Partnerships 15-18

Question 1

When does a partner

breach his Duty of Care?

Answer 1

When he engages in:

Grossly negligent or reckless conduct;

Intentional misconduct; OR

A knowing violation of law.

Examples include: violating a partnership policy; failing to thoroughly investigate facts before entering into a contract; and acting outside the scope of the business without consent from the other partners.

Priority: Low

Question 2

What acts constitute a violation of a partner’s

Duty of Loyalty?

Answer 2

Engaging in self dealing;

Usurping a business opportunity; OR

Competing against the partnership.

* When this duty is breached, a partner’s profits may be disgorged, and any contracts may be revoked or rescinded.

Priority: Low

Question 3

What is “winding up”?

When does termination of a partnership occur?

Answer 3

The process of settling of partnership affairs after dissolution.

The partnership is only terminated when the winding up of its business is completed.

Priority: Low

Question 4

During the winding up process, partnership assets are converted to cash and distributed in what order?

Answer 4

Outside creditors;

Insider creditors (i.e. partners who made loans);

Partners’ capital contributions; AND

Profits (if any) to be distributed among the partners.

*If assets are insufficient, the loss will be divided among the partners.

Priority: Low