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AGENCY, PARTNERSHIPS & LLCS, CORPORATIONS > PARTNERSHIPS AND LLCS > Flashcards

PARTNERSHIPS AND LLCS Flashcards

1
Q

what is a partnership

A

2 or more persons to carry on as co-owners a business for profit

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2
Q

proof of partnership existence

A
  • whether the parties subjectively intended to form a partnership is irrelevant (as long as it meets definition, there’s a partnership)
  • factors for deciding whether it exists: sharing of profits and right to participate in control of business —> raise presumption of partnership
  • these factors do not raise a presumption of partnership: parties designate their relationship as a partnership; joint ownership of property
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3
Q

partnership by estoppel

A

if no partnership was formed, parties can still be liable as if they were partners to protect reasonable reliance by third parties

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4
Q

partnership agreement

A
  • no agreement is required to form a partnership
  • be on lookout for a partnership agreement b/c partnership law permits partners to contract around all the statutory provisions (Revised Uniform Partnership Act)
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5
Q

management and operation of a general partnership
voting

A
  • all partners have equal rights in mgmt of biz and equal votes
  • matters outside of ordinary course of buisiness require unanimous consent of all partners
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6
Q

legal actions by and against partners

A
  • a partnership may sue or be sued in its own name (but to reach partner’s personal assets, there must be a judgment against individual partner)
  • partnership can sue a partner for breach of pship agreement or of a duty owed to pship
  • partner may sue the patnership or other partners to enforce a right created by pship agreement
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7
Q

indemnification and other payments

A

pship must indemnify every partner re payments made and obligations incurred in carrying out the partnership business

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8
Q

sharing profits and losses

A
  • profits are shared equally among partners
  • losses are shared in same manner as profits
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9
Q

liability to third parties

A
  • authority of a partner to bind pship when dealing with 3rd parties roughly follows agency law
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10
Q

liability of pship in tort

A
  • pship is liable for loss or injury caused to a person as a result of the tortious conduct of a partner or an employee acting in ordinary course of a business of the pship OR with authority of the pship
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11
Q

liability of pship in contract

A

pship is liable for ALL CONTRACTS entered into by a partner in scope of pship business or with actual or apparent authority of the partnership

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12
Q

if contract is outside scope of partnership business

A

partnership generally will not be bound UNLESS partner has actual authority (all partners authorize the act)

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13
Q

liability of partners

A
  • definining feature of the GP is that each partner is jointly and severally liable for all obligations of the partnership – whether arising in tort of K
  • but pff must first exhaust pship resources before seeking to collect from individual partners’s assets
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14
Q

liabilities of admitted partners

A
  • newly admitted partner is NOT personally liable for pship obligations that arose BEFORE their admission; they can only lose the amount of their investment in the partnership
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15
Q

liabilities of dissociating partners

A
  • an outgoing or dissociated partner remains liable for obligations arising while they were a partner unless there has been payment, release, novation
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16
Q

fiduciary duties

A
  • each partner owes 4 fiduciary duties to the pship: they owe duties of loyalty and care to each other and to the pship; they also owe a statutory duty of disclosure and duty of obedience
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17
Q

duty of loyalty

A

each partner must
- account for property, profits or benefits derived in connection with pship business

must refrain from
- competing with pship

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18
Q

duty of care

A

each partner must refrain from engaging in misconduct, specifically:
- grossly negligent or reckless conduct,
- intentional misconduct, or
- knowing violations of law

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19
Q

duty of disclosure (CAN BE ELIMINATED IN AGREEMENT)

A

partner also has duty to provide complete and accurate info about the partnership (even when you don’t ask!)

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20
Q

duty of obedience

A

requires the partner to obey all reasonable directions of the partnership and not act outside scope of his authority

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21
Q

partnership capital

A

partnership capital is property/money contributed by each partner for purpose of carrying on partnership’s business

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22
Q

partnership property

A

everything partnership owns

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23
Q

which property belongs to the partnership and which belongs to individual partner?

