Partnerships Flashcards
Which of the following is required to form a partnership?
A. A written partnership agreement.
B. Intent to form a partnership.
C. At least two persons.
D. Contributions to partnership capital.
C. At least two persons.
Under the Revised Uniform Partnership Act (“RUPA”), a partnership is an association of two or more persons to carry on as co-owners a business for profit. Although the partners need not intend to form a partnership, they must intend to carry on as co-owners of a business for profit. A writing is not required; a partnership can be formed by conduct (i.e., associating to form a business for profit). Partner contributions to partnership capital are not required to form a partnership.
Recommended Activity: Read Partnerships and LLCs I.A.1. “Partnership” Defined
A transfer of a partner’s transferable interest in a partnership entitles the transferee to:
A. Become involved in the management or administration of the partnership business or affairs.
B. Demand an accounting of partnership transactions.
C. Inspect the partnership books.
D. Receive distributions to which the transferring partner would otherwise be entitled.
D. Receive distributions to which the transferring partner would otherwise be entitled.
As against the other partners, in the absence of an agreement, a transfer of a partner’s transferable interest entitles the transferee to receive, in accordance with his contract, distributions to which the transferring partner would otherwise be entitled. A transferee is not entitled to become involved in the management or administration of the partnership business or affairs, demand an accounting of partnership transactions, or to inspect the partnership books.
Recommended Activity: Read Partnerships and LLCs IV. C. Transfer of Transferable Interest
Which of the following statements regarding apparent authority is true?
A. Apparent authority is the authority that a third party would reasonably believe a partner has based on his being held out by the partnership as a partner.
B. Apparent authority is the authority a partner reasonably believes he has based on the communications between the partnership and the partner.
C. A partner’s apparent authority is limited to transactions that are within the ordinary course of business.
D. A partner’s unauthorized act apparently carrying on in the ordinary course of partnership business will bind the partnership even if the person with whom the partner was dealing knew that the partner lacked authority.
D. A partner’s unauthorized act apparently carrying on in the ordinary course of partnership business will bind the partnership even if the person with whom the partner was dealing knew that the partner lacked authority.
Apparent authority is the authority that a third person would reasonably believe a partner has based on his being held out by the partnership as a partner. The act of any partner apparently carrying on in the ordinary course of the partnership business (or business of the kind carried out by the partnership) binds the partnership unless the partner had no authority to act for the partnership in the particular matter, and the person with whom the partner was dealing knew or had received notification that the partner lacked authority. Actual authority is the authority a partner reasonably believes he has based on the communications between the partnership and the partner.
Recommended Activity: Read Partnerships and LLCs VI.B. Apparent Authority
The Uniform Limited Partnership Act (“ULPA”) grants certain rights to general and limited partners. Which of the following rights is exclusive to general partners?
A. The right to manage the limited partnership’s activities.
B. The right to information.
C. The right to distributions.
D. The right to assign the partner’s interest in the partnership.
A. The right to manage the limited partnership’s activities.
The ULPA’s grant of management rights is exclusive to general partners. However, as a matter of contract, the partnership agreement may allocate the right to manage or control the partnership to limited partners. Both general and limited partners are granted the right to information, although the right is not identical. Furthermore, both general and limited partners are granted the right to distributions and to assign the partner’s interest in the partnership.
Recommended Activity: Read Partnerships and LLCs IX.H. Rights of Partners
Generally, a member of a limited liability company (“LLC”) may bring a derivative action on behalf of the LLC if:
A. She has been personally injured by the LLC.
B. She has made an unsuccessful demand on the LLC’s management to enforce the right at issue.
C. She is a member of the LLC at some point in time during the course of the action.
D. She is a member in a member-managed LLC.
B. She has made an unsuccessful demand on the LLC’s management to enforce the right at issue.
Members of an LLC, whether member-managed or manager-managed, may bring a derivative action to enforce a right of the LLC. The member first must make a demand on the other members or the managers (depending on how the LLC is managed), unless demand would be futile. If the members or managers do not bring an action within a reasonable time, then the demanding member may bring the derivative action. A derivative action may be maintained only by a person who is a member of the LLC at the time the action is commenced and who remains a member while the action continues. If a member has been personally injured by her LLC, she may bring a direct action against the LLC to recover, not a derivative action.
