Partnerships Flashcards
a partnership is formed when
(1) two or more people associate to carry on as co-owners a business for profit, and
(2) they do not file the paperwork (e.g., articles of incorporation/organization) to operate the business in some other form.
RUPA §202(c) states that, with certain exceptions, “[a] person who receives a share of the profits of a business is presumed to be a partner in the business.” Exceptions include . . .
profits paid on a debt or as compensation.
What is prima facie evidence that a partnership exists?
Rule: Under the Uniform Partnership Act (UPA), profit sharing is prima facie evidence that a partnership exists, but a partnership may still be found if the parties agreed to conduct business together.
The partnership agreement may not
(1) Eliminate the duty of loyalty [but may identify activities that do not violate the duty of loyalty, if not manifestly unreasonable];
(2) Unreasonably reduce the duty of care;
(3) Eliminate the obligation of good faith and fair dealing
Indemnification right
A partner who must pay a creditor for partnership liabilities has a right to indemnification (reimbursement) from the partnership and partners.
exhaustion rule
A creditor must first attempt to satisfy a debt from the partnership’s assets before pursuing a partner’s personal assets.
What rights can a partner transfer?
- Under RUPA, a partner has a right to transfer their transferrable interest, i.e., a right to receive distributions.
- A partner does not have a right to transfer their management rights. (applies to inherited interest)
Judicial dissolution
A court can order dissolution of a partnership under specified circumstances, including if a partner has engaged in conduct making it not reasonably practicable to carry on partnership business.
Is dissolution the end of a partnership?
No. Dissolution is when operations end and the partnership begins to wind up (sell assets, pay debts, make distributions).
Termination is the true end of a partnership
In an LP, what is the liability of general partners?
all general partners are liable jointly and severally for all debts, obligations, and other liabilities of the limited partnership unless otherwise agreed by the claimant or provided by law.
Liability of limited partners
Not personally liable, even if the limited partner participates in the management and control of the limited partnership.
I have a note saying, “many states have an exception to this for limited partners that participate in control
General partner duties
same as a partnership (loyalty and care)
very high burden for duty of loyalty
Limited partner duties
No fiduciary duties, but must deal in good faith
Limited partnership distributions
Allocated based on value (capital) contributed. As opposed to equal sharing of general partnerships.
Can limited partners voluntarily dissociate?
Not before the LP winds up