A
  • property deemed to be partnership property: title property is partnership prop if acquired in the pship’s name or in a partner’s name where apparent from doc that they are acting for a partnership
  • property presumed to be partnership property: property is rebuttably presumed to be pship prop if it was purchased with pship funds
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24
Q

property presumed to be partner’s separate property

A

under RUPA, property is rebuttably presumed to be a partner’s property if
- held in name of one or more partners
- no sign they were acting for partnership based on the instrument transferring title, and
- partnership funds weren’t used to acquire property

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25
Q

rights in partnership property

A
  • pship rights: pship rights in partnership prop are unrestricted (the pship owns the prop!)
  • partner’s rights: a partner can use partnership property for PARTNERSHIP PURPOSES

NOTE: a partner’s creditors cannot get to pship prop to satisfy personal debt
Partner has no interest in partnership property!!!!

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26
Q

partner’s ownership interest in the partnership

A
  • pship interest is comprised of (1) management rights and (2) financial rights (partner’s right to receive his share of any profit distributions made by the partnership)
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27
Q

management rights

A
  • partner CANNOT unilaterally transfer his mgmt rights and make the transferee a partner
  • admission of new partner = requires a unanimous vote of the existing partners
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28
Q

financial rights

A

partner CAN unilaterally transfer his financial rights (transferee just has the right to get profit distributions from the partnership that would have otherwise gone to the partner)

29
Q

dissociation

A

Partner bows out of the partnership

30
Q

events of dissociation

A
  • oral or written notice of partner’s express will to withdraw
  • happening of agreed event
  • valid expulsion of partner
  • partner’s bankruptcy
  • partner’s death/incapcaity to perform his pship duties
  • decision of a court
  • termination of a business entity that is a partner

NOTE: notice of a partner’s express will to withdraw from a partnership at will … automatically triggers dissolution/winding up of the partnership

31
Q

wrongful dissociation

A
  • partner will have wrongfully dissociated if dissociation is in breach of express term in the pship agreement
  • dissociation is also wrongful in term pship if the partner withdraws before end of term

CONSEQUENCE: partner who wrongfully dissociates is liable to the pship for any damages caused by the dissociation

32
Q

consequences of dissociation of a partner
for partnership

A

when partner dissociates from pship, one of 2 avenues is implicated
1. pship is DISSOLVED and that its business must be wound up (pship business will be sold off)
2. pship CONTINUES in existence with dissociated partner becoming entitled to a buyout of their pship interest (MORE COMMON)

NATURE OF EVENT OF DISSOCIATION DICTATES WHICH OF THESE HAPPENS

33
Q

consequences of dissociation
for partner

A
  • terminates dissociated partner’s legal relationship with pship, including rights to profits and mgmt
  • pship must purchase their interest and must indemnify them against known pre-dissociation liabilities and post-dissociation liabilities not incurred by dissociating partner’s acts
34
Q

dissolution option

REQUIRED ONLY IN LIMITED CIRCUMSTANCES

A
  • required only in limited circumstances
  • 2 circumstances are of particular importance
    1) when partner dissociates by express will in an at will pship, the pship is dissolved and business must be wound up
    2) in a term partnership, if one partner dissociates wrongfully or if a dissociation occurs b/c of a partner’s death, dissolution and winding up of pship are mandated only if, within 90 days after dissociation, at least 1/2 of remaining partners agree to wind up the pship
35
Q

buyout and continuation of the business

A
  • if a partner’s dissociation doesn’t result in a dissolution and winding up, the partner is entitled to get a buyout of his pship interest
  • remaining partners can continue the business
36
Q

liability of dissociated partner

A
  • pre-dissociation: remains liable for pre-dissociation pship obligations
  • post-dissociation: can be liable for post-dissociation pship liabilities incurred within 2 years after dissociation if: (1) when entering the transaction the other party reasonably believed the dissociated partner was still a partner, and (2) did not have notice of the partner’s dissociation

**dissociated partner can protect themselves by notifying creditors directly of their dissociation or by filing public notice of dissociation

