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Bar Exam (Austin) > Partnerships > Flashcards

Partnerships Flashcards

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1
Q

Partnership (MEMORIZE THIS)

A

Association of 2 or more persons to carry on as co-owners of a business for profit

Do not have to intend to be a partnership! If it satisfies this test ^ it’s a partnership!
o Subjective intent irrelevant!

A person may be an individual, trust, or corporation

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2
Q

Partnership Formation Factors

A

Totality of Circumstances Test

  • Profit sharing!!! -> Presumed partnership!
    o Gross Returns -> Revenues of a business
     Not presumed to be Partnership!
  • Right to participate in control of business
  • Loss sharing
    -> absence of an agreement to share losses may show intent to not form a partnership

No writing is required to form partnership -> unless required to do under Statute of Frauds

**When a person receives profits, the presumption of partnership does not apply if the share is to repay a debt, is as compensation, or the like

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3
Q

Voting - Partnership

A
  • Absence of another agreement -> One partner, one vote
  • Ordinary business decision = Majority vote
  • Extraordinary business decision = Unanimous vote
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4
Q

Salary - Partnership

A

Unless otherwise agreed, a partner has no right to compensation for services rendered to the partnership

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5
Q

Profit/Loss Sharing Default Rules - Partnership

A
  • Profits shared equally, unless otherwise agreed
  • Losses shared in same manner as profits, unless otherwise agreed
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6
Q

Partnership Liability - Torts and Contracts

A

Partnership = Principal under agency law

Tort
- Partnership liable for loss or injury caused to a person as a result of the tortious conduct of a partner (or an employee) acting in ordinary course of business of the partnership or with authority of the partnership

Contract
- A partnership is liable for all contracts entered into by partner in the scope of partnership business or with actual or apparent authority of the partnership

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7
Q

Actual Authority - Partnerships

A

Authority partner reasonably believes they have based on the communications between the partnership and the partner

Partner = Agent under agency law

  • Statement of Authority
    o Document filed publicly limited partners’ authority to transfer real property
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8
Q

Apparent Authority - Partnerships

A

Partner has apparent authority to bind the partnership to transactions within the ordinary course of the partnership’s business AND the third-party reasonably believes the partner has the authority to act on behalf of the partnership

Partner = Agent under agency law

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9
Q

Liability of Partners Individually

A

Each partner is jointly and severally liable for partnership obligations, whether arising from contract or tort!
o But only as guarantors
o Plaintiff must first come after partnership and then they can come after individual partner assets

***When a partner entered a contract he had no authority to enter on behalf of the partnership, the partnership is not bound by the contract

***Where one partner pays the entire amount of a partnership debt, they may require the other partner to contribute his pro rata share of the payment

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10
Q

Admitting New Partners

A

Default rule -> Unanimous vote required

Newly admitted partner is not liable for partnership obligations that arose before their admission

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11
Q

Liability of Dissociating Partners

A

An outgoing or disassociated partner remains liable for obligations arising while they were a partner unless there has been payment, release, or novation

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12
Q

Criminal Liability - Partnership

A

Generally, not liable for crimes of other partners committed in scope of partnership, unless the other partners participated in crime as well

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13
Q

Fiduciary Duties

A

Duty of Care AND Duty of Loyalty
- Owe it to the partnership AND to the individual partners

Duty of Loyalty
- Account to partnership for any benefit
- No taking adverse positions to partnerships
- No competing with partnership

Duty of Care
- No grossly negligent or reckless conduct
- Ordinary negligence is excused

**Cannot eliminate fiduciary duties

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14
Q

Duty of Disclosure

A

Each partner and the partnership shall furnish to a partner (1) without demand, any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties; and (2) on demand, any other information concerning the partnership’s business and affairs (except to the extent the demand or the info demanded is unreasonable otherwise improper under the circumstances)

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15
Q

Partnership Property

A

Property is deemed to be partnership property if it is titled in the partnership’s name
- Using partnership funds to buy property
- Right to use partnership property only for partnership purposes
- **The partnership owns partnership property
- **Partner is not a co-owner of partnership property and has no interest in partnership property which can be transferred

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16
Q

Individual Partner Property

A
  • Held in name of one or more partners
  • Gives no sign that they’re acting for a partnership
  • Partnership funds were NOT used to acquire the property
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17
Q

Partnership Interest

A
  • Partner’s ownership stake in the partnership
  • Financial rights
  • Management rights
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18
Q

Management Rights

A

Unless otherwise agreed upon, a partner cannot unilaterally transfer his management rights and thereby make the transferee a “partner”

The default rule for the admission of a new partner is that it requires unanimous vote of the existing partner

19
Q

Financial Rights

A

Unless otherwise agreed, a partner can unilaterally transfer his financial rights

Transferee merely has the right to receive profits distributions from partnerships that would have otherwise gone to a partner

Transferee is not a partner though!

20
Q

Disassociation

A

Partner’s withdrawal from partnership
- Dissociation by Express Will -> Partner voluntarily leaves

21
Q

Wrongful Dissociation

A

Wrongful dissociation occurs if the dissociation is in breach of an express term in the partnership agreement.

A dissociation is wrongful in a term partnership if the partner withdraw, is expelled, or becomes bankrupt.

Liable to partnership for any damages

22
Q

At-Will Partnership

A

Default form of partnership

Partner dissociates by express will in an at-will partnership, the dissociating partner can force partnership to dissolve!

A partnership at-will is dissolved and its business must be wound up when a partner notifies the partnership of his intent to withdraw

23
Q

Term Partnership

A

Agreement to remain partners for amount of time or until completion of project

24
Q

Buyout

A

Dissociating partner’s right to be paid value of partnership interest by continuing partners

25
Q

Liability of Dissociated Partner

A

Pre-dissociation
o Dissociated partner remains labile for pre-dissociation partnerships obligations

Post-Dissociation
o Dissociated partner can be liable for post-dissociation partnership liabilities incurred within two years after the dissociation if (1) when entering the transaction, the other party reasonably believed the dissociated partner was still a partner and (2) did not have notice of the partner’s dissociation
o HOWEVER, a dissociated partner can protect themselves by notifying creditors directly of their dissociation OR by filing a public notice of dissociation (becomes effective 90 days after filing!)
 Partnership can make filing as well!

**A partnership will be bound by a partner’s post-dissolution act if the act was appropriate for the winding up of business

**Even if not winding up, still liable if (1) 3rd party with whom the partner dealt did not have notice of the dissolution and (2) the act would have bound the partnership before dissolution (through apparent authority or actual authority)

26
Q

Dissociated Partner’s Power to Bind Partnership

A

A partnership can be bound by an act of a dissociated partner undertaken within two years after dissociation if: (1) the act would have bound the partnership before dissociation, and (2) the other party to the transaction reasonably believed the dissociated partner was still a partner and did not have notice of the dissociation

27
Q

Dissolution

A

Partnership ends, business is wound up, assets are sold off

  • Sell off partnership
  • Pay off all creditors
    o If money is leftover, distribute profits
  • If we run out of money before paying off creditors?
    o Partners pay off creditors with their own money!

Distribution of Partnership Assets
- First, to creditors
- Second, to reimburse partners for capital contributions
- Third, to partners based on profit sharing

28
Q

Limited Partnership

A

Partnership with at least one limited member

29
Q

Formation - Limited Partnership

A

Certificate of Limited Partnership
o Filing that must be made to form limited partnership

Registered Agent
o Person designated to receive official mail from the state or to receive service of
process

30
Q

Management - Limited Partnership

A
  • General partners are managers of LP
  • Limited partners have no managements rights
31
Q

Financial Rights - Limited Partnership

A
  • Limited partnerships profits are based on capital contribution!
32
Q

Liability - Limited Partnership

A
  • General Partners are jointly and severally liable for all obligations
  • Limited partner = limited liability
    o Not personally liable for an obligation of the LP solely by reason of being a limited partner!
    o A limited partner is ALWAYS LIABLE FOR HER OWN TORTS!
33
Q

Fiduciary Duties - Limited Partnership

A
  • Limited partners have no fiduciary duties
  • General partners owes the LP and other partners the fiduciary duties!
34
Q

Limited Liability Partnerships

A
  • General partnership where all partners have limited liability

Formation
- Must file a statement of qualification with state

Liability
- Partner in LLP is not personally liable!

**Remember that limit liability only limits vicarious liability, not liability for a partner’s own tortious wrongful acts

35
Q

Limited Liability Company (LLC)

A

Hybrid of corporation and partnership where owners have limited liability and partnership tax treatment

Members = Owners of an LLC
- No partners! No shareholders! They are called members!

36
Q

Formation - LLC

A

File a certification of organization with state!
o Name of LLC
o Address of LLC office
o Name and address of agent

Name must include LLC

37
Q

Management - LLC

A
  • Presumed to be by all members
  • Majority vote for business decisions
  • Unanimous vote for extraordinary business decisions

Member-Managed LLC
- LLC where members handle management of LLC themselves

Manger-Managed LLC
- LLC where managers, who may or may not be members, handle management

38
Q

Financial Rights - LLC

A
  • Based on contribution
39
Q

Liability - LLC

A
  • Members are generally not personally liable for LLC’s obligations
  • Members are liable for own torts!
40
Q

Fiduciary Duties - LLC

A

People with management power!

Duty of Care and Loyalty apply!

Exam Tip -> When assigning fiduciary duties, look for who has management control

41
Q

Transferability of ownership rights - LLC

A
  • Financial rights are transferable
  • Management rights are NOT!
42
Q

Dissociation - LLC

A
  • Person has power to dissociate as a member of LLC at anytime
43
Q

Dissolution - LLC

A
  • Event operating agreement says causes dissolution
  • Consent of all members
  • 90 consecutive days where there are no members
  • Judicial dissolution
44
Q

Taxation - LLC

A

Bar Exam (Austin) (17 decks)

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