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Partnerships and LLCs > Partnerships and LLCs > Flashcards

Partnerships and LLCs Flashcards

1
Q

When is a pship formed?

A

As soon as two or more persons carry on as co-owners of a business for profit

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2
Q

Factors for determining whether Pship exists:

A
  1. Profit sharing (raises presumption of pship)
  2. Right to participate in control
  3. title to protect held in joint tenancy or tenancy in common
  4. parties designate relationship as pship
  5. venture requires extensive activity
  6. sharing of gross returns
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3
Q

How to rebut presumption of pship?

A

Evidence suggesting lack of co-ownership relationship

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4
Q

When is writing required to form a pship?

A

If parties wish to remain partners for longer than a year

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5
Q

What effect if a person holds themself out as or allows themself to be held out as a partner

A

Liable to third party who extends credit to the actual or apparent pship in reliance of the representation

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6
Q

What effect if a person holds another out as his partner?

A

he makes the person he held out as his partner an agent to bind him to third parties

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7
Q

Default rule for partners voting rights

A

equal rights in voting

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8
Q

Default rule for partners management rights

A

equal rights in mgmt of business

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9
Q

What vote of the partners is required for decisions regarding matters within the ordinary course?

A

majority vote

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10
Q

What vote of the partners is required for decisions regarding matters outside the ordinary course of business?

A

Unanimous consent

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11
Q

do partners have right to compensation by default?

A

No

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12
Q

Default Pship rule for sharing profits and losses?

A

profits shared equally among the partners and losses shared in same manner as profits

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13
Q

Is the pship liable for the tortious conduct of a partner?

A

Yes, if partner acting in ordinary course or had authority

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14
Q

Is pship liable for contracts entered into by a partner?

A

Yes, if in the scope of pship business, or actual or apparent authority

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15
Q

Effect on third party of grants and restrictions on partner authority in statement of pship authority for txs involving real property?

A

Binding on third party if statement is recorded in county where property located

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16
Q

Effect on third party of grants and restrictions on partner authority in statement of pship authority for txs NOT involving real property?

A

Third party deemed only to have knowledge of grants of authority not restrictions

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17
Q

What are pships rights when partner transfers pship property without authority and the pship interest was indicated?

A

Pship can recover property from initial transferee but not subsequent bona fide purchaser

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17
Q

When does partner’s apparent authority give them authority to do?

A

to enter transactions within the ordinary course of the pship’s business unless third party is aware that partner lacks actual authority

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17
Q

What are pships rights when partner transfers pship property without authority and the pship interest not indicated?

A

Transferee takes free of pship interest if he gave value and lacked notice of lack of authority

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18
Q

What is the liability of the partners for obligations of the pship?

A

Each partner is jointly and severally liable for all obligations (tort or contract) but Plaintiff must first exhaust pship resources before going after individual assets

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19
Q

What is the extent of each partners liability for pship obligations

A

Partner who pays entire obligation is entitled to indemnfication

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20
Q

What is the liability of a newly admitted partner for obligations incurred by pship before admission?

A

Not personally liable–they can only lose amount of their investment

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21
Q

What does the duty of loyalty require of each partner?

A
  1. account for benefits recieved from conducting business, using pship property, or appropriating an opportunity
  2. refrain from dealing w pship as adverse party
  3. refrain from competing
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22
Q

What does the duty of care require of each partner?

A

Refrain from grossly negligent or reckless conduct, intentional misconduct, or knowing violations of law

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23
Q

What does the duty of disclosure require of each partner?

A

Provide complete and accurate information concerning the pship

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24
Q

What does the duty of obedience require of each partner?

A

obey all reasonable directions of the pship and not act outside scope of authority

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25
Q

What duties can pship agreement eliminate?

A

Only the duty of disclosure

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26
Q

What are the four fiduciary duties each partner owes to the pship

A

care, loyalty, disclosure, obedience

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27
Q

What is pship capital?

A

Capital or money contributed by each partner for purpose of carrying on pship business

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28
Q

What is pship property?

A

everything the pship owns

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29
Q

When is property deemed pship property?

