Partnerships Flashcards
Partnership is formed when
Two or more persons operate as co-owners of a business for profit
Is an express agreement required for a partnership?
NO
What actions trigger a presumption of a partnership??
Sharing profits, losses and sharing control of business
A partnership agreement controls
a partner’s rights to share in profits and losses
How much in losses is partner chargeable when the agreement only addresses division of partnership profits?
Chargeable in losses in proportion to his share of profits
General partnership
to or more persons agree to share in all assets, profits, and financial and legal liabilities of a jointly-owned business
What degree of liability do partners in a general partnership share for debts of partnership?
Jointly and severally liable for debts of partnership
Purported partner
person who represents herself as partner, or consents to being represented by another as a partner is liable to 3rd person who extend credit to apparent partnership in reliance on the representation
Limited Partnership
Partnership where partners have varying levels of liability and ownership
Limited Partnership: General Partner’s Liability
general partners have unlimited liability for debts of partnership
Limited Partnership: limited partner’s liability
Not liable for debts of limited partnership
Limited partners can lose their limited liability if they
participate in the control of business or if other party reasonably believes they are a general partner
Limited partnership: general partner also has liabilities to the ___ and the other ___
general partner has liability to the partnership and other partners
How does an action of a limited partner become an obligation of the partnership
when a limited P had ACTUAL or APPARENT AUTHORITY to ACT ON BEHALF OF GENERAL PARTNER
Even if no actual or apparent authority, partnership can be liable if General Partner/Partnership ____ LP’s conduct
General partner ratified LP’s conduct
General partner is not entitled tp a management fee unless
partnership agreement provided for one
Limited partner’s liability for unpaid contributions (in general)
Limited P is liable for any unpaid contributions to partnership
Can a creditor of the limited P enforce a limited partner’s obligation to make a contribution to partnership?
Yes
Assignee limited partner is not liable for assignor’s unpaid contribution to partnership if
the unpaid contributions were unknown to assignee at time he became a limited P
A suretyship is a
3rd party K, where one party (surety) promises second party (obligee) that surety will be responsible for any debt or other obligation of a 3rd party resulting from Principal’s failure to pay/perform
What does a Partner’s dissociation do?
terminates one partner’s legal relationship with the partnership, including any right to profits and obligations for debts or other liabilities.
If the partnership continues without the partner, the partners or the partnership must
buyout dissociated partner’s interest
In general, dissociation occurs when
partner provides notice of express intent to withdraw
A partner is also dissociated from partnership upon
death…but death does not trigger dissolution and winding up of partnership
Does partnership terminate immediately upon dissolution?
No
Upon dissolution, partnership enters
winding up phase
During winding up, a partnership is bound by partner’s act if act is
appropriate for winding up partnership
Dissolution of partnership is triggered by
by providing a notice of dissolution.
Who has rights to partnership assets during dissolution
only those partners that remain in the partnership have the right to any partnership assets
The winding up procedure requires partnership to
1) Collect any remaining business assets
2) Settle any remaining debts owed to non-partner creditors
3) Distribute the remaining assets to the remaining partners
Any funds resulting from the wind-up stage are first used to
pay off any outstanding debts of the partnership.
Any remaining funds will be distributed to
the partners individually.
This distribution is typically calculated based on their
ownership interest in the partnership
Upon dissolution, partnership must
wind up its business activities and distribute its assets.
Winding up includes
liquidating or distributing any property or assets remaining after the dissolution of the partnership.
Partnership must buy out dissociated partner’s interest when
partnership continues after partner’s dissociation
Purchasing Deceased Partner’s Interest: Buy out price is the greater of the partnership’s
1) liquidation value; or
2) going concern value on date of dissociation
Dissociated Partner’s Liability for obligations incurred after dissociation
Dissociated partner is generally not liable for obligations incurred after dissociation
Dissociated Partner WILL be liable to 3rd party who transacted business w the partnership within ___ year(s) of dissociation and who ___ ___ that the dissociated partner was __ __ ___ w/o notice or knowledge otherwise
1 year of dissociation and who reasonably believed that the dissociated partner was still a partner w/o notice or knowledge otherwise
What kind of actions may partners bring against other partners?
Derivative action for breach of duty of loyalty
Although partners may not compete during life of partnership, partners may
prepare to compete
Defense to Breach of partnership
transaction was fair to partnership
Can partner compel a distribution of partnership profits?
No, unless agreement states otherwise
