Partnerships Flashcards
Elements of a partnership
An association of 2 or more persons to carry on as CO-OWNERS A BUSINESS FOR PROFIT.
Factors that lead to a partnership
Ability to exercise control
Profit: creates a presumption of partnership
When is sharing profits not a presumption of a partnership?
When it is just salary, rent, repayment of a debt or interest on a loan
When is a writing required for a partnership?
Only when it triggers the Statute of Frauds (partnership for more than 1 year)
What if there really is no partnership but they refer to each other as partners in front of you and you rely on that?
Partnership by estoppel (only applies to contract cases)
What if a statement of partnership is filed with the superior court clerk?
You don’t have to prove partnership, the filed document conclusively establishes the existence of a partnership.
When is property PRESUMED to belong to the partnership?
Registered in partnership’s name
Bought with partnership funds
Characterized as such in the partnership agreement
What can a partner do with partnership property?
Very limited. Can only use partnership property for partnership purposes. This right is NOT transferable – meaning a creditor of one partner can’t get at partnership property.
What can a partner do with his INTEREST in the partnership
Partner can assign or devise. Creditor can get at the INTEREST. Basically like a right to the proceeds.
Remember: This won’t make the transferee a partner.
How are profits and losses split (default?)
Equally - partners can agree to split them differently though
What if partners agree among themselves that Rachel won’t be liable for any loss? Can a third party recover from her?
Yes. You can’t limit your personal liability as against third parties. Rachel could recover from the other partners pursuant to the agreement though.
Who has control of management in a partnership?
All partners have equal rights – majority of votes wins if there is a dispute unless they have provided otherwise.
Does a partner have a right to compensation for her day to day work?
No, unless otherwise agreed
Duties of partners to the partnership
Duty of care
Duty of loyalty
Duty of full disclosure
How do you admit a new partner?
All partners must unanimously agree unless otherwise agreed
What if a new partner joins… what is he liable for?
Can lose up to his economic interest in partnership for past dealings. Personally liable for everything going forward.
What if a partner retires. Is he still personally liable?
Yes, unless a creditor releases you.
Contractual agreements: partnerships. Who is the principal and who is the agent?
principal: partnership
partner entering into contract: agent
When a partner does something he doesn’t have actual authority to do, what do you look for?
Apparent authority - use agency principles to see if because of the partner’s title and prior conduct, the agent appeared to have authority
What if a partner sells property without authority?
Partnership can get it back from the initial transferee but not a BFP
Is a partnership liable for a partner’s tort?
Yes, if the conduct was committed in the ordinary course of the partnership’s business.
Can a third party sue an individual partner if the partnership breaches?
Yes. Personally liable - joint and several liability
What is the difference b/w an LLP and a general partnership?
In an LLP, partners are only personally liable for their own torts (not the torts of others)
What actions are required to become an LLP (limited liability partnership)?
- file election with the superior court where the LLP has an office
- pay a fee
- include the words “limited liability partnership” or LLP at the end of the name
- in GA, does not have to be a professional partnership
- no insurance requirement
What is the difference b/w dissolution of a partnership and termination?
Dissolution is not the end - there is still a winding up period for the partnership
How can a partnership dissolve?
- end of a defined term
- achieve a stated purpose
- express will or withdrawal of a partner
- expulsion of a partner
- by operation of law
- entry of judicial decree
Partnership at-will
No set time frame
No penalty for dissolving
What if it’s a partnership for a set term and you dissolve early?
You are allowed, but you will face breach of contract/wrongful dissolution damages
Will a partnership be liable on contracts entered into during a winding up?
Yes - if the contract involves old business OR if partner enters into new business and the third party doesn’t have notice that it’s been dissolved
What type of notice are prior creditors entitled to?
Personal notice
What type of notice are people who knew of the partnership before dissolution entitled to?
Newspaper notice
If a partner enters into new business during winding up period, is she entitled to contribution?
Only if the partner didn’t know about the dissolution
Who gets paid during winding up? Priority?
- third party creditors
- partners who loaned money to partnership
- partners for their capital contributions
- partners for profits
What if you want to continue partnership after one partner dissolved? What happens to creditors?
Others can consent to continue.
Creditors automatically become creditors of the continuing partnership.
What must you give to the dissolving partner?
His share of the partnership plus interest or his pro rata share of profits
- but remember he may be liable for breach if wrongful dissolution occurred
What is a limited partnership?
1 or more general partners (personal liability)
1 or more limited partners (no personal liability)
How do you form a limited partnership?
File a certificate of LP with the secretary or state
Pay a fee
Certificate must include:
- partnership name
- name and address of agent for service of process
- name and business address of each GENERAL partner
- latest date upon when the limited partnership will dissolve
- must be signed by all general partners
How much can a limited partner lose in an LP?
Only their capital contribution. No personal liability
Can a limited partner be liable in an LP if he actively participates in management?
How else can a limited partner be personally liable?
GA: not personally liable if you actively participate unless the limited partner misled a creditor into thinking she was a general partner
If he lets partnership include his name in title.
What if you forget to file the certificate?
You are a general partnership. You can file the certificate and then limited partners will have limited liability from that point forward. (personally liable for the past)
How can a limited partner get out of a LP?
Only if the LP agreement allows! (roach motel!)
What if a limited partner promises to contribute to the LP?
Only enforceable if in writing. Partners can agree to reduce the liability of the limited partner even if creditor relied on the contribution.
General partners in an LP - what type of liability?
Joint and several personal liability
How can a general partner shield himself from personal liability?
Register his limited partnership as a LLLP - limited liability limited partnership
How is a limited partnership different than a general partnership when winding up?
All creditors (including partners who've given loans) are treated the same Capital returned to limited partners Profits split according to contributions (NOT SPLIT EVENLY LIKE A PARTNERSHIP)
How do you form an LLC?
You form a limited liability company by filing articles of organization with the secretary of state
Pay fee
What must an LLC’s articles of organization include?
- statement that the entity is an LLC
- the name of the LLC, which must include an indication that it is an LLC
- street address of LLC’s registered office and name of registered agent
- names of all MEMBERS
Who manages the LLC?
Members (unless some other agreement)
Benefits of an LLC?
Taxed like a partnership
No personal liability for torts of others
How are profits and losses shared in an LLC?
On the basis of contribution
If there are managers in an LLC, what duties are owed to the LLC?
Fiduciary duties of care and loyalty
What are the two most ideal forms of organizations in GA?
LLP: limited liability partnership (same as general partnership in most ways except no vicarious liability)
LLC: limited liability company (no vicarious liability, taxed like a partnership, run by members)
What if an organization wants to convert into a different type? Partnership –> LLC?
- get consent from all owners (or according to governing documents)
- file appropriate documents
