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Business Org Midterm > Partnerships > Flashcards

Partnerships Flashcards

1
Q

What are the two major issues with General Partnerships?

A
  1. Inadvertent Partnership: GPs are so simple to form that people may have formed a partnership without being aware that they have formed a partnership. (So easy to form)
  2. No Limited Liability: Partners are personally liable for the debts of the partnership’s obligations. (Personal Liability)
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2
Q

What is a GP?

A

The association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.

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3
Q

What does “Association” means in the definition of a GP?

A

It means both voluntariness and intent.

Courts recognize that the parties need not intend to form a partnership, but courts will inquire whether the parties intended to form a relationship with the attributes of a partnership.

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4
Q

What does “two or more persons” mean?

A

Two or more persons are required to form a partnership. Unlike a corporation, which can be formed by only one person.

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5
Q

What does “carry on a business” mean?

A

It implies continuity of operations, more than a single transaction.

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6
Q

What does “co-ownership” mean?

A

Co-ownership means more than joint ownership. It implies the power of ultimate control of the business. (ie. they each participate in management decisions.)

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7
Q

What does “for profit” mean?

A

For profit limits the applicaiton of the partnership statutes to commercial enterprises.

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8
Q

T or F: Every partner is an agent of the partnership

A

True

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9
Q

Two Major issues regarding partnership management:

A

1) Who makes diecisions withiin the partnership

2) Who represents the partnership to third parties?

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10
Q

Does a partner need authorization?

A

Yes. Filing a lawsuit is not within the partnership’s ordinary course of selling products. Therefore, the partnership lacked standing to bring suit because the suit had not been approved by all members of the partnership. Therefore, it needs all the partner to consent to filing this lawsuit. However, a partner can sue without bringing the partnership on his side.

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11
Q

What duties does partners owe each other?

A

Duty of loyalty
Duty of good faith & fair dealing
Duty of Obedience
Duty of care
Duty of allow inspection of books
duty to share profits
Duty to contribute and indemnify other partners
and other obligations that don’t fit into a category.

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12
Q

T or F: You cannot eliminate duty of loyalty in a partnership agreement.

A

True. You can modify it but not eliminate it.

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13
Q

What is duty of good faith and fair dealing?

A

It essentially means that a partner can’t do things that would deprive the other partners or the partnerhsip of the benefits/fruits of the situation/transaction.

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14
Q

What are the two tests to determine the scope of the partnership venture?

A
  1. The “Line of Business” test asks whether the partnership has sufficient experience and ability in the particular field to exploit the opportunity
  2. The “interest or expectancy” test asks whether the opportunity would further the established business on the partnership.
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15
Q

T or F: A partner does not have a fiduciary duty to the employees of a firm which would limit its duty of loyalty to the partnership.

A

True

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16
Q

What are the attributes of partnerships?

A
  1. Partners are entitled to share in the profits of the partnership
  2. Partners also share in the losses of the partnership
  3. Partners are personally liable for all debts and obligations of the partnership.
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17
Q

How are profits and debts allocated towards the partners?

A

The default rule of partnership law is to share equally among all partners.

18
Q

T or F: Partners in a GP are personally liable for the obligations of the partnership

A

True

19
Q

What is Capital Account?

A

It is an account that tracks each partners’ ownership claims against the partnership.

20
Q

What is Capital Contribution?

A

It is money or assets given to the partnership by a partner.

21
Q

Are loans capital contributions?

A

No.

22
Q

Are labor considered a capital contribution?

A

No.

23
Q

T or F: Just because one contribute more doesn’t mean one has more partnership shares in the GP

A

True

24
Q

When a partnership ends…..What happen if there are partnership gains?

A

Partners receive the amount in their capital account PLUS an additional amount equal to their share as a partner

25
Q

What happen if there are partnership losses?

A

Each partner would receive what is in their capital account Minus an amount equal to their share as a partner.

