Partnerships Flashcards
A partnership is an association of two or more persons to carry out a for-profit business as co-owners. Is it possible to form a partnership between a corporation and another partnership?
YES.
In partnership law, a “person” is an individual, corporation, LLC, trust, estate, government entity, or another partnership.
What kind of intent is necessary to form a partnership?
To form a partnership, there needs to be at least two “persons” with intent to carry on a business for profit as co-owners. Specific intent is NOT required to form a partnership; the agreement can be express or implied through conduct of the parties
What six kinds of payments can be used to rebut the presumption that a partnership was intended and created even when the payments appear to be the sharing of profits?
WAR DIG
Wages Annuities Rent Debt Interest Goodwill
The sharing of profits from a business does not create a rebuttable presumption that the arrangement is a partnership if the sharing is actually payment of:
- A debt (including installment payments)
- Interest on a loan
- Rent
- Wages or other compensation paid to an employee or independent contractor
- Goodwill payments stemming from the sale of a business (including installment payments)
- Annuities (or other retirement of health benefits) paid to a surviving spouse or beneficiary, representative, or designee of a deceased or retired partner
When will a person be characterized as a partner by estoppel and be liable to third parties?
When a person represents himself either orally, in writing, or implied by conduct as a partner (or consents to or allows another to represent himself as a partner), he will be a partner by estoppel, and he will be liable to third parties if the third party reasonably relied on the representation and suffered damages as a result
Generally, a person who is held out by another as a partner (without consent) is not under a duty to deny that representation. When is it not a defense that the purported partner was unaware that she was being represented as a partner?
It is not a defense that the purported partner was unaware that she had been held out as a partner to a specific third party if the representation was made in a public manner
What two fiduciary duties does a partner owe to the partnership and to the other partners?
A partner owes the partnership and the other partners the duty of loyalty and the duty of care
Is a written agreement required to form a partnership?
NO.
*Unless the agreement cannot be performed within a year (because a partnership agreement is subject to the Statute of Frauds)
When is a partner entitled to remuneration for services rendered to the partnership?
Absent an agreement to the contrary, a partner is not entitled to remuneration for services rendered to the partnership.
Exceptions:
1. When the partner renders services in winding up
2. When the partners agree to pay a partner for her efforts
When must a partnership indemnify a partner who incurs a personal liabiltiy?
A partnership must indemnify partners that incur personal liability in the ordinary course of conducting partnership business or in order to preserve the partnership’s business property
A partnership can be contractually bound when a partner acts with either actual or apparent authority. What fact will allow a partnership to escape liability when a partner acts with apparent authority?
For a partnership to escape liability, the third party generally must possess actual knowledge of the partner’s lack of actual authority
What is the rule regarding use of partnership property?
A partner may use or possess partnership property only on behalf of the partnership. A partner who uses partnership property for personal benefit must compensate the partnership
What rights does a partner have with respect to access to records and information of the partnership’s business
Partners and their agents (including attorneys) have the right to access, inspect, and copy partnership records and books. Upon demand, partners must furnish any and all information affecting the partnership
Does a partnership agreement govern a partnership or does RUPA?
Although a formal agreement is not required to create a partnership, if the partners have entered into such an agreement, then the agreement, rather than RUPA, governs the relations among the partners and between the partners and the partnership.
Under what circumstances might a judicial expulsion of a partner occur?
An expulsion of a partner by a court order may occur because the partner has either:
1. Engaged in misconduct that adversely and materially affected the partnership business
2. Willfully and persistently caused a material breach of the partnership agreement; OR
3. Breached a duty owed to the partnership or other partners
When a partner dissociates from a partnership and that partner’s interest is purchased by the partnership, does the partner remain responsible for partnership obligations that occurred prior to dissociation?
When a partnership pruchases a dissociated partner’s interest, the partnership must generally indemnify the partner against all partnership liabilities, whether the liabilities were incurred before or after the dissociation. An exception exists for liabilities incurred by the partnership due to the dissociated partner’s post-dissociation actions
What does a statement of dissociation filed with the state do?
A statement of dissociation:
1. Constitutes a limit on the dissociated partner’s authority
2. Gives third parties notice of the dissociation as of 90 days after the statement is filed;
AND
3. Reduces the window of partnership liability for a dissociated partner’s actions from two years to 90 days
Under a duty of loyalty, what is a partner required to refrain from doing?
CAU
CAU
Competing Adverse Usurping
Under the duty of loyalty, a partner is required to refrain from:
1. Competing with the partnership
2. Advancing an interest adverse to the partnership; AND
3. Usurping a partnership opportunity (or otherwise using partnership property or business to derive a personal benefit) without notifying the partnership
What does a partner’s duty of care entail?
GRIK
GRIK
Grossly Reckless Intentional Knowingly
Under the duty of care, a partner is required to refrain from engaging in:
1. Grossly negligent or reckless conduct
2. Intentional misconduct;
OR
3. Knowingly violating the law
When is titled property in the name of an individual partner actually the property of the partnership?
