PARTNERSHIPS Flashcards
Creation of a General Partnership
A General Partnership is created when (1) two or more persons, (2) as co-owners, (3) carry on a business for profit. No written agreement or formalities are required.
A person’s subjective intent to form a partnership or be partners is irrelevant and NOT required. A partnership is presumed if there is an agreement to share profits equally.
Absent an agreement to the contrary: each partner has an equal vote; profits are shared equally; and losses are shared the same as profits are shared.
Personal Liability of General Partners
General Partners are personally liable for ALL obligations of the partnership UNLESS otherwise agreed by the claimant or provided by law. General partners are jointly and severally liable for partnership obligations, which means that a claimant can collect the full amount of the debt from any one of the partners.
Personal Liability of Incoming Partners
Incoming partners admitted into an existing partnership are NOT liable for obligations incurred prior to their admission, even if the incoming partner has notice of a claim. Even though that partner is not personally liable for the debts of the partnership, he is still at risk of losing any capital contributions he made to the partnership that are used to satisfy partnership obligations.
Personal Liability of Outgoing Partners
An outgoing partner remains liable for debts of the partnership while he was still a partner UNLESS there has been novation, release, or payment.
Enforcing a Judgement Against a Partner’s Personal Assets
Generally, a judgment creditor CANNOT levy execution of the judgment against a partner’s personal assets for a partnership debt UNLESS: (1) a judgment has been rendered against the partner; AND (2) the partnership assets have been exhausted or are insufficient.