26
Q

The order of liabilities that needs to be paid by partnership assets

A
  1. Amounts owed to creditors of the partnership who are not partners (Paying off all the loans, accounts payable.)
  2. Amounts owed to partners other than for capital and profits (eg. loans to the partnership)
  3. Amounts owed to partner for repayment of the capital contribution.
  4. Amounts owed to partners for any remaining profits.
27
Q

Does a joint venture agreement that expressly provides for the division of profits but doesn’t address the division of losses require that the parties divide losses in the same proportion as profits?

A

No, if one party to a joint venture provides capital while the other provides only services, the party providing services isn’t required to pay any of the financial losses.

28
Q

Partners liability to third parties

A

Except as otherwise provided in subsection (b), all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.

29
Q

T or F: A person admitted as a partner into an existing partnership is not personally liable for any partnership obligation incurred before the person’s admission as a partner.

A

Yes. It is a default rule. Say tom just joined this GP. Tom is not liable for the partnership obligation incurred before the he joined the GP.

30
Q

T or F: A partnership is liable for loss or injury caused to a person, or for a penalty incurred, as a result of a wrongful act or omission, or other actionable conduct, of A PARTNER acting in the ordinary course of business of the partnership or with actual or apparent authority of the partnership.

A

True

31
Q

What is joint liability

A

each is individually liable for whatever debt or obligation they have together.In a joint liability scenario, each individual is responsible for the entire debt as a group. If the business defaults on the loan, the bank can go after any one of them for the full amount owed. However, if the bank chooses to pursue legal action against one of the individuals and successfully recovers a portion of the debt from them, that individual has the right to seek contribution from the other co-debtors for their share of the payment.

For example, if the loan amount is $30,000 and Alice is sued by the bank and ordered to pay the full amount, she can then seek reimbursement of $10,000 each from Bob and Charlie.

32
Q

What is joint and severally

A

In a joint and several liability scenario, each individual is not only responsible for their proportional share of the debt but also for the entire debt individually. This means that if the business defaults on the loan, the bank can choose to pursue legal action against any one of the individuals for the full amount owed. The bank is not required to first exhaust the assets of one before pursuing the others.

Using the same scenario, if the loan amount is $30,000 and the bank sues Bob and obtains a judgment for the full amount, Bob cannot then seek reimbursement from Alice and Charlie for their shares. Instead, Bob would be solely responsible for satisfying the debt to the bank, even if it exceeds his proportionate share.

33
Q

Even if a claim for malpractice does not occur until after the partner has left, if the act or omission giving rise to the claim occurred while a partner, that person is liable.

A

True

34
Q

LLP

A

Liability Protection: In an LLP, partners have limited liability, which means their personal assets are protected from the debts and liabilities of the partnership. Each partner is only liable to the extent of their investment in the partnership, and they are not personally responsible for the actions, debts, or negligence of other partners.

35
Q

GP is always jointly and severally liable

A

True, unless otherwise stipulated in the agreement

36
Q

What is LP

A

Limited Partnership, it requires at least one general partner and at least one limited partner

General Partners usually have more say than limited partners. Makes sense.

37
Q

What is LLLP

A

Limited liability limited partnership; the only difference between LLLP and LP is the the general partner in LLLP is also limited liabllity

38
Q

Dissolution under UPA means

A

simply any change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.

Any change such as a partner leaving the partnership requires a dissolution of partnership and form a new one.

However, under RUPA, a partner leaving the partnership just need “dissociation”.

39
Q

A partnership may be dissolved by the express will of all of the partners

A

Yes

40
Q

After dissociation

A

the partner’s liability and ability to bind the partnership are terminated.

41
Q

A partner can unilaterally dissolve the partnership whenever he wants

A

Fale, it depends on the purpose of the venture. It the purpose has been fulfilled or leave an open-ended purpose then yes, a partner may wish to dissolve the partnership unilaterally. However, if the purpose has not been fulfilled, then the partner cannot dissovle unilaterally.

Business Org Midterm (4 decks)

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