Partnerships

Question 1

Partnership (general)

Answer 1

An association of two or more persons to carry on as co-owners a business for profit

formed as soon as it happens - do not need subjective intent or filing

only intent to carry on a business as co-owners

Question 2

Factors in deciding whether partnership exists

Answer 2

sharing of profits - presumption of partnership
- unless received as payment of debt, wages, compensation, rent, annuity, interest, sale of goodwill
- gross returns is not profits - does not create presumption

right to participate in control

non-presumptive evidence
- title to property held jointly
- parties designate their relationship as a partnership
- sharing of gross returns

Question 3

Partnership by estoppel

Answer 3

if no pship formed, may still be liable to protect reasonable reliance of third parties

must have consented to being held out as a partner

Question 4

Becoming and rights of a partner

Answer 4

Need consent of all partners to become a partner

voting
- equal rights to vote - one partner one vote
- ordinary course of business - majority
- outside of business - unanimous

no right to salary or compensation
- equal share of profits and losses
- losses are shared the same as profits, but if specify losses and silent on profits, profits are not shared the same as losses

partner - agent of partnership

Question 5

Actual authority of partners

Answer 5

Transaction involving real property
- 3rd parties are deemed to have constructive knowledge of statement if secretary or state and county filings are made
- grants of authority and restrictions

Transactions not involving real property
- third parties are deemed to have constructive knowledge only of filed grants of authority, not restrictions

Question 6

Apparent authority of partners

Answer 6

Ordinary course of business or business of the kind carried out by the partnership

Question 7

Liability of the partners

Answer 7

Partners jointly and severally liable for all obligations

P must first exhaust partnership resources before seeking to collect from an individual partner’s assets

Can only limit a parters contribution for losses on liability, cannot limit liability to a third party

a new partner is not personally liable for obligations that arose before admission - only to the extent of their investment

Question 8

Fiduciary duties

Answer 8

each partner owes duties to the partnership and the partners

Duty of loyalty

duty of care
- refrain from engaging in grossly negligence, or reckless conduct, or intentional misconduct

duty of disclosure (statutory duty)
- without demand - any info concerning business or affairs reasonably required for proper exercise of duties and rights
- all else with demand

duty of obedience

Cannot waive loyalty/obedience or care

Question 9

Partnership property

Answer 9

Partnership has unrestricted rights

partner has no rights or interest- can only use for partnership purposes

Question 10

Partnership interest

Answer 10

Management rights
- no unilateral transfer - need unanimous vote

financial rights
- can unilaterally transfer

Question 11

Dissociation

Answer 11

Parter withdraws from partnership
- express will (auto triggers dissolution)
- happening of agreed event
- valid expulsion
- partner’s bankruptcy or appointment of receiver
- partner’s death or incapacity
- decision of court
- termination of business entity

wrongful
- breach of express terms of partnership agreement
- term partnership - agreement to remain partners for a definite term of until the completion of a particular undertaking

Question 12

Consequences of dissociation

Answer 12

Partnership
- dissolve and wind up
- or buyout partner’s interest

Question 13

dissolution

Answer 13

required when
- event in agreement requires widning up
- business becomes illegal
- judicial decree
- unanimous consent
- expiration of term partnership
- dissociation by express will of a partner in at will partnership
- in a term partnership if one partner wrongfully dissociates or dies or bankrupt - only if within 90 days after 1/2 of the remaining partners agree to wind up
passage of 90 days where the partnership doesnt have 2 partners

Question 14

Dissociated partner liability

Answer 14

Pre - liable

post - may be liable for liabilities incurred within 2 years of dissociation

can give public notice - effective 90 days after filing

Question 15

Priority of distribution

Answer 15

Creditors
capital contributions
profits and losses

Question 16

Winding up

Answer 16

After dissolution, partnership still exists to wind up

• can still be bound by apparent authority
• bound by actions to wind up

may waive dissolution before winding up is complete and continue business- unanimous vote of all partners who have not wrongfully dissolved

Question 17

Right to dissolve

Answer 17

Always have a right to dissolve

at will - no penalty
- partner can compel dissolution
term - damages
- can continue and buy out

Question 18

Limited partnership

Answer 18

partnership with at least one general partner and one limited partner
- gp - personally liable
- lp - limited liability to extent of investment

must file a public document
- signed by all gp
- name of partnership
- names and addresses of agent for service of process and all gp

Question 19

General partner v limited partner

Answer 19

GP - equal rights in management

LP
- no mgmt rights unless agreement gives them
- involvement in mgmt does not cause lp to become personally liable

vote of all partners needed for extraordinary activities

only gp needed for ordinary activities

Question 20

LP Financials

Answer 20

Distributions made on basis of contribution

Question 21

LP duties

Answer 21

GP - duty of loyalty and care
- odes not auto violated loyalty merely because the general partner’s conduct furthers own interest

lp - no fiduc duties

Question 22

LP right to dissociate

Answer 22

LP has no right to dissociate befre termination

gp - right to dissociate

Question 23

LP dossolution

Answer 23

Judicially dissolved
- if because of failure to do something required - can be reinstated if cure within 2 years

• happening of an event
• consent of all gp and lp holding a majority interest
• dissociation of gp - consent of majoirty partners if another gp remains, or after 90 if dont find another gp
• 90 days after dissociation of last limited parter unless new lp found

Question 24

Limited liability partnership

Answer 24

all partners have limited liability

need to file public documents
- signed by at least 2 partners
- llp election
- deferred effective date if any

becomes llp at time of filing or on deferred date

Question 25

Limited liability company

Answer 25

Hybrid partnership and corporation
- limited liability unless pierce the corporate veil

need to file public document
- name
- address of registered office
- name and address of registered agent

operating agreement
- can eliminate duty of loyalty, can alter duty of care
- cannot eliminate good faith and fair dealing

management - all members or managers
- majority vote for ordinary business, unanimous for extraordinary

distributions - usually based on contribution

Question 26

LLC Fiduciary duties

Answer 26

members if member managed, managers if manager managed

Care and loyalty

care
- business judgment rule - cannot be held liability for negligent decisions

loyalty
- can self deal if disclose all material facts, all members authorize or ratify act
- if manager managed- only members can authorize or ratify and only managers subject to the duties

Question 27

LLC Dissociation

Answer 27

can rightfully or wrongfully
may be liable for damages if wrongful

Question 28

LLC dissolution

Answer 28

Event in operating agreement

consent of all members

passage of 90 days with no members

judicial dissolution

administrative - fail to submit ree or anual report, but can cure