Partnerships Flashcards
When is a General Partnership created?
When:
1) Two or more persons;
2) As co-owners;
3) Carry on a business for profit.
*No written agreement or subjective intent is required.
When is a Partnership presumed?
When there is an agreement to share profits equally.
Absent an agreement:
1) Each partner has an equal vote;
2) Profits are shared equally; and
3) Losses are shared the same as profits.
A Limited Liability Partnership (LLP) is where all partners have limited personal liability.
Any partnership may become an LLP upon what two events?
1) Approval by the same vote that is necessary to amend the partnership agreement; AND
2) By filing a Statement of Qualification with the Secretary of State.
*Unless otherwise agreed, a unanimous vote is required to amend a partnership agreement.
What information must a Statement of Qualification include?
1) The name and address of the partnership;
2) A statement that the partnership elects to become an LLP; AND
3) A deferred effective date (if any).
*The filing DOES NOT create a new partnership; it continues to be the same entity that existed prior to the filing.
What does the court consider to determine whether two businesses are separate entities rather than a partnership?
Whether the business:
1) Operates under a separate name;
2) Keeps the files of the business in a separate room;
3) Uses the same office staff;
4) Has contributed money to the other person/entity;
5) Intends to share the profits; AND
6) Pays rent for a separate office.
When does a partner have Express Actual Authority to bind the partnership?
Upon receiving said authority from the partners.
- Acts within the ordinary course of business = approved by a majority vote of partners.
- Acts outside the ordinary course = can only be approved unanimously.
A partner with Apparent Authority will NOT bind the partnership during what circumstance?
1) The partner lacked authority; AND
2) The third-party knew or had notice that the
partner lacked authority.
When does a partner have Implied Actual Authority?
When he has to take actions that are reasonably incidental or necessary to achieve the partner’s authorized duties.
When is an act considered to be within the “ordinary course of business”?
If the act is normal and necessary for managing the business, and a person would reasonably conclude that.
What is the liability for General Partners?
Incoming Partners?
Outgoing Partners?
General Partners: Personally liable for ALL obligations of the partnership (joint and severally liability with the other partners).
Incoming Partners: NOT liable for obligations incurred prior to their admission, but still at risk for losing capital contributions made to satisfy partnership obligations.
Outgoing Partners: Remain liable for debts while they were still a partner UNLESS there was a novation/release/payment.
When can a judgment creditor levy execution of ajudgment against a partner’s personal assets for a partnership debt?
1) When a judgment has been rendered against the partner;
AND
2) The partnership assets have been exhausted or are insufficient.
*A judgment against the partnership is NOT itself a judgment against the individual partners.
Who is responsible for an obligation incurred by a Limited Liability Partnership (LLP)?
The obligation is SOLEY the obligation of the LLP.
*Under RUPA, a partner in an LLP is NOT liable for partnership obligations.
What are the three exceptions in which Limited Partners ARE personally liable for the obligations of the Limited Liability Partnership (LLP)?
1) They are ALWAYS liable for their own misconduct (or if they sign a PERSONAL guarantee).
2) Always at risk for losing any capital contributions made to the partnership.
3) Obligations incurred before the partnership becamea LLP are treated as obligations of the prior entity. (i.e. general or limited partnership).
What aspects of Partnership Ownership can be transferred to another?
1) The interest in the share of the profits and losses;
AND
2) The right to receive distributions.
*ALL other incidents of partnership ownership CANNOT be transferred (unless all partners agree or an agreement states otherwise).
When does a partner breach his Duty of Care?
When he engages in:
a) Grossly negligent or reckless conduct;
b) Intentional misconduct; OR
c) Aknowingviolationoflaw.
Examples include: violating a partnership policy; failing to thoroughly investigate facts before entering into a contract; and acting outside the scope of the business without consent from the other partners.
