Partnerships Flashcards
What are the requirements to form a partnership?
- Two or more persons
- Intent to carry on a for-profit business as co-owners
No specific intent to form a partnership required
Is a written agreement required to form a partnership?
- No, a partnership agreement can be implied by conduct.
- However, if the agreement cannot be performed within one year, it must be in writing under the Statute of Frauds.
None
What is the profit-sharing test for partnerships?
If partners share profits, a partnership is presumed.
Exceptions:
* Debt repayment
* Interest or loan charges
* Rent
* Wages
* Goodwill payments from business sales
* Retirement or health benefits
None
What is a ‘partner by estoppel’?
Occurs when a person is treated as a partner even if no partnership exists.
Requirements:
* A representation that the person is a partner
* The person consented to the representation
* A third party reasonably relied on the representation
* The third party suffered damages
None
What liability does a ‘partner by estoppel’ have?
If the partnership is liable, the purported partner is liable as if they were a partner.
If no partnership liability exists, the purported partner is jointly & severally liable with those who consented to the representation.
None
Is a partnership a separate legal entity?
Yes, a partnership can own property, sue, and be sued.
However, partners are personally liable for partnership obligations.
None
How does a formal partnership agreement affect governance?
The agreement controls if there is a conflict with default state partnership laws (RUPA).
None
What fiduciary duties do partners owe the partnership?
- Duty of Loyalty: No competing, no adverse interests, no usurping opportunities.
- Duty of Care: No gross negligence, recklessness, or knowing law violations.
- Duty of Good Faith & Fair Dealing: Cannot be eliminated by agreement.
None
How are partnership profits and losses divided?
If no agreement: Profits and losses are shared equally.
If agreement specifies only profit division: Losses follow the same division as profits.
None
What are a partner’s property rights?
A partner has a personal property interest in:
* A share of the profits and losses.
* The right to distributions.
None
Can a partner transfer their interest to a third party?
Yes, unless restricted by the agreement.
Transferee only gets the right to distributions, NOT management rights.
None
How is property ownership determined in a partnership?
Property is presumed partnership property if purchased with partnership funds.
If unclear, consider:
* Use of the property
* Tax treatment
* Source of funds for maintenance
None
Can a new partner join without consent?
No, all existing partners must approve a new partner.
None
How are management decisions made in a partnership?
Ordinary business decisions: Majority vote of partners.
Matters outside ordinary business: Unanimous vote.
None
Are partners entitled to a salary?
No, unless the agreement states otherwise.
Exception: A partner can be compensated for winding up the partnership.
None
Can a partner use partnership property for personal benefit?
No, and if they do, they must compensate the partnership.
None
What events cause a partner’s dissociation?
- Notice of withdrawal
- Expulsion
- Death or bankruptcy
- Judicial determination of incapacity
None
What is ‘wrongful dissociation’?
If a partner withdraws before a definite term ends or breaches the agreement, they are liable for damages.
None
What happens when a partner dissociates?
- They lose management rights.
- The partnership must buy out their interest.
- Their duty of loyalty ends (except for winding up duties).
None
How can a partnership dissolve?
At-will partnership: Dissolved when a partner gives notice of withdrawal.
Partnership for a term: Dissolved if:
* Term expires
* All partners agree
* A partner dies/bankrupts and a majority vote for dissolution
None
What is ‘winding up’ a partnership?
Selling assets, paying creditors, and distributing remaining assets.
None
What is the order of distributing assets upon dissolution?
- Outside creditors.
- Inside (partner) creditors.
- Partner capital contributions.
- Profits and losses.
None
How are partners liable for partnership obligations?
Jointly and severally liable.
Creditors must seek partnership assets first before going after personal assets.
None
Is a dissociated partner liable for new debts?
No, but they are liable for obligations incurred before dissociation.
None
When is a partner liable for the partnership’s torts?
When committed in the ordinary course of business or with partnership authority.
None
What is required to form a limited partnership (LP)?
- At least one general partner and one limited partner.
- Must file a certificate of limited partnership with the state.
None
What liability do limited partners have?
Limited to their investment, unless they participate in management.
None
Can a limited partner withdraw?
Yes, but only as allowed in the agreement.
None
What is an LLP?
A partnership where partners are not personally liable for partnership debts.
None
What is required to form an LLP?
Must file a Statement of Qualification with the state.
None
What happens if an LLP loses its status?
Partners become personally liable for obligations incurred after the loss.
None
Can a limited partner sue on behalf of an LP?
Yes, they have the right to bring a derivative action.
None
