Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

MEE Subjects > Partnerships and Limited Liability Companies > Flashcards

Partnerships and Limited Liability Companies Flashcards

1
Q

Define partnership

A

A partnership is an association of two or more people to carry on as co-owners of a business for profit

Note- “people” includes individuals, trusts, corporations, partnerships, or other entities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

When is a partnership formed?

A

As soon as the definitional requirements are met, regardless of whether the parties subjectively intended to form a partnership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

When is the parties’ intent relevant?

A

Courts look to the parties’ subjective intent to determine whether the parties intended to carry on as co-owners of a business for profit. They do NOT look to see if the parties intended to create a partnership.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What factors help decide whether a partnership exists?

A

Sharing of profits raises a presumption of partnership (unless the share was received as payment of a debt, as wages or compensation for services rendered, as rent payment etc)

Other Factors which do not raise a presumption but may be considered:

  • Each parties’ right to participate in the control of the business
  • Title to property is held in joint tenancy or in common
  • The parties call themselves partners
  • The venture undertaken by the parties requires extensive activity
  • Sharing of gross returns
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Is a writing required to form a partnership?

A

No except as required under the Statute of Frauds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is partnership by estoppel?

A

Parties may be liable as if they were partners to protect reasonable reliance by third parties

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Is an agreement required to form a partnership?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Is a partnership a legal entity?

A

Yes, it is distinct from its partners

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How many partners must vote to support decisions regarding the ordinary course of the partnership?

A

A majority

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What consensus is required on votes for matters outside of the ordinary course of business?

A

Unanimous consent of all partners is required

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the default rule for profit sharing among partners?

A

Unless otherwise stated, profits are shared equally

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the default rule for loss sharing among partners?

A

Unless otherwise stated, losses are shared in the same manner as profits

Note- losses follow profits but profits do NOT follow losses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

When is a partnership liable in tort?

A

For the tortious conduct of a partner (or employee) acting in the ordinary course of business of the partnership or with the authority of the partnership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How can partners get actual authority?

A
  • Partnership agreement
  • Vote of the partners
  • Statement of partnership authority filed with secretary of state
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How do partners get apparent authority?

A
  • The RUPA provides that a partner is an agent fo the partnership and that a partner has apparent authority to bind the partnership to transactions within the ordinary course of the partnership’s business or business of the kind carried out by the partnership
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

When are partners liable?

A

In a general partnership, each partner is jointly and severally liable for all obligations of the partnership, whether arising in tort or contract.

BUT the plaintiff must first exhaust partnership resources before seeking to collect from an individual partner’s assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

To what extent is each partner liable?

A

Each partner is personally and individually liable for the entire amount of partnership obligations.

A partner who pays the whole obligation is entitled to indemnification from the partnership and may also require the other partners to contribute their pro rata shares of the payment if the partnership is unable to indemnify

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Is a newly admitted partner liable for debts incurred by the partnership before their admission?

A

They are not personally liable, but they can lose their investment in the partnership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Is a partner who has dissociated liable for the partnership’s obligations?

A

Yes- the partner is liable for all partnership obligations incurred while they were a partner

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What fiduciary duties do the partners owe to the partnership and the other partners?

A
  • Duty of loyalty
  • Duty of care
  • Duty of disclosure
  • Duty of obedience
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is the duty of loyalty for partners?

A

Each partner must

  • Account to the partnership for any benefit derived by the partner in conducting the partnership business, using the partnership’s property, or appropriating a partnership opportunity
  • Refrain from dealing with the partnership in the conduct of tis business as a party having an interest adverse to the partnership AND
  • Refrain from competing with the partnership in the conduct of its business
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is the duty of care for partners?

A

The duty of care requires each partner to refrain from engaging in grossly negligence or reckless conduct, intentional misconduct, or a knowing violation of the law.

Note- differs from agency duty of care because partners are excused from ordinary negligence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What must the partner furnish without demand under the duty of disclosure?

A

Any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What must the partner furnish on demand under the duty of disclosure?

A

Any other information concerning the partnership’s business and affairs (except to the extent the demand or information demanded is unreasonable or otherwise improper)

25
Q

Define partnership capital

A

The property or money contributed by each partner for the purpose of carrying on the partnership’s business

26
Q

Define partnership property

A

Everything the partnership owns, including both capital and property acquired in partnership transactions

27
Q

How do you determine what is partnership property?

A
  • Titled property is partnership property if it is acquired in the partnership’s name or in a partner’s name where is is apparent from the document that they are acting for a partnership
  • Under the RUPA, property is rebuttably presumed to be partnership property if it was purchased with partnership funds
  • Under the RUPA, property is rebuttably presumed to be a partner’s property if it is held in the name of one or more partners, the instrument transferring title gives no sign that they’re acting for a partnership AND partnership funds were not used to acquire the property
28
Q

Does a partner have the right to use partnership property for things other than the benefit of the partnership?

A

No

29
Q

What makes up a partnership interest?

A

Management rights (the right to participate in the management of the business, to obtain information about the partnership, and to be recognized as partner)

and

Financial rights (the right to receive the partner’s share of any profit distributions made by the partnership)

30
Q

What is the default rule for admitting a new partner?

A

There must be a unanimous vote of the existing partners

31
Q

Can a partner unilaterally transfer their management rights?