37
Q

dissociated partner’s power to bind partnership (apparent authority of dissociated partner)

A
  • partnership can be bound by act of a dissociated partner undertaken within 2 years after dissociation if (1) act would’ve bound the partnership before dissociation and (2) other party to the transaction reasonably beleived dissociated partner was still a partner and (3) didn’t have notice of dissociation
38
Q

dissolution

A
  • when dissolution and winding up (partnership business is sold off) occur, pship assets are sold to pay off partnership debt/liabilities
  • if assets (we sell off pship business and pay off the creditors but… we haven’t paid off everyone yet!) are insufficient, individual partners are required to pay in with their loss shares
  • if there are excess assets, they are distributable to partners in accordance with their profit shares
39
Q

dissolution of a partnership at will

A

when a partnership is formed with no undertaking or definite term, it’s at will –> can be dissolved at any time by expresss will

40
Q

events causing dissolution

A
  • in a partnership at will, notification by any partner of an express will to withdraw as a partner
  • in a partnership for a definite term or particular undertaking: (1) expiration of term or completion of undertaking, (2) consent of all partners to dissolve, or (3) within 90 days after partner’s death or wrongful dissociation, at least 1/2 of remaining partners wish to dissolve
41
Q

dissolution
priority of distribution

A

each level of priority must be fully satisfied before beginning the next level
- pship must pay all creditors (outside creditors and inside creditors-partners who loaned money)
- pship must repay all capital contributions paid into the pship by partners
- profits or losses, if any

42
Q

dissolution
after dissolution

A
  • partnership continues to exist after dissolution until the pship is wound up
  • all living partners have a right to participate in the winding up/selling of the pship’s business except those that have wrongfully dissolved pship
43
Q

partner’s power to bind partnership after dissolution

A
  • partnership can be bound after dissolution by any act of a partner appropriate for winding up pship’s business
  • pship can protect itself BY NOTIFYING CREDITORS DIRECTLY OF THE DISSOLUTION; any partner who hasn’t wrongfully dissociated may file statement with Secretary of State (takes effect in 90 days)
44
Q

HYPO

A

e.g., pship has a two-year term; partner dissociates before term is up

she can but she will be liable for damages since she agreed to stay for 2 years
the other partners can continue the biz without dissolution and winding up; buyout of the dissociated partner is required

45
Q

limited partnership

A
  • partnership with at least one general partner and at least one limited partner
  • general partners are liable for pship obligations, while limited partners generally do not have any liability beyond liability to make agreed upon contributions
46
Q

certificate of limted partnership

A
  • to form a LP, must file a certificate of LP with the state
  • certificate must contain names and adddresses of each general partner and their signatures
47
Q

partnership agreement in an LP

A
  • the real detail on the operation and governance of a LP is usually found in the partnership agreement (can be written, oral, or implied)
48
Q

management and operation of LP

A
  • LP is managed by the general partners (they control the day to day operations – owe the same fiduciary duties as partners in a general partnership)
  • limited partners have no mgmt rights unless agreement says otherwise; participation in mgmt DOES NOT cause a limited partner to become personally liable for an obligation of the limited parntership
49
Q

financial rights in an LP

A
  • distributions from an LP are made on the basis of the partners’ contributions (in proprotion to the value of each partners’ contributions) rather than the RUPA’s default equal split for general partnerships
  • partner must make a contribution to the partnership to have a right to distribution
50
Q

liability in an LP

A
  • general partners are jointly and severally liable for all partnership obligations (incoming partners are not liable for obligations the pship incurred before they become a GP)
  • limited partners: a limited partner is NOT personally liable for debts of business (they have limited liability – can only lose the value of their investments)

