Partnerships Flashcards
MEE
1
Q
General Partnership Formation
General Partnership Formation - Intent
A
- A general partnership is an association of two or more persons to carry on a for-profit business as co-owners.
- At least two persons must intend to carry on a business for profit as co-owners, but their subjective intent as to the formation of the partnership is irrelevant.
- Individuals can inadvertently form a general partnership unless they express their intention to do something else.
2
Q
General Partnership Formation
Profits Sharing Test - Payment of Debt
A
- When two or more persons carry on as co-owners of a business for profit, it is presumed they are partners, whether or not they intend to form a partnership.
- If one person receives** profits in payment of a debt** = NO Partnership
3
Q
Partnership Liability
Partnership Liability
A
- A partner is jointly and severally liable for all partnership obligations.
- A partner is an agent of the partnership, making the partnership liable for a partner’s tortious acts, including fraud, committed in the ordinary course of the partnership’s business or with the partnership’s authority, whether actual or apparent.
- A judgment against a partnership cannot be satisfied from a partner’s assets unless there is also a judgment against the partner.
- Partner is personally liable for a partnership obligation, BUT a partnership creditor must generally exhaust the partnership’s assets before levying on the partners’ personal assets.
4
Q
Partnership Liability
Partner’s Joint and Several Liability
A
- Plaintiffs’ can recover from Partners in their individual capacity beacause each general partner is personally liable for partnership debts and obligations.
- A partner is jointly and severally liable for all partnership obligations.
- A judgment against a partnership is not a judgment against its partners.
- To collect from a partner personally, a party must:
- Obtain a judgment against the partner individually.
- Obtain a judgment against the partnership.
- These judgments can be sought in the same action.
- A judgment against a partnership cannot be satisfied from the partner’s assets, only the partnership’s assets, Unless there is a judgment against the partner.
- If a claimant obtains judgments against both the partner individually and the partnership, they must generally exhaust the partnership’s assets before levying on the partner’s personal assets.
5
Q
Partnership Liability
New Partner Liability for Preexisting Obligations
A
- A person admitted as a partner into an existing partnership is not personally liable for any prior partnership obligations.
- BUT any capital contribution made by an incoming partner to the partnership is at risk for the satisfaction of such partnership obligations.
6
Q
Actual and Apparent Authority
Actual Authority
A
- A partner is an agent of the partnership for the purpose of its business.
- A partner can contractually bind the partnership when acting with either actual or apparent authority.
- A partner’s act that was authorized by the partnership binds the partnership.
- Actual authority includes:
- Express authority: Can arise from the partnership agreement itself, the partner’s authorization, or a statement of authority filed with the state.
- Implied authority: Arises from the partner’s reasonable belief that their actions are necessary to carry out express authority.
7
Q
Actual and Apparent Authority
Apparent Authority
A
- Apparent authority: Even if a partner’s act is unauthorized by the partnership, the partner’s act can still bind the partnership.
- Applies when the partner performs the unauthorized act in the ordinary course of the partnership’s business or the kind of business carried out by the partnership.
- A 3rd party dealing with the partner cannot hold the partnership liable if the third party knew or had received notification that the partner lacked authority.
- For the partnership to escape liability, the third party must have actual knowledge of the partner’s lack of authority.
8
Q
Fiduciary Duties
A
9
Q
Fiduciary Duties
Duty of Loyalty
A
- A partner owes the partnership and the other partners the duty of loyalty.
- Under the duty of loyalty, a partner is prohibited from using partnership property or business to derive a personal benefit without notifying the partnership.
10
Q
Fiduciary Duties
Duty of Care
A
- A partner owes the partnership and the other partners the duty of care.
- Under the duty of care, a partner is prohibited from engaging in:
- Grossly negligent or reckless conduct.
-
Intentional misconduct.
A knowing violation of the law.
11
Q
Fiduciary Duties
Legal Action Against a Partner
A
- A partnership may pursue legal action against a partner for:
- Breach of the partnership agreement.
- Violating a duty owed to the partnership that caused harm.
12
Q
Fiduciary Duties
Legal Action by a Partner
A
- A partner may pursue legal action against the partnership or another partner to enforce:
- The partner’s rights under the partnership agreement.
- The Revised Uniform Partnership Act (RUPA).
13
Q
Withdrawal/Dissociation
Effects of Wrongful Dissociating Partner
A
- A partner can withdraw or dissociate from a partnership at any time, even if the dissociation is wrongful.
- Wrongful dissociation: occurs when it violates an express provision of the partnership agreement.
- A partner who wrongfully dissociates is liable to the partnership and other partners for damages caused by the dissociation.
- A dissociated partner generally does not have the right to participate in the management or conduct of the partnership business and cannot participate in winding up the business.
14
Q
Withdrawal/Dissociation
Effects of Wrongful Dissociation on Partnership
A
- Wrongful dissociation may, but does not necessarily, result in the dissolution of the partnership and the winding up of its business.
- Creates a possibility of dissolution if, within 90 days of dissociation, a majority of the remaining partners express a will to wind up the business.
- If dissolution results, the dissociated partner is not entitled to any payout until the end of the original term unless the partner can prove to the court that earlier payment would not cause undue hardship to the business.
15
Q
Withdrawal/Dissociation
Effects of Rightful Dissociation on Partner
A
- Dissociation that complies with the partnership agreement may trigger dissolution, such as in an at-will partnership agreement with no definite term or as provided by the partnership agreement.
- If the dissociating partner’s withdrawal is not wrongful, the partner is not liable for damages and retains the right to participate in the dissolution and winding up the partnership.
