Partnerships

Question 1

Which of the following is NOT an essential element of a partnership relationship?

a. An association of 2 or more people who are capable of entering into a binding contract

b. the carrying on of a business for profit

c. co-ownership of the business

d. a mutual intent to be partners

Answer 1

D. a mutual intent to be partners. Although ordinarily courts respect parties’ expressed intentions as to the nature of their relationship, in some circumstances the courts will characterize a profit sharing relationship as a partnership even though the parties expressly said they weren’t partners.

Question 2

What are the essential elements of a partnership?

Answer 2

(1) an association of 2 or more people who are capable of entering into a binding contract
(2) the carrying on of a business for profit
(3) co-ownership of a business

Question 3

Andrew (17) and Bryan (21) form a partnership. Each contributes $1,000. They incurred $3,000 in debts to Tammy. Who is liable to Tammy and to what extent?

Answer 3

Andrew is liable to Tammy only to the extent of the $1,000 he contributed, but Bryan is personally liable for the entire $3,000. This is so because a minor lacks capacity to be a partner. He is however bound to the extent of his capital contributions.

Question 4

What is the effect of profit sharing?

Answer 4

Sharing profits raises a presumption of partnership. However, the presumption doesn’t apply if the share was received as payment for debt, services, rent, retirement, interest, or a sale of a business.

Question 5

Alice and Bonnie hire Clyde as an employee. With his consent, Alice and Bonnie hold Clyde out as a partner. Xander loans money to partnership in reliance on Clyde’s being held out as partner. Yoly also lends money, but was unaware Clyde was held out as partner. Who is personally liable to Xander and Yoly?

Answer 5

Alice and Bonnie are personally liable to both Xander and Yoly. Clyde is personally liable only to Xander. If a person has consented to being held out as a partner, he is liable to any third party who enters into a transaction in reliance on the representation.

Question 6

A & B form a partnership, each contributing $1000. The partnership earns a profit of $3,000. A & B each take a $500 draw. What is the partnerships capital and property?

Answer 6

Capital is 2,000 and property is 4,000. Capital s unaffected by a partnership’s earnings, even if they are retained in the business. Partnership property includes both capital and retained earnings.

Question 7

A partnership wants to use a partner’s truck for partnership purposes. Is this proper and if so how can it be arranged?

Answer 7

Yes, a partner may contribute property to the partnership, retain ownership of the property (title) personally, and contribute use of the property or rent the property to the partnership.

Question 8

If the partnership agreement is silent, how are partnership decisions made?

Answer 8

By majority vote of partners (but matters outside ordinary course of business require consent of all partners)

Question 9

A & B form a partnership. A contributes $3,000 and B contributes his services. A also loans $1,000 to the partnership. Upon dissolution, there remains $6,000 after paying all outside creditors. Unless the partnership agreement says otherwise, how is the $6,000 to be distributed?

Answer 9

$5000 to A and $1000 to B. A is entitled to repayment of his $1,000 loan and return of his $3,000 capital contribution. The $2,000 surplus is then divided equally between the partners.

Question 10

A & B form a partnership. A contributes $3,000 and B contributes his services. A also loans $1,000 to the partnership. Upon dissolution, there remains $2800 after paying all outside creditors. How will the amount be distributed?

Answer 10

$2800 to A and B is liable for $600. A gets repayment for his loan first (2800 - 1000 = 1800). The parties will each be responsible for 50% of the net losses. Here, the net losses are A’s capital contribution minus what he recovered (3000 - 1800 = 1200). A is entitled to $600 contribution from B.

Question 11

Describe the agency relationship between partners?

Answer 11

A partner is an agent of his fellow partners, who are his principals.

A partner is also a principal of his fellow partners, who are his agents.

The partners are also agents of the partnership.

Question 12

A & B have a partnership to build and operate an apartment building. A is the managing partner. A contracts an architect to design the apartment. Does A have the authority to do this?

Answer 12

Yes, he has actual authority unless otherwise directed by B. It is usual and ordinary for a business building an apartment building to hire an architect. He does not need consent from B.

Question 13

Is a person considered to know of a limitation on a partner’s authority if the limitation is filed with the Dept. of State?

Answer 13

No

Question 14

What events REQUIRE dissolution and winding up?

Answer 14

(1) the happening of an event making it unlawful to continue
(2) issuance of a judicial decree that business must be wound up

Question 15

What events require dissolution unless the partners unanimously agree otherwise?

Answer 15

(1) the happening of an event in the partnership agreement (unless all partners unanimously agree to continue)
(2) notification by a partner at will of intent to withdraw (unless all partners unanimously agree to continue)

Question 16

When is dissolution and winding up required in a partnership for a definite term or specific task?

Answer 16

(1) the term ends or task is completed
(2) the partners unanimously agree to wind up or
(3) at least half of the partners agree to wind up within 90 days after partner’s death, bankrupcty, incapacity or wrongful dissociation

Question 17

What can a limited partner contribute to the LP?

Answer 17

Cash, property, services rendered or promise to give any of those things

Question 18

A partnership will be bound by a partner’s post-dissolution acts when…

Answer 18

the party with whom the partnership dealt didn’t have notice of the dissolution. Filing a statement of dissolution with the Dept of State gives third parties notice 90 days after the statement is filed.

Question 19

A , B, C are partners. A dies. His capital account was $10,000. The book value of the business is $40,000 and the appraised value is $61,000. What are the rights of A’s executor if B &C continue the business?

Answer 19

A’s executor is entitled to get $17,000 in payment for A’s partnership share, plus interest. Subtract the appraised value ($61,000) from the book value ($40,000) then divide by the number of partners ($21,000 / 3 = $7k). Then add A’s capital account amount ($7k + 10k = $17k).

Question 20

A creditor of a limited partner of a limited partnership…

Answer 20

who KNOWS that the person is a limited partner may attach his partnership interest to collect partnership debt. A limited partner is liable for partnership debt only to the extent of contributions he made and owed the partnership.

Question 21

A & B form a partnership. Acme obtains a judgment against A. What can acme do?

Answer 21

Acme can execute on Smith’s individual property used by the partnership and may attach Smith’s partnership interest.

Acme may not execute on Smith’s individual interest in partnership property or attach Smith’s share of partnership earnings.

Question 22

Is a partner a co-owner of partnership property?

Answer 22

No - there is no concept of tenants in partnership. Property acquired by a partnership is property of the partnership and not of the partners individually. Each partner has an interest in the partnership, which consists of his share of the profits and losses and is treated as personal property. No partner has an interest in partnership property.

Question 23

What information is required to be included in a certificate of limited partnership?

Answer 23

(1) name of partnership
(2) names and addresses of agent for svc of process
(3) names and addresses of each general partner
(4) statement that partnership is LLP
(5) signed by each general partner

Question 24

A is part of a real estate partnership. He defrauds a client, telling her to give him money to invest in art and promising to double her returns. Is the partnership liable to the client?

Answer 24

No - A exceeded his authority to bind the firm by engaging in conduct that isn’t within the scope of the business of the firm. Where one partner defrauds a third party, the partnership is liable only if the partner is acting within the scope of the partnership business.

Question 25

A &B have a partnership. A assigns his interest in the partnership to C. What rights does C have in the partnership?

Answer 25

C only has the right to share in the partnership’s profits. The rights of a partner to participate in the management of the partnership and inspect books are NOT assignable rights. C will have a right to an accounting but only upon dissolution. C will only be entitled to the profits that A would receive.

Question 26

A assigns his partnership interests to C. Can A still participate in management decisions?

Answer 26

Yes - A’s assignment of his interest in partnership profits to C has no effect on A’s right to take part in management decisions. C however cannot partake in such decisions.

Question 27

A partnership will be dissolved upon issuance of judicial decree if

Answer 27

(1) the economic purpose of the partnership is likely to be frustrated
(2) a partner has engaged in conduct making it not reasonably practicable to carry on business or
(3) the business can’t practicably be carried on in conformity with the partnership agreement.

Question 28

P is injured and A & B’s partnership business. The jury finds A&B Partnership liable for P’s injuries and judgment is issued against partnership. If A&B Partnership doesn’t have enough assets to cover P’s damages, how can P satisfy the judgment?

