Partnerships and Limited Liability Companies

Question 1

Definition of Partnership

Answer 1

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.

Question 2

where the parties’ intent is uncertain, courts consider the following rules:

Answer 2

• 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

Question 3

other evidence indicating partnership (do not raise a presumption of partnership unlike profit-sharing)

Answer 3

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

Question 4

Is a writing required to form a partnership?

Answer 4

generally no unless the agreement would violate the statute of frauds.

Question 5

entity status

Answer 5

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.

Question 6

partnership voting

Answer 6

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

Question 7

does a partner have a right to compensation for services rendered to the partnership?

Answer 7

generall no unless otherwise agreed.

Question 8

sharing profits and losses

Answer 8

unless otherwise agreed, profits are shared equally among the partners (by number). unless otherwise agreed, losses are shared in the same manner as profits.

Question 9

liability of the partners

Answer 9

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.

Question 10

What duties does each partner owe to the partnership?

Answer 10

1. duty of loyalty
2. duty of care
3. duty of disclosure
4. duty of obedience

Question 11

A partner becomes dissociated from the partnership by:

Answer 11

(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

Question 12

What is an at-will partnership?

Answer 12

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.

Question 13

Term partnership

Answer 13

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.

Question 14

dissolution

Answer 14

unlike dissociation, dissolution generallt requires the parntership business to be wound up. Partnership assets must be applied to the discharge of partnership liabilities.

Question 15

what is a limited partnership?

Answer 15

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

Question 16

where must the certificate of limited partnership be filed?

Answer 16

with the secretary of state

Question 17

what should the certificate of limited partnership include?

Answer 17

(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

Question 18

A limited liability company is a hybrid business organization between a corporation and a partnership that

Answer 18

(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. `

Question 19

LLC Formation

Answer 19

formed by filing a certificate of organization with the secretary of state, must have at least ONE member

Question 20

LLC name

Answer 20

must include an indication that it is an LLC, usually containing the words limited liability company or “LLC”

Question 21

LLC Fiduciary Duties

Answer 21

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.

Question 22

When can a person dissociate from an LLC?

Answer 22

At any time, rightfully or wrongfully.

Question 23

An LLC will be dissolved when any of the following events occurs:

Answer 23

(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

Question 24

How are partnerships and LLCs taxed?

Answer 24

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.

Question 25

Who can bind the partnership to a contract?

Answer 25

Partners are agents of the partnership and can bind the partnership.

Question 26

On what authority can a partnership be bound on a contract?

Answer 26

A partnership can be bound on a K entered into by a partner with actual or apparent authority.

Question 27

When will the act of any partner bind the partnership?

Answer 27

The act of any partner apparently carrying on in the ordinary couse of the partnership businesses or business of the kind carried out by the partnership will bind it unless the partner had no authority to act for the partnership and the third party with whom the partner dealt knew that the partner lacked authority.

Question 28

What if an act is outside the ordinary course of partnership business?

Answer 28

Then, the unanimous consent of all the partners is required for actual authority to be present.

Question 29

Are individual partners liable on contracts entered into on behalf of the partnership?

Answer 29

All partners are jointly and severally liable for all obligations of the partnership, which means that each partner is personally liable for the entire amount of such obligations.

Question 30

When does dissociation happen?

Answer 30

Dissociation is caused by a partner ceasing to be associated with the carrying on of the business.

Question 31

When does a partner dissociate from the partnership?

Answer 31

Upon notice of his express will to withdraw as a partner.

Question 32

When is a partnership at will dissolved?

Answer 32

A partnership at will is dissolved and its business must be wound up when a partner notifies the partnership of his intent to withdraw.

Question 33

When will a partnership be bound by a partner’s postdissolution act?

Answer 33

A partnership will be bound by a partner’s postdissolution act if the act was appropriate for winding up the business.

Question 34

Even if it was not appropriate for winding up the business when will a partnership be bound by a partner’s postdissultion act?

Answer 34

A partnership will be bound by a partner’s postdissolution act even if it was not appropriate for winding up the business if the third party with whom the partner dealt did not have notice of the dissolution and the act would have bound the partnership before dissolution.

Question 35

Is each partner jointly and severally liable for partnership obligations?

Answer 35

Yes

Question 36

Where one partner pays the entire amount of parntership debt, she may require the other party to:

Answer 36

contribute his pro rata share of the payment.

Question 37

In the absence of an agreement profits share profits…

Answer 37

equally, and losses are split in the same ration as profits.