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LA100 > Partnerships > Flashcards

Partnerships Flashcards

1
Q

General Partnership

A

an association of 2+ people who are co-owners and co-managers of the business who share in the profits of their ongoing business; a pass-through entity

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2
Q

joint-and-several liability

A

general partners’ personal assets are at risk together 9jointly) and separately (severally) for all debts/liabilities of the partnership

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3
Q

Does a general partnership require an agreement or form to be created?

A

no; in absence of agreement, RUPA governs a general partnership

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4
Q

RUPA

A

a model statute drafted and occasionally revised by the National Conference of Commissioners on uniform State Laws

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5
Q

What are the rights RUPA/UPA spells out when an agreement is absent amongst partners?

A

right to share profits and losses equally, right to partnership property, right to co-manage, right to indemnity, right to vote, and right to be informed

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6
Q

How is a general partnership formed according to the law?

A

when 2+ individuals demonstrate an intent to carry on as co-owners of a business for profit

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7
Q

True/False: The rules governing third parties cannot be altered by a partnership agreement.

A

True

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8
Q

How do partners split profits and losses regardless of the amount of involvement?

A

equally

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9
Q

How can partners utilize partnership property?

A

can use any to conduct business, but NOT for individual purposes

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10
Q

co-management components…

A

right to be involved in conducting operations, ability to sign contracts on behalf of the partnership, and authorized to enter reasonable agreements when a partnership agreement is absent

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11
Q

Are partners entitled to a salary?

A

no, because their compensation is limited to an equal share

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12
Q

ordinary

A

an act that is WITHIN the course of the business

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13
Q

extraordinary

A

an act that is OUTSIDE the course of the business
requires an unanimous consent of all partners in order to implement and is an act that substantially changes the nature of the partnership

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14
Q

indemnity

A

where a partnership must reimburse a partner when they incur a payment or liability within the ordinary course

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15
Q

the duties of partners…

A

duty of loyalty, duty of care, duty of good faith

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16
Q

duty of loyalty

A

prohibits a general partner from engaging in competition with the interests of the partnership, using the partnership for personal gain, and personally taking advantage of a business opportunity that would have benefited the partnership

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17
Q

duty of care

A

partners must exercise “due care” in handling affairs and treat affairs with diligence

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18
Q

True/False: Partners are liable if a decision results in harm due to an ordinary mistake of judgement.

A

False
(Partners are NOT liable if a decision results in harm due to an ordinary mistake of judgement)

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19
Q

duty of good faith

A

partners are required to exercise appropriate discretion with other partners and third parties; partners owe full disclosure

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20
Q

What items are included in a partnership agreement?

A

(1) capital contributions
(2) property provision
(3) profits and losses
(4) salary
(5) management rights
(6) buy-sell agreement

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21
Q

capital contributions

A

lists how much value each partner contributed to their individual capital accounts
represents the initial equity and must be returned to each partner when partnership assets are liquidated by law

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22
Q

property provision

A

partners decide whether their individual property will become partnership property or capital contribution

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23
Q

profits and losses

A

partners can structure profits and losses to reflect their capital contributions or level of work in a partnership agreement

24
Q

True/False: Under a partnership agreement, partners can receive a guaranteed salary for the work performed on behalf of the partnership.

A

True

25
Q

What is a critique when all partners have equal management rights and may sign contracts on behalf of the partnership when within the ordinary course?

A

it can be risky and frustrating

26
Q

danger of a general partnership…

A

general partners face potential liability for acts of other partners and the debts/liabilities of the partnership

27
Q

buy-sell agreement

A

allows remaining partners to purchase partnership interest of a withdrawing partner
ensures continuity of partnership and can avoid legal disputes if valuation methodology is provided

28
Q

Limited Partnership

A

entity that exists by virtue of a state statute that recognizes one or more partners as managing business while other partners participate only in terms of contributing capital or property; a pass-through entity

29
Q

the persons of a limited partnership

A

at least one general partner and one limited partner

30
Q

general partners

A

(1) personally liable for all partnership debts and liabilities
(2) manages the business
(3) permitted to legally bind the partnership

31
Q

limited partners

A

(1) contributes investment
(2) limited to only their investment contribution
(3) cannot participate in daily management or to bind partnership
(4) can engage in consulting and contribute expertise
(5) can access partnership information
(6) passive and “silent”

32
Q

Do limited partnerships have to file for a certificate to form?

A

yes, they MUST

33
Q

certificate of limited partnership

A

a form filed with the state by a general partner to create a limited partnership
straightforward; details rights, obligations, and relationships

34
Q

Revised Uniform Limited Partnership Act

A

a model partnership statute that governs limited partnerships in absence of an agreement

35
Q

blue sky laws

A

strict federal and state security laws a limited partnership is subjected to if interests are sold to the public

36
Q

limited partnership capitalization

A

can be funded through debt or sale of equity, but cannot sell ownership rights through the public market

37
Q

How do partners share profits and losses in a limited partnership?

A

proportional to the value of contributions made by each

38
Q

Family Limited Partnership

A

a limited partnership that is used for estate planning for families of considerable wealth

39
Q

purpose of a family limited partnership

A

enables wealthy members of one generation to distribute their assets to heirs using a method that allows the distributing generation to claim a much lower market value than the actual market value of the gift

40
Q

Limited Liability Partnerships

A

provides general partnerships with right to convert their entity and gain the protective shield ordinarily afforded only to limited partners or corporate shareholders
used to handle issues unique to the transition from one generation to another

41
Q

statement of qualification

A

the document filed to convert a general partnership to a LLP
must be approved by a majority of ownership; once approved it becomes apart of the public record

42
Q

True/False: LLPs have the greatest variance of liability protection depending on the state.

A

True

43
Q

What type of taxation does a Limited Liability Partnership face?

A

pass-through taxation
income is only taxed when it is distributed to partners and is reported based on partners’ individual tax returns

44
Q

LLP capitalization…

A

(1) debt via private lenders
(2) debt via commercial lenders
(3) sale of partnership equity for ownership

45
Q

capital call

A

a process that controls the amount and methods of capitalizing a business and the procedures for collecting additional contributions from partners

46
Q

dissociation

A

term used by RUPA when a partner no longer wishes to be a principal and chooses to leave the partnership

47
Q

How does dissociation happen under RUPA?

A

(1) voluntary separation
(2) expulsion by an unanimous vote
(3) partner’s inability to carry out duties

48
Q

rightful dissociation

A

a partner no longer is liable for debts/liabilities incurred by the partnership; they are still liable for pre-dissociation liability

49
Q

wrongful dissociation

A

a partner violates partnership agreement or leaves before the expiration of a previously agreed upon term or before completion of partnership’s undertaking

50
Q

withdrawal

A

term used by RULPA when a partner no longer wishes to be a principal and chooses to leave the partnership

51
Q

Can a general partner withdraw if there’s still one general partner remaining and all partners agree to it in writing?

A

yes

52
Q

Can a limited partner with draw before the partnership termination time that was agreed upon?

A

no

53
Q

the similarity and difference of dissociations and withdrawals…

A

similarity = gives room for partners to govern their withdrawal
difference = acts differently when an agreement is absent

54
Q

partnerships can dissolve when…

A

(1) a partnership has reached its agreed upon term
(2) dissolution is mandated by court order
(3) agreed to by unanimous consent of partners (only for general partnerships; limited partnerships don’t need unanimous consent)

55
Q

Waddell v. Rustin

A

Appellant = Waddell
Appellee = Rustin
State law
The “business relationship” according to Waddell was an implied partnership with her little expertise in the construction industry
Court’s reasoning…
- there was no written partnership agreement
- Waddell didn’t contribute capital, equipment, or experience
- “equal contribution” doesn’t indicate an implied partnership

LA100 (6 decks)

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