A

When it is acquired in the pship’s name or partner’s name and document mentions partner or pship

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30
Q

When is property presumed pship property?

A

when purchased w pship funds

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31
Q

When is property presumed partner’s separate property?

A

(1) held in name of one or more partner’s (2) transferring instrument gives no sign they are acting for pship, (3) pship funds not used to acquire

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32
Q

What is a partner’s ownership interest comprised of

A

mgmt rights and financial rights

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32
Q

When can a partner transfer his mgmt rights?

A

default rule is unanimous vote

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33
Q

When can partner transfer his financial rights?

A

unilaterally

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34
Q

What is dissociation?

A

When one partner ceases to be associated w the pship

35
Q

When is a partner’s dissociation wrongful?

A

(1) breach of express term of pship agreement, or (2) withdraw, expulsion, or bankruptcy before end of term pship

36
Q

Seven events of dissociation:

A
  1. oral or written notice of withdraw
  2. Happening of agreed event
  3. Expulsion
  4. Partner’s bankruptcy
  5. Partner’s death/incapacity
  6. court decides Partner incapable of performing duties
  7. termination of business entity that is a partner
37
Q

What is an At-Will Pship

A

partners have not agreed to remain partners until expiration of term or completion of undertaking

38
Q

The two potential consequences for pship when partner dissociates?

A
  1. pship is dissolved and wound up
  2. pship continues and dissociated partner entitled to buyout of their interest
39
Q

What is a term pship

A

Partners agreed to remain partners for definite term or completion of undertaking

40
Q

Two circumstances where dissolution is required:

A
  1. Partner dissociates by express will from at-will pship or
  2. wrongful dissociation or partner’s death or bankruptcy in a term pship, if within 9- days after dissociation 1/2 of partners agree to wind up
40
Q

Consequences of dissociation for partner of at will pship

A
  1. mgmt rights cease
  2. pship must buy out partner’s interest and indemnification
41
Q

When is partner who wrongfully dissociates from term pship entitled to buyout?

A

when term/undertaking completes UNLESS they show earlier payment will not cause undue hardship

41
Q

Effect of wrongful dissociation on partner’s buyout interest

A

damages caused by wrongful dissociation offset against buyout price

41
Q

What is dissolution?

A

Pship is dissolved and business is wound up

42
Q

What is the liability of a dissociated partner for pre-dissociation obligations?

A

remains liable

42
Q

What is liability of dissociated partner for post-dissociation pship obligations?

A

Partner remains liable for obligations incurred within 2 years after dissociation IF: (1) other party believed dissociated partner was still partner, and (2) no notice of dissociation

43
Q

When is pship bound by act of dissociated partner?

A

Acts occurs within 2 years of dissociation and (1) act would have bound pship before dissociation, and (2) other party reasonably believed and lacked notice partner dissociated

43
Q

What must pship do with assets when dissolution and winding up occur?

A
  1. Assets applied to discharge of pship liabilities
  2. If assets insufficient partners must pay in in accordance w loss shares
  3. If excess assets distributed to partners in accordance w profit shares
44
Q

How can dissociated partners protect themselves against post-dissociation obligations?

A

Notify creditors or file public notice of dissociation

45
Q

How can pship protect itself from dissociated partner’s ability to bind pship

A

notify creditors or file public statement of dissociation

46
Q

When can a pship at will be dissolved

A

at any time by the express will of any partner

47
Q

7 events causing dissolution

A
  1. P withdraw from at-will pship
  2. Term pship dissolution
  3. happening of event in pship agreement
  4. Happening of event that makes pship unlawful
  5. issuance of judicial decree on application of partner
  6. issuance of judicial decree on application by transferee of partner’s interest
  7. 90 days pass where pship does not have two partners
48
Q

Pship dissolved by judicial decree upon application by a partner that:

A

(1) economic purpose of pship is frustrated, (2) partner engaged in conduct making continuation impracticable, (3) business cannot be carried on in conformity with pship agreement

49
Q

Pship is dissolved by judicial decree upon application of transferee that it is equitable to wind up the pship:

A

(1) after the term or undertaking is complete, or
(2) anytime in pship at-will

50
Q

Priority of distribution during winding up

A
  1. Creditors
  2. Partner contributions
  3. profits or losses
51
Q

What is a limited partnership?