Answer 28

He will have no further recourse after exhaustion of partnership remedies. All partners are jointly and severaly liable for all obligations of the partnership. However, a judgment against a PARTNERSHIP is not the same as a judgment against a partner himself. To reach a partner’s personal assets, he’d have get a judgment against the partner.

Question 29

A partnership expels one of the partners. Her expulsion was not for wrongful conduct. What does the partnership have to do if it plans to continue?

Answer 29

Purchase the dissociated partner’s interest in the partnership.

Question 30

How can a general partner be added to a limited partnership?

Answer 30

As provided in the partnership agreement OR, if not provided, by written consent of all partners

Question 31

Horace, a partner with Lance and Arthur in an art gallery secretly agrees to sell Mark a painting worth $1million for only $500,00 in exchange for Mark giving Horace a kickback of $100,000. Is the partnership liable on the contract?

Answer 31

No, Mark can’t enforce the K against the partnership because it was a fraud of which he was aware. If a partner defrauds the partnership through a transaction with a third party aware of the fraud, the partnership is not liable to that person.

Question 32

A & B have been partners for 10 years. They owe D $5k for supplied they bought on credit. Some time after they stop buying from D, they admit C as a partner. Is C liable for the 5k owed to d?

Answer 32

Yes - an incoming partner is liable for all obligations of the partnership including those incurred before becoming a member of the partnership. But that L isn’t personal unless the incoming partner subjects himself to personal L by novation or by promise to pay existing debt.

Question 33

Disclaimer

Answer 33

Must be signed in writing, witnessed, and acknowledged same as real property conveyance. It becomes irrevocable when filed. Copy of disclaimer must be given to PR or trustee.

Question 34

Will has a son Bill and a daughter Marge. Bill has 2 kids and Marge has 2 kids. Will leaves a will saying “to my descendants per stirpes.” Marge disclaims her part of the will. What would happen to the disclaimed interest?

Answer 34

It would pass to her kid, per stirpes. A discliamed interest passes as tho the disclaiming party predeceased the decedent.

Question 35

Advancement

Answer 35

A gift made to next of kin with intent that it be applied against any share that the kin inherits from donor’s estate. No gift is an advancement unless the intention is declared in a contemporaneous writing by decedent or acknowledge in writing by heir. It won’t be binding on that the next of kin’s heirs unless

Question 36

D is an employee of AB Co, a partnership of which A & B are partners. D gets in accident with P. P sues A, B, AB Co., and D and serves 3 copies of the summon on A in his office and then serving D at his home. Assuming no defendant appears in the action and P obtains default judgment, against whose assets may P execute?

Answer 36

The assets of A, AB Co., and D are subject to execution of the default judgment. To gain jurisdiction of a partnership, service need only be made on one of the general partners. Thus, the assets of AB Co. are available. To gain jurisdiction of an individual partner, each must be named and served. Here, P failed to serve B, so B is free from personal liability. D’s assets are subject as well because he ws served.

Question 37

A, B, and C have a partnership. C is killed on Jan 1. On Jan 2, A contracts with someone. On Jan 3, B contracts with someone else. On which contracts will C be liable?

Answer 37

On both - C’s death causes a dissociation, but after dissociation a partner or his estate can still be bound on Ks made for up to 1 year after dissociation unless third party w/ whom partnership dealt knew or had notice of the dissociation.

Question 38

A, B , and C are partners. A and B enter into a contract relating to the business without C. Is the contract valid?

Answer 38

Yes because A & B had apparent authority to bind the partnership.

Question 39

A, B, and C form a limited partnership. C is general partner, A & B are limited. A contributes 10k, B contributed 20k and C contributes 10k. How should the profits be divided?

Answer 39

B receives 50%, A receives 25% and C receives 25%. In a lmited partnership, partners’ profits are based on pro rata share of each partner’s contribution.

Question 40

A & B form a general partnership. Each partner contributes 1k. The partnership earns a profit of 3k. A & B each take a 1k draw. What is the a partnerships capital and what is the partnerships property?

