Partnerships Flashcards
Formation
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. However, a partnership does not exist between persons when one person receives profits in payment of a debt.
Transfer of Financial 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. The transfer of that partnership interest creates in the transferee a right to receive distributions to which the transferor would otherwise be entitled.
Access to Records
A partnership must provide its partners and their agents with access to all its records but a transferee is not entitled to participate in the management or conduct of the partnership business or access partnership records. A transfer of a partner’s partnership interest does not make the transferee a partner unless the other partner or partners consent to making the transferee a partner.
Partnership Property
Property is partnership property if it is acquired in the name of the partnership. It is property of the partnership and not of the partners individually. A partner may use or possess partnership property only on behalf of the partnership.
New Partner in LLP
A person admitted as a partner into an existing partnership is not personally liable for any prior partnership obligations. However, any capital contribution made by an incoming partner to the partnership is at risk for the satisfaction of such partnership obligations.
Apparent Authority
A partner’s act that was not authorized by the partnership may nevertheless bind the partnership under the principle of apparent authority. For apparent authority to apply, the partner must perform the unauthorized act in the ordinary course of apparently carrying on either the partnership business or business of a kind carried on by the partnership. However, the third party with whom the partner was dealing cannot hold the partnership liable when that party knew or had received notification that the partner lacked authority. For the partnership to escape liability, the third party generally must possess actual knowledge of the partner’s lack of actual authority.
