Partnerships Flashcards
General Partnerships
A general partnership (GP) is a voluntary association of two or more persons to carry on as co-owners of a business for profit. No formal written agreement is required. Sharing of profits is the most important factor and raises a presumption of a GP (but not payment for debt, wages, rent, interest on a loan, or sale of goodwill of a business)
Generally, the Revised Uniform Partnership Act (RUPA) provides a default set of rules, but partners are free to create different rules through partnership agreements. Here,
Partner Liabilities
Each partner is jointly and severally liable for all the obligations of the partnership, whether arising in tort or contract. Each partner is an agent of the partnership and has the power to bind the partnership when acting within the ordinary course of business (authority). Even after dissociation, partners remain liable for pre-dissocation obligations. Here,
Fiduciary Duties
Partners owe each other a fiduciary duty of care, loyalty, and disclosure to each other and the partnership. Here,
Scope of Liability
Where one partner is compelled to pay the whole of a partnership obligation, he is entitled to indemnification from the partnership. Here,
Partnership Property
Property belongs to a partnership if it is acquired in the partnership name or by a partner when acting for the partnership. Property owned by the partnership can only be used by partners for business purposes. A partner can transfer his financial interest in the partnership, but cannot transfer his management rights. Here,
Management & Operation
Generally, partners have equal rights in the management of the business and are jointly and severally liable for all obligations. Here,
Voting
Decisions involving the ordinary course of business require a majority vote, but matters outside ordinary course require unanimous consent. Partners have no right to a salary, but can receive reasonable compensation for services performed. Each partner has access to partnership books. Here,
Profits/Losses
Unless otherwise agreed, profits are shared equally among partners and losses are shared in the same manner as profits. Here,
Dissociation and Dissolution
Dissociation refers to the withdrawal of partner due to express will, death, bankruptcy, or an agreed-upon event. When a partner dissociates, the partnership must dissolve or buy out the partner’s interest and continue. Here,
When a partnership dissolves, it must repay 1) creditors, then 2) capital contributions, then 3) profits or losses. Here,
Partnership Interest Transfer
A partner cannot unilaterally transfer his partnership interest including management rights, but may transfer his financial rights. i.e. right to receive profits from distributions. The transferee remains a partner for liability purposes. Here,
Limited Partnerships
A limited partnership (LP) is composed of one or more general partners and one or more limited partners. Valid formation of a LP requires filing a certificate of limited partnership with the secretary of state that is signed by all general partners.
The general partners manage the partnership and are personally liable for partnership obligations. The limited partners have no personal liability beyond their agreed-upon contributions. Profits are usually distributed according to partner contributions. Here,
Limited Liability Partnership
An LLP requires filing a statement of qualification with the secretary of state and it operates like a general partnership, but it relieves all partners of personal liability for the LLP’s obligations. However, a partner remains personally liable for any wrongful acts. Here,
Limited Liability Company
An LLC is a hybrid between a partnership and a corporation. Articles of incorporation must be filed with the secretary of state. The details of LLC operation are found in the operating agreement. A majority vote is required for ordinary decisions, unanimous for extraordinary decisions. Profits and losses are shared according to contributions. Members are not personally liable for the LLC’s obligations and can only lose the amount of their investment. Members owe fiduciary duties to LLC and its members. Taxation is on a pass-through basis and therefore not subject to corporate double taxation. Here,
