Partnerships

Question 1

What is a partnership?

Answer 1

An association of two or more persons (including trusts and businesses) to carry on as co-owners of a business for profit.

Question 2

What governs partnerships?

Answer 2

The Revised Uniform Partnership Act (RUPA), which provides a default set of rules for general partnerships.

Contract and agency rules apply.

Question 3

What are the requirements of a partnership?

Answer 3

1. No writing is required; intent can be implied
2. Anyone capable of entering a binding K can enter into a partnership
3. Partnership must NOT have illegal purpose
4. No one can become a partner without the consent of ALL others

Question 4

What are the factors showing the creation of an implied partnership?

Answer 4

1. Intent of the parties
2. Sharing of profits raises presumption of partnership (unless paid to service debt, rent, loans, etc…)

Question 5

What serves as evidence that a partnership has formed?

Answer 5

1. Title to property held in joint tenancy or tenancy in common
2. Parties designate their relationship as a partnership
3. Venture requires extensive activity
4. Sharing of gross returns

Question 6

What are the factors for determining whether property belongs in a partnership?

For real and personal titled property, apply RUPA

Answer 6

1. Property belongs to partnership if title is (a) in P-name; OR (b) conveyance instrument acknowledges partnership
2. Property presumed partnership IF purchased w/ P-funds
3. Property presumed separate if: (a) prop held in name of partner; (b) instrument doesn’t acknowledge P; (c) P-funds NOT used

Question 7

What are the factors for determining whether property belongs in a partnership re: untitled property?

Answer 7

For untitled property, apply common law factors:

1. Used P-funds
2. Use of property by P
3. Listed in P books as an asset
4. Close relationship between P and business
5. Improvement with P funds
6. Maintenance with P funds

Question 8

What are the partner’s rights in patnership property?

Answer 8

Partners are not co-owners of partnership property and have no transferrable interest in it

Partners have NO right to use the P property other than for benefit of Pship

Question 9

What are the rights of partners?

Answer 9

i. All partners have equal right to manage/control the partnership UNLESS a partnership agreement says otherwise
ii. All partners have an equal right to share in the profits and losses and receive distributions
iii. Partners are NOT entitled to renumeration except for rxable compensation for services rendered in winding up the partnership’s business
iv. Partnership MUST indemnify partners for payments rxably made and obligations rxably incurred by a partner in carrying on the business of the Partnership
v. If a partner must pay more than his fair share of the partnership’s debt, he is entitled to contribution from the other partners.
vi. All partners have the right to inspect the partnership books and records
vii. The partnership **may sue or be sued **in the P name or in the name of the individual Partners

Question 10

What are the duties of partners?

Answer 10

1. Duty of loyalty (must not compete with P or deal with P as adverse)
2. Duty of Care (must not be negligent, reckless, unlawful conduct
3. Duty of Obedience (must obey all rxable instructions of P; no acting outside scope of partner’s actual authority
4. Duty to Provide complete & accurate information

Question 11

What are the liabilities of partners?

Answer 11

1. An act of any partner binds the P, unless the partner had NO authority and the 3P knew/had notice that the partner lacked authority
2. Partners are liable on Ks made by co-partner in scope of P and on other Ks expressly authorized by partners
3. Partners liable for ANY torts committed by partner/employee of the P in the ordinary course of business

Question 12

What is dissociation of a partnership and its elements

Answer 12

Dissociation refers to an individual partner leaving the partnership.

Occurs when:
1. Partner gives notice of express will to withdraw
2. An agreed upon event happens (Like in K)
3. Expulsion of partner
4. Partner becoming bankrupt
5. Death of partner
OR
6. Court decree that partner incapable of performing duties

Question 13

What is dissolution and what are its elements?

Answer 13

Dissolution refers to the partnership being dissolved and its business being wound up

1. In Parnership at will–when partner gives notice of express will to withdraw
2. In partnership for definite term–when (1) w/in 90 days of partner’s death, bancrupcy, or wrongful dissociation at least half the remaining partners express will to end the business; (2) all partners express will to end business; OR term expires/undertaking complete
3. On happening of agreed upon event
4. Upon happening of event making P unlawful
5. Judicial decree

Question 14

What is a Limited Partnership?

Answer 14

A limited partnership is a type of partnership by operation of state law.