NOTE THAT: LIMITED LIABILITY SHIELD OF ANY BUSINESS ORG DOES NOT PROTECT PERSON FROM LIABILITY FOR HER OWN TORTS

51
Q

fiduciary duties of general partner and limited partner

A
  • a limited partner owes no fiduciarty duty to the partnership or any other partner – they are free to compete with the partnership
  • general partner owes the limited partner and other partners same fiduciary duties of loyalty and care that general partners owe in a general partnership (GP doesn’t violate duty of loyalty merely b/c his conduct furthers his own interests)
52
Q

limited liability partnership

(a GP where partners are not liable for debts of the business)

A
  • in LLP, all of the partners have limited liability (no partner is personally liable for a pship obligation beyond their contribution to the pship)
  • partners are not personally liable for LLP’s obligations
53
Q

formation of LLP

A
  • partnership must file a statement with the secretary of state
  • terms and conditions on which partnership becomes an LLP must be approved by whatever vote is needed to amend the pship agreement (if silent, all partners must approve terms/conditions of pship becoming an LLP)
54
Q

LLP and liability

A
  • a partner in an LLP is NOT personally liable for obligations of the LLP
  • a partner remains personally liable for their wrongful acts
55
Q

liability of a partner in an LLP for a tort committed by a co-partner

A

Partner’s liability is limited (they will NOT be personally liable for the co-partner’s tort)

Check to see if the partner engaged in the tort

56
Q

LLC

A

hybrid b/w a corporation and a partnership that (1) is taxed like a partnership (except single member LLC); (2) offers its owners (called members) the limited liability of SH of a corporation; and (3) can be run like a corporation or a partnership

***treated as a separate legal entity distinct from its owners (called MEMBERS)

57
Q

member managed v. manager managed LLC

A
  • member-managed LLC, members (owners) are responsible for the LLC’s day-to-day operations
  • manager-managed LLC, members appoint or hire a manager or managers to run the business
58
Q

LLC formation

A
  • filing certificate of org with the state (LLC must have at least one member)
59
Q

operating agreement of LLC; management and operation

A
  • real detail on the operation and governance of an LLC is usually found in an operating agreement (can displace almost all of the statutory provisions)
  • default rule is members and managers have equal voting rights; majority vote of members/manager is required to approve ordinary business decisions and unanimous vote is required to approve extraordinary business decisions
60
Q

LLC financial rights

A
  • in most states, profits and losses and distributions are allocated on basis of contributions
61
Q

LLC and liability

A
  • members and managers generally are not personally liable for LLC’s obligations (they have limited liability and can lose only amount of their investments); but members are liable for their own torts
  • courts can pierce the LLC veil of limited liability to reach the members and managers personal assets to satisfy LLC obligations under circumstances similar to those under which courts would pierce corporate veil
62
Q

LLC and fiduciary duties

A
  • fiduciary duties owed by a member or a manager to the LLC and to its other members are the duties of care and loyalty
63
Q

LLC and duty of care

A
  • members (or manages if manager managed) must act with care that a person in a like position would exercise under similar circumstances
  • business judgment rule protection is provided – members can’t be held liable for negligent decisions
64
Q

LLC and duty of loyalty

A

a member (or manager) must refrain from competing with LLC’s business

65
Q

LLC and transferability of ownership interests

A
  • financial rights are unilaterally transferrable but mgmt rights are not
  • one can become a member only with consent of ALL members
66
Q

dissolution

A
  • events causing dissolution: LLC will be dissolved when any of following event occurs: (1) event or circumstance that operating agreement says causes dissolution; (2) consent of all the members; or (3) passage of 90 consecutive days during which LLC has no members
67
Q

judicial dissolution

A

member can also apply for judicial dissolution of the LLC

court can grant an application for judicial dissolution if: conduct of all or substantially all of the LLC’s activities is unlawful

68
Q

taxation of LLC

A
  • partnerships and LLCs are taxed on a pass through basis; no entity-level tax (so less tax paid!)
  • business income is passed through to the owners and reported on owners’ individual tax returns
  • a corporation is subject to double taxation (corp pays taxes on its income and shareholders pay taxes on that income again when and if it is distubuted to them)

AGENCY, PARTNERSHIPS & LLCS, CORPORATIONS (3 decks)

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