Partnerships and Limited Liability Companies Flashcards
Definition of Partnership
A partnership is an association of two more more persons to carry on as co-owners a business for profit. It is formed as soon as that happens, regardless of whether the parties intended to form a partnership.
where the parties’ intent is uncertain, courts consider the following rules:
- sharing of profits raises presumption of partnership (most important)
- right to participate in control
- rebuttable presumption: if there is profit-sharing one can try to rebut with evidence suggesting lack of co-ownership relationship like no right to control or no loss sharing
other evidence indicating partnership (do not raise a presumption of partnership unlike profit-sharing)
a. title to property held in joint tenancy or tenancy in common
b. parties designate their relationship as a partnership
c. venture requires extensive activity
d. sharing of gross returns
Is a writing required to form a partnership?
generally no unless the agreement would violate the statute of frauds.
entity status
except with respect to partners’ personal liability for partnership obligations, a partnership is a legal entity distinct from its members. A partnership may sue or be sued in the partnership name.
partnership voting
unless otherwise agreed, all partners have equal rights in the management of the business and equal votes.
decisions regarding matters within the ordinary course of the partnership business require a majority vote of the partners
matters OUTSIDE ordinary course of business require the unanimous consent of all partners
does a partner have a right to compensation for services rendered to the partnership?
generall no unless otherwise agreed.
sharing profits and losses
unless otherwise agreed, profits are shared equally among the partners (by number). unless otherwise agreed, losses are shared in the same manner as profits.
liability of the partners
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.
What duties does each partner owe to the partnership?
- duty of loyalty
- duty of care
- duty of disclosure
- duty of obedience
A partner becomes dissociated from the partnership by:
(1) oral or written notice of express will
(2) happening of agreed event
(3) valid expulsion
(4) partner’s bankruptcy
(5) death or incapacity
(6) decision of a court OR
(7) termination of a business entity
What is an at-will partnership?
One where the partners have not agreed to remain partners until the expiration of specific occurrence. This is the default partnership type. You just will remain partners basically.
Term partnership
it is a partnership where the partners have agreed, explicitly or implicitly to remain partners for a definite term or until the completion of a certain undertaking.
dissolution
unlike dissociation, dissolution generallt requires the parntership business to be wound up. Partnership assets must be applied to the discharge of partnership liabilities.
what is a limited partnership?
A partnership with at least one general partners and at least one limited partner.
where must the certificate of limited partnership be filed?
with the secretary of state
what should the certificate of limited partnership include?
(1) name of partnership
(2) the names and addresses of the agent for service of process, and
(3) the names and addresses of each general partner
A limited liability company is a hybrid business organization between a corporation and a partnership that
(1) is taxed like a partnership,
(2) offers its owners the limited liability of shareholders of a corporation, and
(3) can be run like either a corporation or a partnership. `
LLC Formation
formed by filing a certificate of organization with the secretary of state, must have at least ONE member
LLC name
must include an indication that it is an LLC, usually containing the words limited liability company or “LLC”
LLC Fiduciary Duties
Fiduciary duties owed by a member or a manager to the LLC And to its other members are the fiduciary duties of care and loyalty.
When can a person dissociate from an LLC?
At any time, rightfully or wrongfully.
An LLC will be dissolved when any of the following events occurs:
(1) an event or circumstance that operating agreement says will cause dissolution;
(2) the consent of all members; or
(3) the passage of 90 consecutive days during which the LLC has no members
How are partnerships and LLCs taxed?
They are taxed on a pass-through basis. There is no entity-level tax; instead business income is passed through to the owners and reported on the owners’ individual tax returns.
