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!
