Partnerships Flashcards
What is a partnership? What is the key test?
A partnership is an association of two or more persons to carry on a for-profit business as co-owners.
The key test applied to ascertain whether a business arrangement is a partnership is whether there is a sharing of the profits from the business; if so, such an arrangement generally is presumed to be a partnership, and persons who share in the profits are partners.
Role of creditors in partnerships
A partnership does not exist between person when one person receives profits in payment of a debt.
Default rule: transfer of partnership interest
A partner has a transferable partnership interest, i.e. a partner may transfer the right to share in the profits and losses of the partnership and to receive distributions.
Rights of a transferee
The transferee has the right to receive distributions from the partnership to which the transferor partner would otherwise have been entitled, including both distributions made by the partnership as an ongoing concern and those made upon the dissolution of the partnership and the winding up of its business.
Denied rights of a transferee
The transferee is not entitled to participate in the management or conduct of the partnership business, to access partnership records, or to demand other information from the partnership.
Property ownership
All property acquired by a partnership, whether by contribution from a partner or by purchase or other transfer from a partner or a third party, is partnership property and belongs to the partnership, not the individual partners.
Can a partner transfer an ownership interest in partnership property?
A partner cannot transfer ownership interest in partnership property, voluntarily or involuntarily.
Use of partnership property
A partner may use or possess partnership property only on behalf of the partnership. A partner who derives a personal benefit from the use or possession of partnership property is required to compensate the partnership for such benefit.