Recommended Activity: Read Partnerships and LLCs X.H. Members’ Actions Against the LLC
Under the Revised Uniform Partnership Act, which of the following statements regarding lawsuits involving a partnership is correct?
A. A partnership may sue or be sued only in the partnership name.
B. Suits by and against the partnership must name the individual partners.
C. A partnership may sue or be sued in the names of the individual partners.
D. Partners may not be sued in their individual capacity.
C. A partnership may sue or be sued in the names of the individual partners.
A partnership may sue or be sued in the partnership name or in the names of the individual partners, or both.
Recommended Activity: Read Partnerships and LLCs I.B. Partnership Is a Legal Entity
Under the doctrine of partnership by estoppel, even though there is no partnership agreement and the parties as between themselves are not partners, they may be held liable to third parties as if they were partners. This issue is likely to arise when a person:
A. Represents herself as a partner and another partner extends credit to her.
B. Fails to deny partnership status when named by another in a statement of authority.
C. Fails to file a statement of dissociation after leaving a partnership.
D. Holds another person out to be her partner.
D. Holds another person out to be her partner.
Partnership by estoppel arises when a person, by words or conduct: (i) represents herself as a partner or consents to being represented by another as a partner, and a third party extends credit to the actual or apparent partnership in reliance on the representation; or (ii) holds another person out to be her partner, making the alleged partner her agent with the power to bind her to third parties as if the other were, in fact, a partner. (Note that answer (A) is incorrect because the partner extending credit to the person representing herself as a partner should know that the latter is not actually a partner.) A person held out by another as a partner is not liable as a partner unless she actually consents to the holding out; mere failure to deny a representation of partnership does not give rise to liability as a purported partner. Thus, the mere fact that one fails to deny partnership status when named by another in a statement of authority, or a partner’s failure to file a statement of dissociation after leaving the partnership, does not alone give rise to liability as a purported partner.
Recommended Activity: Read Partnerships and LLCs II.C. Purported Partners
Titled property is deemed or presumed to be partnership property UNLESS it is:
A. Titled in the partnership name.
B. Titled in the name of one or more partners and the instrument transferring title notes the titleholder’s capacity as a partner or the existence of a partnership.
C. Purchased with partnership funds.
D. Titled in the name of one or more partners.
D. Titled in the name of one or more partners.
It is not enough for title to be in the name of one or more partners for the property to be deemed partnership property. Under the Revised Uniform Partnership Act, titled property is deemed to be partnership property if it is titled in the partnership name, or it is titled in the name of one or more partners and the instrument transferring title notes the titleholder’s capacity as a partner or the existence of a partnership. Property is rebuttably presumed to be partnership property if it was purchased with partnership funds (i.e., cash and credit), regardless of in whose name title is held.
Recommended Activity: Read Partnerships and LLCs III.C.1. Titled Property—R.U.P.A. Provisions
Which of the following statements regarding a partner’s interest in the partnership is correct?
A. A partner may transfer his interest in partnership property.
B. A partner may transfer his interest in management.
C. A partner may transfer his interest in profits, losses, and distributions.
D. A partner is prohibited from transferring any interest he has in the partnership.
C. A partner may transfer his interest in profits, losses, and distributions.
Each partner has a transferable interest in the partnership, which consists of a right to receive his share of the profits and losses and the right to receive distributions. A partner is not a co-owner of partnership property and has no interest in partnership property. As such, a partner cannot transfer his interest in individual items of partnership property or use partnership property for personal purposes. Furthermore, a partner may not transfer his interest in management.
Recommended Activity: Read Partnerships and LLCs III.D. Rights of Partner in Partnership Property
Pursuant to the duty of loyalty, a partner must do all of the following EXCEPT:
A. Account for profits, property, opportunities, or other benefits derived by the partner in conjunction with partnership business.
B. Refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law.
C. Refrain from dealing with the partnership as, or on behalf of, a party having an interest adverse to the partnership.
D. Refrain from competing with the partnership.
B. Refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law.
Partners have a duty to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law, but this duty is part of the duty of care rather than the duty of loyalty. Partners owe the partnership and other partners the duty of loyalty. This duty is threefold: (i) to account for profits, property, opportunities, or other benefits derived by the partner in conjunction with the partnership business; (ii) to refrain from dealing with the partnership as, or on behalf of, a party having an interest adverse to the partnership; and (iii) to refrain from competing with the partnership.
Recommended Activity: Read Partnerships and LLCs V.B.1. Duty of Loyalty
Which of the following statements regarding actual authority of a partner is true?
A. If the partnership agreement authorizes a partner to act, no further action is required for a partner to act.
B. A partner is prohibited from taking any action that is not specifically authorized by the partnership agreement.
C. A partner has actual authority to act on behalf of the partnership by virtue of being a partner.
D. Unanimous consent is required to grant a partner actual authority to act on behalf of the partnership in all cases.
A. If the partnership agreement authorizes a partner to act, no further action is required for a partner to act.
A partnership will be bound by an act of a partner if the partner has actual authority. One way that actual authority can be granted is in the partnership agreement. If the agreement authorizes a partner to act, no further action is required for a partner to act. Actual authority also can be granted by the consent of the partners. Generally, a majority vote of the partners is all that is needed to grant a partner actual authority. However, for acts outside the ordinary course of business, the unanimous vote of the partners is required. A partner does not have actual authority to act on behalf of the partnership simply by virtue of being a partner (although a partner may have apparent authority to carry on business apparently within the scope of partnership business by virtue of being a partner).
Recommended Activity: Read Partnerships and LLCs VI.C. Actual Authority
A partner is liable for each of the following EXCEPT:
A. Crimes committed by a co-partner within the scope of partnership business of which the partner had knowledge.
B. Torts committed by a co-partner or an employee of the partnership within the scope of partnership business.
C. Contracts made by a co-partner within the scope of partnership business.
D. Frauds committed by a co-partner in the course of partnership business, even if the other partners have no connection with, knowledge of, or participation in the fraud.
A. Crimes committed by a co-partner within the scope of partnership business of which the partner had knowledge.
A partner is not criminally responsible for crimes committed by a co-partner unless the partner participated in the commission of the crime as a principal or accessory. A partner is liable for any torts committed by a copartner or by an employee of the partnership within the ordinary scope of partnership business or with authority of the partnership, including any fraud—even if the partner has no connection with, knowledge of, or participation in the fraud. Additionally, a partner is liable on contracts made by a co-partner within the scope of partnership business, as well as any other contracts expressly authorized by the partners.
Recommended Activity: Read Partnerships and LLCs VI.F. Liability of Partners
Under the Uniform Limited Partnership Act, the name of a limited partnership ____________________ contain ____________________.
A. Must; the name of any general partner.
B. May; the name of any limited partner.
C. May; the words “limited partnership” or the abbreviation “L.P.”
D. May not; the name of any partner, whether general or limited.
B. May; the name of any limited partner.
A limited partnership name may contain the name of any partner, whether general or limited, and must contain the words “limited partnership” or the abbreviation “L.P.” unless the limited partnership is a limited liability limited partnership, in which case that must be reflected in the name (e.g., “L.L.L.P.”).
Recommended Activity: Read Partnerships and LLCs IX.C. Name of Partnership
Under the Revised Uniform Limited Liability Company Act (“RULLCA”), which of the following statements is correct regarding the management of a limited liability company (“LLC”)?
A. It is presumed that members will manage an LLC.
B. It is presumed that managers will manage an LLC.
C. It is presumed that each member will have voting strength proportionate to his ownership interest.
D. It is presumed that each manager will have voting strength proportionate to his capital contribution.
A. It is presumed that members will manage an LLC.
Under RULLCA, management of an LLC is presumed to be by all members. Other management arrangements can be made (e.g., management by only some of the members or by outside managers), but they must be specified in an operating agreement. Each member (or manager, if the LLC is manager-managed) has equal rights in the management and conduct of the LLC unless otherwise agreed.
Recommended Activity: Read Partnerships and LLCs X.C.2. Management