Governing law:
1. Uniform Limited Partnership Act (ULPA)
2. Need 1 or more GPs + at least one limited partner
3. Must file certificate of LP w/ S.O.S.

Partner’s Contribution
1. Partner has NO rights to distributions without having made a contribution
2. Contribution = any form of benefit to P (money, property, services, promises to do so, etc.)

Question 15

What are the liabilities of limited and general partners?

Answer 15

1. Limited Partners– NO personal liability for obligations of P
2. General Partners– GPs are joint and severally liable for ALL P obligations
   (a) GPs may also be LPs but still have all the liabilites/duties of a GP

Question 16

What are the duties of partners?

Answer 16

1. Limited Partners – owe NO fiduciary duty to P and are free to compete w/ P (unless K says no)
2. General Partners – owe fiduciary duties of care and loyalty.

Question 17

Rights of Both General and LPs

Answer 17

1. Both have right to distributions
2. Ps may transact business with LP
3. Any Partner may maintain derivative action on behalf of P if partner first makes demand on GPs or if demand futile
4. Any partner may apply for decree of dissolution

Question 18

Rights of GPs

Answer 18

1. Each GP has equal rights in mgmt
2. A GP has right in Ps business info
3. A GP not entitled to renumeration for services performed for the P
4. A GP is entitled to indemnification for liabilities incurred in ordinary course of P’s activties

Question 19

Rights of LPs

Answer 19

1. NO right to participate in mgmt, unless K says can
2. Right to inspect and copy P records

Question 20

How may an LP be dissolved or a partner dissociated?

Answer 20

[Same factors as partnership]

Question 21

How is an LLP formed?

Answer 21

1. Formation of LLP must be approved by a vote to amend P agreement to make it LLP
2. Requires registration with S.O.S. containing: (a) name/addy of P; (b) statement of election to be an LLP

Question 22

Liability of LL Partners

Answer 22

1. Ps NOT personally liable for P obligation
2. Ps remain personally liable for her own wrongful acts

Question 23

Rights/Obligations of LL Partners?

Answer 23

1. Profit/loss sharing and indemnity (identitcal to general partnership)
2. If P assets insufficient to indemnify a partner for an LLP obligation, **each partner forfeits right to receive contribution **in exchange for being relieved of obligation to contribute to the personal liability of other Ps

Question 24

How are LLCs governed/formed?

Answer 24

1. Most states follow Revised Uniform LLC Act (RULLCA)
2. LLCs taxed like a P, but members have limitewd liability–LLC treated as an entity distinct from members.
3. LLC formed by filing a cert. of organization with S.O.S.

Question 25

How are LLCs managed?

Answer 25

1. All members participate in mgmt except if K says otherwise
2. Each member of a member-managed LLC has authority to bind the company to Ks, unless member lacks actual authority and other party has notice of the same

Question 26

What are the duties of LLCs? (Member managed v. Manager managed)?

Answer 26

1. Member Managed–members owe duties of care and loyalty to each other and LLC; MUST discharge duties consistently with the K obligation of good faith and fair dealing
2. MANAGER-Managed– only managers subject to duties of care & loyalty; only members may authorize/ratify act by manager that would otherwise violate duty of loyalty.

Question 27

Piercing the LLC Veil

Answer 27

Court pierce the LLC veil to reach personal assets of members for same reasons as piercing a corporation.

Question 28

LLC Distribution rights are what?

Answer 28

Uniform act calls for equal share distributions unless K says otherwise

Most states allocate distribution on the basis of contributions UNLESS operating K provides otherwise.

Question 29

LLC-right to information

Answer 29

Member Managed LLC–member has right to inspect/copy any record concerning LLC business that is material to members’ rights and duties

MANAGER-Managed LLC– manageers have same right of info and duty to furnish info discossed above.

Question 30

How may member/manager dissociate from LLC?

Answer 30

1. Can dissociate at any time
2. A wrongfully dissociating member may be liable to LLC for dmgs
3. Events that cause dissociation of a partner ALSO does the same here

Question 31

How many LLCs be dissolved?

Answer 31

An LLC dissolves when any of the following occur:

1. An agreed-upon event occurs
2. Consent of all members
3. Passage of 90 days during which LLC has no members
4. Judicial decree
5. Administrative dissolution by S.O.S.