalty
• can limit the duty of loyalty by describing it differently, as long as it is not manifestly unreasonable

Question 13

What is a safe harbor from the duty of loyalty?

Answer 13

If partner makes full disclosure of all material facts, then a certain percentage of the other partners (determined by the partnership agreement) may authorize or ratify the transaction.

Question 14

duty of care

Answer 14

partners must not
* engage in grossly negligent or reckless conduct
* engage in intentional misconduct
* engage in a knowing violation of the law
the partnership agreement may not unreasonably reduce the duty of care