Property titled in the name of an individual partner is partnership property when the instrument indicates either the named person’s capacity as a partner or the existence of the partnership
Property purchased with partnership assets or by using partnership credit to obtain financing is presumed to be partnership property
How is a judgment for a third party against a partnership usually satisfied?
A partnership creditor generally must first exhaust the partnership’s assets before levying on a partner’s personal assets
When a partner dissociates from the partnership, but the partnership is not dissolved, what happens to the partner’s interest?
When a partner dissociated and the partnership is not dissolved, the partnership must buy out that partner’s interest. The dissociated partner’s interest is valued as if the partnership business was wound up on the date of dissociation. The partnership is valued as the greater of the liquidation value of its assets or the value of the partnership as a goinf concern
What are the procedures for converting a limited partnership into a partnership?
To convert a limited partnership into a partnership, all of the general and limited partners must approve the conversion. Once approved, the limited partnership must cancel its limited partnership certificate. The conversion takes effect upon the cancellation of that certificate
Which partners can make decisions as to matters in the ordinary course of business? Which partners can make decisions as to matters outside the ordinary course of business?
Absent a partnership agreement to the contrary, all partners have equal rights in the management and conduct of the partnership.
A majority of the partners can make a decision as to a matter in the ordinary course of business, but a decision as to matters outside the ordinary course of business requires the consent of all partners
What happens when there is a partnership agreement that addresses the division of partnership profits, but it is silent on the division of partnership losses?
In general, if there is no agreement or the agreement is silent as to the division of profits and losses, each partner is entitled to an equal share of the partnership profits and losses. When the agreement addresses only the division of profits, then losses are to be shared in the same manner (same percentage as division of profits)
When is a partnership liable for a partner’s tortious acts, including fraud?
A partnership is liable for a partner’s tortious acts, including fraud, when the partner commits the tortious acts in the ordinary course of the partnership business or with partnership authority, whether actual or apparent. (The partnership will not be liable when the fraudulent act occurs outside of the scope of partnership business)
What powers does a person winding up the partnership business have?
PLVA
PLVA
Property Liabilities Value Assets
- Dispose of and transfer partnership property
- Discharge partnership liabilities
- Preserve the business or property to maximize value
- Distribute assets to settle partners’ accounts
What are the exceptions to first satisfying a judgment from partnership assets over a partner’s personal assets?
BCLIBE
Bankruptcy Consented Liable Insufficient Burdensome Equitable
While generally a judgment against a partnership must first be satisfied by partnership assets, exceptions exist when:
- The partnership is a debtor in bankruptcy
- The partner consented
- The partner is liable independently of the partnership (i.e. partner was primary tortfeasor)
- The partnership’s assets are clearly insufficient
- Exhaustion of partnership assets would be excessively burdensom,
OR - It is otherwise equitable to do so
How is the partnership affected by the criminal act of one of the partners?
A partnership may be convicted of a crime for which the penalty is a fine levied on partnership assets. Merely being a partner, however, is not sufficient to make a partner criminally liable for the acts of another partner
What is the exception to the general rule that a partner’s knowledge or notice of fact is immediately imputed to the partnership?
An exception to the general rule that a partner’s knowledge or notice of fact is immediately imputed to the partnership exists when a fraud on the partnership is committed by or with the consent of the partner
What are the procedures for converting a partnership into a limited partnership?
To convert a partnership into a limited partnership, all of the partners must approve the conversion, and then articles of conversion must be filed with the state. The conversion takes effect upon the filing of the articles of conversion, unless a later date is specified
What types of events can trigger a partnership’s dissolution?
PLJ
PLJ
Partners Law Judicial
The main causes of partnership dissolution are:
- By actions of partners
- By operation of law
- By judicial determination
How may a general partner withdraw from a limited partnership?
At any time, a general partner may withdraw from a limited partnership by giving written notice to the other partners
How may a person become a limited partner after the limited partnership is formed?
Once a limited partnership is created, a person may become a limited partner upon written consent of all partners, unless the partnership agreement provides otherwise
In a limited partnership, a general or limited partner may contribute a promise to pay cash, to provide property, or to perform services. What happens when a partner is unable to perform an enforceable promise for this kind of future contribution?
Generally, a partner is obligated to the limited partnership with respect to any written, enforceable promise of a future contribution. When a partner is unable to perform the promise due to death or disability, the partner or his estate must pay the cash value of the promise
Upon dissolution of a limited partnership, who may wind up the partnership’s business?
The general partners who have not wrongfully dissolved the limited partnership may wind up
When there are not any such general partners, the limited partners may wind up the partnership’s affairs
Which partners may participate in winding up a partnership’s business once it has dissolved?
Any partner who has not wrongfully dissociated from the partnership may participate in winding up the partnership’s business
Does a partnership have to repay a loan that a partner makes in furtherance of the ordinary course of partnership business?
A partnership is required to repay a loan or reimburse a partner for advances, including interest from the date of the loan or advance