Partnerships

Question 1

LLP

Answer 1

A limited liability partnership is a partnership in which a partner’s personal liability for obligations of the partnership is eliminated.

In other respects, an LLP is governed by the same rules as a partnership.

-Must file with state of qualification
-Must have name ending with LLP or RLLP
-Must vote to authorize transformation

Question 2

Liability in an LLP

Answer 2

A limited partner in an LLP is not personally liable for an obligation of an LLP, regardless of the type of obligation.

A limtied partner is personally liable for his own misconduct

Question 3

Does conversion from a partnership to a limited liability partnership (LLP) relieves the LLP of obligations incurred by the partnership?

Answer 3

No. Still liable. The filing of a statement of qualification, which transforms a partnership into an LLP, does not create a new partnership.

Question 4

Can the partners be personally liable for obligations that pre-existed their conversion to an LLP??

Answer 4

Yes. A partner is jointly and severally liable for all partnership obligations. Though a limited partner in an LLP is not personally liable for an obligation of an LLP, limited liability partnership status is generally only effective on the date that the statement of qualification is filed with the state and not before.

Question 5

Can a new partner who joins an existing LLP be held personally liable for the judgment incurred by the former partnership?

Answer 5

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 obligation.

Question 6

A partnership is

Answer 6

A partnership is an association of two or more legal persons to carry on a for-profit business as co-owners.

They do not need to have intended to form the Partnership.

Question 7

Whats the key test to determine whether a business arrangement is a partnership?

Answer 7

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.

Its a rebuttable presumption.

Other factors that are important are joint ownership of property, sharing of control, capital investment, division of labor.

Question 8

What things that look like sharing of profits are actually not for purposes of existence of Parntership?

Answer 8

The sharing of profits from a business does not create a rebuttable presumption that the arrangement is a partnership and the recipients are partners in six statutorily enumerated circumstances:

i) Debt payments, including installment payments; (they are just a creditor)

ii) Interest or other loan charges, even though the payment varies with the profits of the business;

iii) Rent;

iv) Wages or other compensation paid to an employee or independent contractor;

v) Goodwill payments stemming from the sale of a business, including installment payments; and

vi) Annuities or other retirement or health benefits paid to a beneficiary, representative, or designee of a deceased or retired partner.

Question 9

Transferability of partnership interest

Answer 9

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.

*This right to transfer can be changed to required majroity vote of the partners

Question 10

Who is entitled to inspect books and records of a partnership??

Answer 10

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.

Question 11

How does transferee of partnership interest become partner?

Answer 11

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

Question 12

Requirements for bringing in a new partner

Answer 12

All existing partners must consent to the new partner.

Question 13

Property of the partnership

Answer 13

Property is partnership property if it is acquired in the name of the partnership or with partnerships assets. It is property of the partnership and not of the partners individually.

Question 14

When is property presumed to be the partner’s separate property (not partnership property)?

Answer 14

By contrast, property is rebuttably presumed to be a partner’s separate property when
(i) the property is acquired in the name of one or more partners,
(ii) the instrument transferring title to the property does not indicate the person’s capacity as a partner or the existence of a partnership, and
(iii) partnership assets were not used to acquire the property.

The use of property for partnership purposes is not enough to overcome this presumption.

Question 15

Management rights

Answer 15

Each partner has equal rights in the management and conduct of the partnership.

Question 16

Use of Partnership Property

Answer 16

Partner may use or possess partnership property only on behalf of the partnership. RUPA 401(g). A partner who derives a personal benefit from the use or possession of partnership property is required to compensate the partnership for such benefit. RUPA 404(b).

Question 17

Partners as Agents

Answer 17

A partner is an agent of the partnership for the purpose of its business and can contractually bind the partnership when the partner acts with either actual or apparent authority. Partnership can also be liable fro the torts.

A partner’s act that was authorized by the partnership binds the partnership.

Question 18

Actual authority in a partnership

Answer 18

Actual authority includes both express authority and implied authority. Express authority can arise from the partnership agreement itself, an authorization of the partners, or a statement of authority filed with the state.

Question 19

When partner does NOT have actual authority…

Answer 19

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.

Question 20

To enjoy LLP status….

Answer 20

To enjoy LLP status, the partnership must file a statement with the state. In other respects, an LLP

Question 21

Is a limited partner personally liable for their own misconduct ??

Answer 21

YES of course.

A limited partner is personally liable for his own personal misconduct.

Question 22

Fiduciary duties in a Partnership incl LLP andLP (?)

Answer 22

A partner owes the partnership and the other partners two fiduciary duties—the duty of loyalty and the duty of care.

Question 23

Duty of Loyality

Answer 23

Under the duty of loyalty, a partner is prohibited from
i) Competing with the partnership business;

ii) Advancing an interest adverse to the partnership; and

iii) Usurping a partnership opportunity or

iv) otherwise using partnership property or business to derive a personal benefit, without notifying the partnership.

Question 24

Partners Duty of Care

Answer 24

Under the duty of care, a partner is prohibited from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.

Question 25

To whom is a partner who breaches their duty liable?

Answer 25

A partnership may pursue a legal action against a partner for breach of the partnership agreement or for violating a duty owed to the partnership that caused the partnership harm. A partner may pursue a legal action against the partnership or another partner to enforce the partner’s rights under the partnership agreement or the RUPA.

Question 26

LP Formation

Answer 26

Limited partners + atleast one general p

Formation: must file a certificate of limited partnership with secretary of state that has

1. pship name
2. prinicpal office address
3. name and addr. of registered agent
4. name and address of each GP
5. if LLLP or not and
6. Signed by all GPs

Question 27

GP Formation

Answer 27

super informal

1. 2 or more persons
2. acting as co-owners
3. to carry on a business for profit.

Intent to form not reqd

Question 28

Presumpiton - sharing profits

Answer 28

If person receiving a share of profits –> presumed to be a parnter
unless payment received as
1. debt
2. wages/fees
3. rent
4. annuinty
5. interest on loan
6. sale of goodwill?

Question 29

Partnership Agreement amendment

Answer 29

Unless agreed otherwise, the Pship agreement may be amended at any time with a unanimous vote.

Question 30

Creation of LLP

Answer 30

In an LLP, all partners have limited personal liability.

1) It must be approved by the same vote necessary
to amend the Pship Agreement; AND

2) A Statement of Qualification must be filed with
the Secretary of State containing:

i. name and address of Pship;
ii. statement that the Pship elects to become an LLP; and
iii. a deferred effective date (if any).

Question 31

Does filing statement of qualif for LLC create a new partnership?

Answer 31

Filing DOES NOT create a new partnership (if a GP or LP existed prior to filing).
− The Pship remains liable for any obligations before it became an LLP.

Question 32

Authority to Bind Partnership AFTER Dissolution

Answer 32

A partner’s authority is limited after dissolution.

Actual Authority → limited only to acts appropriate for winding up the business.

Apparent Authority → a partner has apparent authority to bind the Pship if the:
1) Partner’s acts would have normally bound the Pship; AND
2) Third-party did not have notice of dissolution.