Answer 40

Capital is property or money contributed to the partnership. (2k). Property includes everything the partnership owns, consisting of both capital capital contributed and property acquired through profits. The draw here lowers the property by 2k but doesn’t affect the capital. The property is 3k.

Question 41

A & B enter into a written partnership. When they wind up, which of the following can they not do:
(a) assign claims
(b) extend time on debt until termination is complete
(c) enter into K with an accountant to help wind up business
(d) sell partnership assets

Answer 41

(b) extend time on debt until termination is complete. This is considered new business.

Question 42

What notice must a limited partner give to withdraw from partnership where partnership agreement doesn’t provide for withdrawal?

Answer 42

The limited partner may withdraw from the partnership at any time. They are dissociated upon notice to the LP of their express will to withdraw.

Question 43

A contributes 5k, B pays nothing but gives services. At dissolution, the partnership has a balance of $3k after paying outside creditors. Who gets what?

Answer 43

A gets 3k and B owes 1k

Take A’s contribution (5k) minus balance (3k) = 2k. Losses are divided equally, so A loses 1k and B owes 1k.

Question 44

P is suing AB partnership. The partnership is made up of A and B. The complaint may properly name which of the defendants?

Answer 44

Suits against the partnership can be sued in the partnership name alone or by naming the individual partners, or both.

Question 45

Is a person admitted as a partner to an existing partnership liable for debts incurred prior to her admission?

Answer 45

Yes, but her liability is satisfied only out of partnership property

Question 46

A limited partner’s promise to contribute must be…

Answer 46

in a signed writing

Question 47

Limited partners share profits and losses…

Answer 47

according to the value of their contribution to the LP (absent agreement to the contrary)

Question 48

Rhonda and Joan orally agree to maintain a partnership for no less than 3 years. At the end of 2 years, Rhonda informs Joan she is withdrawing. Joan objects. What are Rhonda’s rights and liabilities?

Answer 48

The oral partnership agreement violates the SOF, so this is only a partnership at will. So Rhonda properly terminated. She retains the right to participate in the winding up of the partnership and has no liability for any new business provided that third parties receive proper notice.

Question 49

At dissolution, the partnership creditors are owed 25k and partner A is owed 10k from a loan she made the partnership. Only 20k remains in partnership assets. Partner A is insolvent and Partner B is very wealthy. What result?

Answer 49

The partnership must pay creditors the remaining 20k in partnership assets, and the solvent partner may be compelled to pay the remaining creditor indebtedness subject to a right of contribution from the insolvent party.

Creditors, including partners who are creditors, must be paid before noncreditor partners receive payment. The responsibility to partners who lent money is treated equally to other people who lent money. Because Partner B is solvent, she will probably have to pay the remaining partnership debt, subject to a right of contribution from Partner A.

Question 50

In what order are things paid off on dissolution?

Answer 50

1. creditors
   2.partners get distributions
2. return of capital
3. loss / surplus divided according to type of partnership (GP, equally. LP divided per contribution)

Question 51

Does failure of a foreign partnership to register in Florida impair its contract rights?

Answer 51

No - only its ability to sue in Florida

Question 52

If a partner wants to bring a derivative suit, must he have been a partner at the time of the transaction at issue?

Answer 52

NO

Question 53

Does an LLC need to state in its articles of organization whether its member managed or manager managed?

Answer 53

No

Question 54

. Scott, Joyce, and Mitch formed a member-managed LLC. On January 1, Mitch dissociated from the LLC. Two years later, Mitch sent a demand letter to the LLC seeking to review the LLC’s the prior year’s federal income tax return. In his demand, Mitch provided 10 days’ notice to review the records at the physical address of the company at 1:00 p.m. The LLC refuses to provide Mitch with this information. What is the LLC’s best argument for not providing the information sought?

(A) Mitch is no longer a member of the LLC
(B) The tax return sought does not pertain to the time period when Mitch was a member
(C) The demand does not provide for sufficient notice (D) None of the above; the LLC must allow Mitch to review the records.

Answer 54

(B) The tax return sought does not pertain to the time period when Mitch was a member