A

No

32
Q

Can a partner unilaterally transfer their financial rights?

A

Yes. The partner will retain their management rights

33
Q

What is dissociation?

A

When a partner ceases to be associated in the carrying on of the business

(And the only way to survive in America)

34
Q

How can a partner become dissociated?

A
  • Oral or written notice of the partner’s express will to withdraw
  • Happening of an agreed event
  • Valid expulsion of the partner
  • The partner’s bankruptcy
  • The partner’s death or incapacity to perform partnership duties
  • The decision of a court that the partner is incapable of performing a partner’s duties or
  • Termination of a business entity that is a partner
35
Q

What happens when a partner provides notice of their express will to withdraw from a partnership?

A

The partner dissociates and dissolution of the partnership is automatically triggered

36
Q

What happens to the partnership when a partner dissociates?

A
  • The partnership dissolves and its business must be liquidated (sold off) OR
  • The partnership continues to exist and the dissociated partner is entitled to a buyout of their partnership interest
37
Q

When is a dissociated partner liable for post-dissociation partnership liabilities?

A

Within 2 years after the dissociation if the other party reasonably believed the dissociated partner was still at partner when entering into the agreement and the other party did not have notice of the partner’s dissociation.

Partners can cut short this period by notifying their creditors directly of their dissociation (effective immediately) or by filing a public notice of dissociation (becomes effective 90 days after filing)

38
Q

When can the partnership be bound by the act of a dissociated partner?

A

If the act is undertaken within 2 years after dissociation and the act would have bound the partnership before dissociation, and the other party to the dissociation reasonably believed the dissociated partner was still a partner and did not have notice fo the dissociation.

39
Q

When a partnership goes through dissolution, what is the order in which distribution must occur?

A
  1. The partnership must pay all creditors including both outside creditors (suppliers, trade creditors, etc) and inside creditors (partners who loaned money)
  2. All capital contributions
  3. Profits or losses, if any
40
Q

Define limited partnership

A

A partnership with at least one general partner and at least one limited partner

41
Q

What is required to form a limited partnership?

A

File a certificate of limited partnership with the secretary of state. It must include

  • Signatures of all general partners
  • The name of the partnership
  • The names and addresses of the agent for service of process
  • The names and addresses of each general partner
42
Q

Who manages a limited partnership?

A

The general partners

43
Q

How are distributions from a limited partnership made?

A

On the basis of the partners’ contributions

44
Q

What kind of liability do general partners in an LP have?

A

Joint and several liability for all obligations of the LP

45
Q

What kind of liability do limited partners in an LP have?

A

A limited partner is NOT personally liable for an obligation of the LP solely by reason of being a limited partner. Limited partners can only lose the value of their investments

(Obvi doesn’t protect the limited partner from their own torts)

46
Q

What are the duties of a general partner in an LP?

A

Fiduciary duty of loyalty and care to the LP and to the other partners

47
Q

What are the duties of a limited partner in an LP?

A

No fiduciary duties

48
Q

What kind of liability do partners have in a limited liability partnership?

A

All partners are not personally liable for the LLP’s obligations

49
Q

What do you need to do to become an LLP?

A

File a statement of qualification with the secretary of state which is executed by at least two partners and includes

  • The name and address of the partnership
  • A statement that the partnership elects to be an LLP and
  • A deferred effective date, if any
50
Q

Define limited liability company

A

A hybrid business organization between a corporation and a partnership that is

  • Taxed like a partnership (except for a single member LLC)
  • Offers its owners (called members) the limited liability of shareholders of a corporation and
  • Can be run like either a corporation or a partnership

It is NOT actually a corporation or partnership

51
Q

How do you form an LLC?

A

File a certificate of organization with the secretary of state including

  • The name of the LLC
  • The address of the LLC’ s registered office and
  • The name and address of its registered agent
52
Q

How are profits and losses allocated in an LLC?

A

On the basis of contributions

53
Q

What are the duties of a member of an LLC?

A

Fiduciary duties of care and loyalty

54
Q

How can rights transfer within an LLC?

A

A member can unilaterally transfer their financial rights, but cannot unilaterally transfer their management rights

55
Q

How can you become a member of an LLC?

A

Need consent of all members or to follow protocols from operating agreement

56
Q

When will an LLC be dissolved?

A

Any of the following

  • An event or circumstance that the operating agreement states causes dissolution
  • The consent of all the members
  • The passage of 90 consecutive days during which the LLC has no members
57
Q

When can the court grant judicial dissolution of an LLC?

A
  • The conduct of all or substantially all of the LLC’s activities is unlawful
  • It is not reasonably practicable to carry on the company’s activities in conformity with the certificate of organization and operating agreement
  • The controlling members have/are/will act in a fraudulent or illegal way
  • The controlling members have/are/will act in an oppressive way or was/is/will be directly harmful to the member applying for dissolution
58
Q

How are partnerships and LLCs taxed?

A

On a pass-through basis. Business income is passed-through to the owners and reported on the owners’ individual tax returns. Avoids the double taxation of a corporation

59
Q

When is a partnership bound by a contract?

A

A partnership is bound on a contract entered into by a partner with actual or apparent authority

(Because each partner is an agent of the partnership for the purpose of its business)

MEE Subjects (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions