Partnerships Flashcards
What kind of liability does a general partner have?
Unlimited, no matter waht liability they declare
GP property
If a property is acquired by the GP, it is not freely transferrable. A GP has no right to use it other than for the benefit of the property. It can be titles in the name of partnership OR partner. If it is acquired with GP funds, it is assumed to be partnership property. If acquired with separate funds, assumed to be separate.
What are the rights of a general partner?
- Management
- Distribution
- Interest
- Indemnification
- Inspection of books/records
- Settlement of accounts upon dissolution
What are the duties of a general partner?
Care, loyalty, good faith and fair dealing, and to keep books complete and accurate/present to interested partners
What is a general partner’s duty of care?
not to engage in negligent, reckless, or unlawful conduct or intentional misconduct
What is a general partner’s duty of loyalty?
to act in best interests of the partnership, including duties to 1) account for all profits and benefits derived from GP, 2) not deal with GP as one with adverse interest, and 3) not compete with GP
Partner apparent authority and ability to bind the GP
Partner acting in the ordinary course of the GP’s business binds the GP, unless at the time of contracting:
- GP did not have authority to act AND
- 3P knew or had notification that partner lacked authority
GP civil liability
Civil liability is joint and several. Each partner is personally and individually liable for entire amount of GP obligations.
- New partners not personally liable for obligations arising before becoming partner (but outgoing partners are unless payout, release, novation)
Dissociation or dissolution occurs at any time by
- Express will
- Agreed event
- Continuation is unlawful
- Expulsion by unanimous vote
- Bankruptcy
- Death or incapacity
Dissolution requires
Winding up of partnership business by selling and settling GP affairs
What is a LP?
Includes 1+ GP and 1+ LP. GPs are personally liable for partnership obligations. LPs have no personal liability beyond contributions.
What is an LLP?
Partners not personally liable for LLP’s obligations, personally liable for own wrongful acts but not co-partner acts. LP and LLP require filing to form.
Under RUPA, a person winding up a partnership’s business may:
(1) preserve
the partnership business or property as a going concern for a reasonable time;
(2) prosecute and defend actions and proceedings;
(3) settle and close the partnership’s
business;
(4) dispose of and transfer the partnership’s property;
(5) discharge the partnership’s liabilities; (6) distribute the assets of the partnership;
(7) settle disputes by mediation or arbitration; and
(8) perform other necessary acts.
When can a judgment reach a partner’s personal assets?
Generally, a judgment creditor CANNOT levy execution of the judgment against a partner’s personal assets for a GP debt UNLESS: (1) a judgment has been
rendered against the partner; AND (2) the partnership assets have been exhausted or are insufficient.
(Under the Uniform Partnership Act, a judgment against the partnership is NOT by itself a judgment against the individual partners. However, a judgment may be sought against the partnership and the individual partners in the same action.)
When is a Partnership liable for the wrongful act of a partner?
A partnership IS LIABLE for loss or injury caused to a person (or for a penalty incurred) because of: (1) the wrongful act, omission, or actionable conduct of a partner, (2) acting in the ordinary course of partnership business.
Sharing profits and losses in a partnership
Unless otherwise agreed, profits are shared equally between partners, and losses will be shared in the same ratio as
profits.
If an agreement is only made to how losses are shared (no matter the ratio), then profits will be shared equally.
Any partner who pays more than his fair share in partnership losses is entitled to receive a contribution from the other partner(s) for their proportional share of the losses.
Judgments against individuals partners and partnership property
Under the Uniform Partnership Act, a judgment solely against an individual partner (and not the partnership) CANNOT be satisfied with partnership property because an individual partner has no ownership interest in the partnership’s property. However, judgment creditors MAY seize the partner’s financial interest in the partnership.
When must a partnership reimburse partners for advances to the partnership?
A partnership shall reimburse a partner for an advance to the partnership beyond the amount of capital the partner agreed to contribute. To be entitled to reimbursement:
(1) the payment must be made in the proper course of the partnership business; AND (2) the partner must comply with his fiduciary duties of care and loyalty in making such payment.
If the partnership has insufficient funds to reimburse the partner, the partner has the right to be reimbursed for a portion of the contribution from the other general partners based on each’s percentage of ownership.
