Partnerships

Question 1

General Partnership Formation

Answer 1

No Formalities; Default Rule

Definition: Is an ASSOCIATION of 2 or more persons who are carrying on as co-owners of a biz for profit

SHARING of PROFITS is the KEY FACTOR

Question 2

Liabilities of GPs to 3rd Parties

Answer 2

Agency Principles Apply
-GPs liable for each partner’s torts in the scope of partnership business and for each partner’s authorized K

EACH GP is personally liable for ALL DEBTS of the Partnership and for EACH Co-Partner’s Torts

• Incoming partner’s liability for pre-existing debts
• Dissociating partner’s liability for subsequent debts

GP Liability by Estoppel:
-One who represents to a 3rd Party that a GP exists will be liable as if a GP exists

Question 3

Rights & Liabilities Between GPs

Answer 3

GP are Fiduciaries for each other & the partnership

-Action for Accounting = Partnership may recover losses and also may disgorge profits

Question 4

Partner’s Rights in Partnership Property and Liquidity

Answer 4

Specific Partnership Assets
-May NOT be transferred by individual partners, w/out partnership authority

Share of Profits
-May be transferred by individual partners to 3rd parties

Share in management
-May NOT be transferred by individual partners to 3rd parties

TEST to know if individual partners personal property or partnership:
-Who’s $ was used to buy the property

Question 5

Management

Answer 5

Absent an agreement, each partner is entitled to EQUAL control (vote)

Question 6

Salary

Answer 6

Absent an agreement, partners get NO SALARY (except to help wind up biz)

Question 7

Partner’s Share of Profits and Losses

Answer 7

2 Steps:

(1) Absent an agreement, PROFITS SHARED EQUALLY
(2) Absent an agreement, LOSSES SHARED LIKE PROFITS

Watch out for traps

Question 8

General partnership dissolution

Answer 8

GP dissolves upon notice of express will of ANY single GP to dissociate (in absence of agreement setting forth)

Real end of Partnership = Termination

Winding Up = Period between Dissolution and Termination

Question 9

Partnership’s Liability During Dissolution

Answer 9

(1) Old Business = All transactions entered into to wind up old business by satisfying creditors when winding up began
(2) New Business = Notice of dissolution is given to creditors OR until 90 days after filing w/the State that is now called a statement of dissolution

Question 10

Priority of Distribution During Dissolution

Answer 10

(1) Partnership MUST pay ALL Creditors (outside trade and inside partners)
(2) Partnership MUST repay all CAPITAL contributions paid into the partnership by partners
(3) Profits if any (shared equally w/out an agreement)

RULE = Each partner must be repaid his or her loans and capital contributions plus that partner’s share of any profits, or minus that partner’s share of any losses