Partnerships Flashcards
How is a general partnership created?
When:
- Two or more persons;
- As co-owners;
- Carry on a business for profit.
*No written agreement or intent is needed.
A person who receives a share of the profits of the partnership business is presumed to be a partner, unless the profits were received in payment of what?
- of a debt;
- for wages (as an employee/independent contractor);
- of rent;
- of an annuity or retirement benefit;
- of loan or interest charges;
- for the sale of the goodwill of the business.
What is a limited partnership?
- There is at least one general partner;
- There is at least one limited partner;
- The general partner(s) has unlimited personal liability;
- The limited partner(s) has limited personal liability;
- Formed by filing a Certificate of Limited Partnership with the Secretary of State
What is the default voting requirement for a partnership to amend its Partnership Agreement?
A unanimous vote of ALL partners.
How does any type of partnership become a limited liability partnership?
- Approval by the same vote that is necessary to amend the partnership agreement (default rule is unanimous vote of all partners);
AND
- By filing a Statement of Qualification with the Secretary of State.
What is a limited liability partnership?
- No distinction between general and limited partners
- All partners have limited personal liability;
- Formed by filing a Statement of Qualification with the Secretary of State
What information must a
Statement of Qualification include?
- The name and address of the partnership;
- A statement that the partnership elects to become an LLP;
AND
- A deferred effective date (if any).
What information must a Certificate of Limited Partnership include?
- Name of the partnership;
- Address of the partnership’s principal office;
- Name & address of partnership’s registered agent;
- Name and address of each general partner;
- Whether it’s a Limited Liability Limited Partnership (LLLP);
AND
- Signature of every general partner.
When does a partner have Express Actual Authority to bind the partnership?
A partner with Apparent Authority will NOT bind the partnership during what circumstance?
A partner has Apparent Authority to bind the partnership, even after dissolution, in what circumstance?
How are debts and obligations of a partnership shared among partners?
What is the liability of a general partner?
Personally liable for ALL obligations of the partnership AND jointly and severally liable.
When can a judgment creditor levy execution of a judgment against a partner’s personal assets for a partnership debt?
- When a judgment has been rendered against an individual partner;
AND
- The partnership assets have been exhausted or are insufficient.
What is the liability of an incoming partner who joins a partnership that has already been formed?
NOT liable for obligations incurred prior to their admission, but still at risk for losing capital contributions made to satisfy partnership obligations.
When are limited partners personally liable for the obligations of the Limited Partnership (LP)?
When they participate in the management and control of the business.
How are profits and losses shared
amongst the partners?
Profits are shared EQUALLY, and losses will be shared in the same ratio as profits UNLESS there is an agreement to the contrary.
Under default partnership rules, what elements of partnership ownership can a partner transfer to another person?
- His interest in the share of the profits and losses;
AND
- His right to receive distributions.
When is property acquired in the name of a partner presumed to be separate property?
- When no partnership assets are used to acquire the property;
AND
- No written title instrument for the property references the partnership or that the person is a partner.
When is a partner entitled to remuneration for services performed for the partnership?
Generally, never. UNLESS:
- There is an agreement;
OR
- It is for the reasonable compensation of services rendered in winding up the business.
What is the difference between role of general and limited partners in a Limited Partnership?
General partners: have FULL management rights and control.
Limited partners: have NO say or control, and DO NOT have the right to manage day-to-day business (generally passive with limited voting rights).
Under RULPA, what records does a limited partner have the right to inspect and copy?
Any records the limited partnership is legally required to keep.
Under RULPA, what records does a limited partner have the right to obtain?
- True & full information regarding the state of the business and financial condition.
- Copies of the LP’s tax returns.
- Any other information that is just and reasonable.
Under RULPA, what records does a limited partner have the a right to only after a formal demand is made?
- True & full information regarding the state of the business and financial condition.
- Copies of the LP’s tax returns.
- Any other information that is just and reasonable.
Under RULPA, when has a partner breach his duty of care?
When he engages in:
- Grossly negligent or reckless conduct;
- Intentional misconduct; OR
- A knowing violation of law.
Under RULPA, what must a partner do to satisfy his duty of loyalty?
- Account for any property, profit, or benefit derived by the partner from the partnership property;
- Not have an interest adverse to the partnership;
AND
- Not compete with the partnership.
When is a partner NOT liable for conduct that would otherwise breach his duty of loyalty?
- If the partner fully discloses the information;
AND
- EITHER the partnership agreement is amended OR
all partners consent to the transaction.
How does a partner become dissociated from a partnership through expulsion?
Unanimous vote that it would be unlawful to carry on the business with the partner AND the partner’s interest has been transferred.
When can the dissociation of a partner be deemed wrongful?
- If it’s in breach of an express provision of the partnership agreement;
OR
If the partnership is for a definite term or particular undertaking, and the partner withdraws, is expelled by judicial determination, or becomes a debtor in bankruptcy.
What happens to a partner that has been wrongfully disassociated?
- Bars the partner from participating in management
- Bars from the partner from participating in the winding up process
How can a General Partnership be dissolved?
- Upon notice of the partner’s express will to withdraw;
- Upon an event agreed upon in the agreement;
- Upon an event that makes it unlawful to continue;
- Judicial dissolution on application of a partner;
OR
- Judicial dissolution on application of a transferee.
When does dissolution of a Partnership for Definite Term occur?
What does dissociation by one partner allow the other partners to do?
It allows ALL of the remaining partners to waive winding up and termination, and instead gives them the option to continue the partnership by buying out the dissociated partner’s interests.
When does a non-judicial dissolution of a Limited Partnership occur?
Upon:
- The occurrence of an event specified in the agreement;
- The consent of all general partners and of all limited partners owning a majority of rights to distributions;
- After dissociation of a general partner;
- 90 days after dissociation of the last limited partner;
OR
- The filing of a declaration of administrative dissolution by the Secretary of State (for failure to pay fees, etc.).
During the winding up process, partnership assets are converted to cash and distributed in what order?
- Creditors;
- Partners’ capital contributions;
AND
- Profits to be distributed among the partners.
