partnerships Flashcards
define partnership
an association of two or more legal persons who carry on a FOR-PROFIT BUSINESS as CO-OWNERS
who can create a partnership?
what intent is required to form a partnership?
any individual or entity that has LEGAL CAPACITY to contract
NOT incapacitated humans
- -minors
- -intoxicated, etc
INTENT: no specific intent to form a partnership required, just intent to carry on as co-owners, for profit
When is there and isn’t there a presumption that a partnership has been formed?
How can you tell for sure if there’s a partnership?
PRESUMPTION of partnership when two or more persons SHARE PROFITS
DOES NOT APPLY to these scenarios:
- -payment of debt
- -interest payments
- -rent
- -wages
- -goodwill
to concretely tell if a profits-sharing agreement is a partnership, as if there is a SHARING OF CONTROL!
Is a partnership a separate legal entity from the partners?
YES
it can hold property, sue, and be sued in its own name
What is the liability of partners in a partnership?
How are partners taxed?
partners are PERSONALLY LIABLE for the partnership’s obligations
unlike corporations, NO ENTITY-LEVEL TAXATION
What is the effect of a partnership agreement?
do you need a written partnership agreement?
THE PARTNERSHIP AGREEMENT IS THE LAW OF PARTNERSHIPS
don’t need a written partnership agreement, but when there is one, IT GOVERNS
- -except: when state law is mandatory:
1) LIABILITY to third parties
2) must give partners access to BOOKS AND RECORDS
3) FIDUCIARY DUTIES
if no agreement, STATE LAW controls
What duties do partners owe to the partnership?
What is the timing of these duties?
FIDUCIARY DUTIES of LOYALTY and CARE
duties apply only to PARTNERS, not to PROSPECTIVE or FORMER partners
What is required by the duty of loyalty?
How much can a partnership limit it?
What can a partner who wants to do something he thinks may be disloyal do to prevent a breach?
DUTY OF LOYALTY—partners cannot:
1) COMPETE with partnership business
2) advance an interest ADVERSE to the partnership
3) USURP a partnership opportunity
LIMITS:
1) as a matter of state law, partnership cannot ELIMINATE the duty of loyalty
2) but can LIMIT it with a different description, as long as that’s not MANIFESTLY UNREASONABLE
SAFE-HARBOR OPTION:
–if a partner makes a full DISCLOSURE of all material facts, certain percentage of other partners may AUTHORIZE or RATIFY the transaction
What is required by the duty of care?
DUTY OF CARE—partners cannot:
1) engage in GROSSLY NEGLIGENT or RECKLESS conduct
2) engage in INTENTIONAL MISCONDUCT
3) engage in a KNOWING VIOLATION of the law
Generally, where does the division of profits and losses come from?
Must it be the same?
Must capital contributions affect the division?
What’s the default rule?
Generally, division of profits and losses is dictated by AGREEMENT
- -division of profits and losses NEED NOT BE THE SAME
- -capital contributions NEED NOT AFFECT the divisions
if no partnership agreement re: division of profits and losses:
1) PROFITS are divided EVENLY
2) LOSSES FOLLOW PROFITS
Do partners have a right to demand distributions?
default rule is NO!!
partnership agreement can lay out distribution timelines
Can a partner transfer his interest in the partnership freely?
What’s the effect of transfer?
What is the default rule regarding introduction of a new partner?
DEFAULT RULE: yes (can be changed)
Transfer DOES NOT dissolve the whole partnership (like it used to)
Default rule on new partners: ALL EXISTING PARTNERS must consent (can be changed)
What is the default rule for what rights each partner has in the management and control of the partnership?
DEFAULT RULE: every partner has EQUAL RIGHTS in management and control of partnership (can be changed, like to a management committee)
what are ordinary v. extraordinary business matters?
What is the default rule regarding voting on ordinary business matters?
Extraordinary business matters?
ordinary (declaring a distribution, etc): MAJORITY VOTE (can be changed)
extraordinary (like amending the partnership agreement): UNANIMITY (can be changed)
Can a partnership agreement limit in any way the ability of a partner to access records?
NO!!!! access to records must be provided to the PARTNERS AND THEIR AGENTS—MANDATORY!
What is dissociation? What are the two kinds?
When a partner ceases to be associated with the partnership
voluntary
involuntary
What is required to voluntarily dissociate from a partnership?
NOTICE, and whatever limits are imposed by partnership agreement (can regulate but can’t prohibit withdrawal)
What could lead to involuntary dissociation?
1) EVENT TRIGGERED in partnership agreement
2) EXPELLED pursuant to agreement
3) becomes UNLAWFUL to carry on business with that partner
4) COURT ORDERS dissociation
5) partner goes BANKRUPT
6) partner DIES
7) partner becomes INCAPACITATED
8) an entity of the partnership DISSOLVES
When can partners enter into contracts for the partnership?
when they have AUTHORITY (see agency law):
1) EXPRESS:
- -agreement
- -statement of authority filing
- -ad hoc authorization by partners
2) IMPLIED:
- -based on partner’s REASONABLE BELIEF that an action is NECESSARY to carry out EXPRESS AUTHORITY
3) APPARENT:
- -acting in the ORDINARY COURSE OF DEALINGS
- -based on interactions between PARTNERSHIP AND THIRD PARTIES (letterhead)
- -must be REVOKED to third party
When is a partnership liable for torts committed by its partners?
How are they liable?
What about incoming and outgoing partners?
when the partners committed the torts while acting WITHIN THE SCOPE OF THEIR PARTNERSHIP
each partner is PERSONALLY LIABLE
- -JOINTLY AND SEVERALLY LIABLE (can go after any partner for the total)
- -generally, partnership funds must be exhausted before going after the partners
INCOMING partners are not personally liable for Ks/torts obligations incurred PRIOR to their becoming a partner (could be liable in capital contribution though)
OUTGOING partners may still be personally liable for an obligation that occurred AFTER dissociation though!
What are the two steps to terminating a partnership?
1) dissolution
2) winding up
What is a partnership-at-will? When will a partnership-at-will dissolve?
partnership for a term or undertaking?
What are the other ways to dissolve EITHER type of partnership?
open-ended partnership with no fixed term tied to time or undertaking
dissolves, generally, when ANY PARTNER CHOOSES TO DISSOCIATE
partnership for a term or undertaking may be dissolved when the term EXPIRES or when undertaking is complete
other ways:
1) any dissolving event set forth in agreement (if we make less than 10k, we’re dissolved”)
2) any event that makes it UNLAWFUL to continue if not cured within 90 DAYS
3) judicial determination
Who may wind up?
what powers do they have?
what’s the priority of distributions?
who:
- -any partner that has not wrongfully dissociated
- -legal rep of last surviving partner
- -judicial supervision
what power:
- -dispose of and transfer partnership property
- -preserve partnership to maximize value
priority: creditors first, then partners
What is a Limited Liability Partnership (LLP)?
What is required to have one?
What the liability is remaining?
how can it be canceled?
partnership in which a partner’s personal liability is ELIMINATED
must FILE WITH THE STATE, must have a name that ENDS IN LLP or RLLP
partners can still be liable personally for their own misconduct or negligence
canceled voluntarily, or state can revoke LLP status
What is a LIMITED PARTNERSHIP?
What makes someone a general partner, not a limited partner?
one general partner and one limited partner
general has personal liability but limited have limited liability
reqs: file a certificate of limited partnership
limited partners are still limited even if they:
1) are an officer, director, or shareholder of general partner
2) consult general partner
3) act as surety of partnership
4) request to attend meetings of partnership
5) wind up
6) propose or approve of matters
if they’re doing bigger shit, they’re general., they’re running the show