A

pship with at least one general partner and one limited partner

52
Q

What is required for formation of limited partnership?

A

File certificate of limited partnership with secretary of state

53
Q

Contents of certificate of limited partnership

A

(1) name of pship, (2) name and addresses of agent for service, (3) names and addresses of each general partner

54
Q

What must the name of a limited pship contain?

A

Limited partnership or L.P.

55
Q

What is required to make decisions on matters in the ordinary course of business?

A

The general partner agrees, or if more than one a majority

56
Q

Which matters require the vote of all partners (including limited)

A

(1) amend pship agreement, (2) convert pship to limited liability pship (3) dispose of all or substantially all property (4) admit new partner (5) compromise partner’s obligation to make contribution or return improper distribution

57
Q

On what basis are the distributions of a limited partnership made

A

on basis of partner’s contributions

58
Q

what is the liability of general partners in a limited pship?

A

joint and several

59
Q

What is the liability of an incoming general partner for obligations pship incurred prior to him becoming general partner?

A

No personal liability

60
Q

What is the liability of a limited partner?

A

Limited to their initial investment

61
Q

What fiduciary duties does the general partner owe?

A

care and loyalty (but can further his own interests)

62
Q

What fiduciary duties does the limited partner owe?

A

None

63
Q

What is a limited liability company?

A

A hybrid organization between a corporation and a pship that is (1) taxed like a pship, (2) offers members limited liability, and (3) can be run liike a corp or a pship

64
Q

how are LLC’s formed

A

Filing certificate or organization with secretary of state

65
Q

What are the contents of the certificate of organization?

A

(1) name of LLC
(2) address of LLC’s registered office, and
(3) name and address of its registered agent

66
Q

What is a member-managed LLC

A

the members (owners) also manage

67
Q

what are the financial rights of members in an LLC

A

Default rule is that profits and losses and distributions are allocated on the basis of contributions

68
Q

What is a manager managed LLC

A

the owners (members) do not manage

69
Q

What is the liability of managers and members of an LLC

A

Limited – they can only lose their investment

70
Q

Fiduciary duties owed by a member (if member-managed) or manager (if manager-managed)?

A

Duty of care and loyalty

71
Q

What are the fiduciary duties of members in a manager managed LLC?

A

None

72
Q

What is the transferability of ownership interests in an LLC?

A

Financial rights are unilaterally transferable, mgmt rights are not unless all members consent

73
Q

How does person dissociate from LLC?

A

expressly withdrawing rightfully or wrongfullly

74
Q

What events trigger dissociation of a member?

A

Same as pship

75
Q

What events cause dissolution of LLC?

A

(1) event or circumstance in operating agreement, (2) consent of all the members, or (3) passage of 9- consecutive days during which LLC has no members

76
Q

When can the secretary of state dissolve an LLC administratively?

A

LLC fails to submit required fee or annual report (LLC may apply for reinstatement)

77
Q

When can a court grant application for judicial dissolution?

A

(1) conduct of LLC is unlawful
(2) impracticable to carry on LLC’s activities
(3) members acting fraudulently or illegally
(4) controlling members are acting in manner that is oppressive or will be harmful to member applying for dissolution

78
Q

How is LLC taxed?

A

pass through basis–no entity level tax

79
Q

In a member-managed LLC–what are the members rights to inspection?

A

right to inspect and copy any reocrd concerning LLC’s activities, financial condition, etc.

80
Q

In a manager managed LLC, what are the managers right to information?

A

Right to inspect and copy any record concerning LLC’s activities, financial condition, etc.

81
Q

What are the members right to information in a manager managed LLC?

A

Right to inspect and copy any record concerning LLC activities or financial condition if (1) member seeks info for purpose material to member’s interest, (2) member describes w particularity the info sought and purpose for seeking, and (3) information sought is directly connected to member’s purpose

82
Q

What actions can member make against LLC

A

direct and derivative

Partnerships and LLCs (1 decks)

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