Partnerships

Question 1

Formation

Answer 1

• Requires an association of two or more persons to carry on a for-profit business as co-owners
• Requires sharing of profits

Note: Repaying a loan with business profits does not necessarily make the lender a partner.

Question 2

Fiduciary Duties

Answer 2

Partner owes the partnership and the other partners fiduciary duties of loyalty and care

Question 3

Duty of Loyalty

Answer 3

• Must not compete with the partnership
• Must not advance an interest adverse to the partnership
• Must not usurp a partnership opportunity

Question 4

Duty of Care

Answer 4

• Required to act as a reasonble partner
• Cannot engage in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law

Question 5

Obligation of Good Faith and Fair Dealing

Answer 5

Must act fairly and in good faith

Question 6

Profits and Losses

Answer 6

Absent a partnership agreement, each partner will share profits and losses equally

Question 7

Transfer of Financial Interest

Answer 7

• Partner can transfer the right to receive distributions from the partnership to a third party
• Partner is still a partner with remaining rights and obligations
• Third party does not become a partner, but can seek judicial dissolution of the partnership
• A creditor of a partner can enforce a judgment against the partner’s financial interest

Question 8

Property Ownership

Answer 8

Property acquired by the partnership must be used for the benefit of the partnership.

Question 9

Management Rights

Answer 9

• Each partner has equal rights in the management and conduct of the partnership.
• A majority of the partners can make a decision as to ordinary business matters.
• All partners must consent to a matter outside the course of ordinary business.

Question 10

Access to Records

Answer 10

Must provide partners with access to records during business hours.

Question 11

Relationship with Third Parties

Answer 11

A partner is an agent of the partnership.

Question 12

Partnership’s Tort Liability

Answer 12

Liable for a partner’s tortious acts committed in the ordinary course of partnership business or with partnership authority

Question 13

Partner’s Liability

Answer 13

A judgment creditor of an individual partner may not attach and execute upon partnership real estate

Question 14

Liability to Third Parties

Answer 14

• a partnership is subject to a lawsuit for its obligations
• jointly and severally liable for all partnership obligations
• creditor must exhaust the partnership’s assets before taking the partner’s individual assets

Question 15

Limited Liability Partnerships

Answer 15

• Partners’ personal liability for partnership obligations is eliminated
• Individual partners are liable for their own torts

Question 16

LLP

Formation

Answer 16

• Requires filing a statement of qualification with the state
• Failure to form an LLP will typically result in a general partnership

Question 17

LLP

Limited Partners

Answer 17

• Partners are agents of the LLP
• Not personally liable for LLP obligations

Question 18

Transition from General Partnership to LLP

Answer 18

• If a general partnership incurs liability and then becomes an LLP, the LLP is liable for those obligations.
• If an individual partner in a general partnership is liable, and then an LLP is formed, the partner is still liable for that obligation.
• A new partner admitted to the LLP is not liable for pre-transition obligations.

Question 19

Limited Partnerships

Answer 19

• Formed by 2 or more people–at least one general partner and one limited partner