Partnerships Flashcards
Formation
In order to form a partnership, at least two persons must intend to carry on a business for profit as co-owners, but it is not necessary that such persons have the specific intent to form a partnership.
Partnership Requirements (Formation)
The key test applied to ascertain whether a business arrangement is a partnership is whether there is a sharing of profits from the business; if so, such an arrangement generally is presumed to be a partnership and persons who share in the profits are partners.
Partnership by Estoppel
When no partnership exists, a person may be treated as a purported partner if there is an oral, written or implied by conduct representation that person is in a partnership; the person consents to representation; a third party reasonably relies on the representation; and the third party suffers damages as a result of the reliance.
Partner Fiduciary Duties
(Duty of Loyalty)
Under the duty of loyalty, a partner is required to refrain from the following activities: competing with the partnership business, advancing an interest adverse to the partnership, and usurping a partnership opportunity. However, a partnership agreement can designate certain activities as not violating this duty, and may provide a safe harbor under which the other partners could authorize or ratify the transaction, after full disclosure of material facts.
(Duty of Care)
A partner is required to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law. A partnership agreement may not reduce this duty unreasonably.
(Good Faith & Fair Dealing)
In observing the duties of loyalty and care and in exercising any rights, a partner has the obligation of good faith and fair dealing. The partnership agreement cannot eliminate this obligation but can prescribe reasonable standards by which the performance of the obligation is measured. Profits and losses
Profits and Losses
A partnership has a personal property interest in a partnership, consisting of rights to share in a partnership’s profits and losses and to receive distributions. A partner can transfer all or part of the partnership interest absent a restriction in the agreement, the transferor partner retains all rights and duties of the partner (except for an interest in the distributions), and the transfer doesn’t cause dissolution or dissociation.
Liability for Partnership Obligations
As a separate entity, a partnership is subject to suit for its obligations. A partner is jointly and severally liable for all partnership obligations.
