Partnerships and LLCs

Question 1

Formation of a General Partnership

Answer 1

A partnership is formed as soon as two or more persons associate to carry on as co-oweners a business for profit, regarless of whether the parties subjectively intent to form a partnership.

• Key factor: sharing of profit
• Partnership by Estoppel: if a third party reasonably relies on a partnership, even if none was actually formed

Question 2

Management of a Partnership

Answer 2

1. In the Ordinary Course of Business: majority vote required
2. Outside the Oridinary Course: unanimity required

Question 3

Sharing Profits and Losses (Partnership)

Answer 3

Sharing Profits and Losses: shared equally unless there is an agreement and losses follow profits

Question 4

Liability of the Partnership

Answer 4

Partners are Agents of Partnership

1. Liability in Tort: partnership is liabile for torts commited by a partner or employee acting in the ordinary course of the business with authority of the partnership.
2. Liability in Contract: liable for contracts entered into by partners with actual or apparent authority be partners are agents of partnership

_​_Each partner is jointly and severally liable for the obligations of the partnership, but the plaintiff must first exhaust the partnership resources before seeking to collect from an individual

Question 5

A partners fiduciary duties to the partnership

Answer 5

1. Duty of Loyalty
2. Duty of Care
3. Duty of Disclosure

Question 6

A Partner’s Onwership Interest in the Partnership

Answer 6

• A partner has management (voting) rights and financial rights (to a share of the profits)
• Cannot unilaterly transfer management rights (pick your parter rule: new partners only added by unanimous vote)

Question 7

Disassociation of a Partnership

Answer 7

Withdrawal of a partner from the partnership

Examples of Withdrawal

1. a partner gives notice and withdraws (express will)
2. expulsion, death, or bankruptcy
3. an agreed upon event

If withdrawal is wrongful, the withdrawing partner is liable damages (wrongful if before proper term, if it is a term partnership (for a specific purpose or time); however, partnerships are presumed to be at-will)

Consequences of Withdrawal:

1. Partnership is dissolved and liquidated; OR
2. The Partner is bought out

Question 8

Dissolution of a Partnership

Answer 8

Required in limited circumstances

1. A partner who dissaciates by express will may compel dissolution and winding up
2. In a term partnership, if one partner dissaciates wrongfully or dies, dissolution may be required if, within 90 days, 1/2 of the remaining partners agree to dissolve and wind up.

Parntership assets must be applied to discharge partnership liabilities; partnership must pay

1. all creditors (including partner creditors)
2. then, may pay profits and losses to partners

Question 9

Liability of a Dissociated Partner and apparent authority of a dissociated partner

Answer 9

• Liable for pre-dissociation obligations and possible post-dissociation obligations incurred within 2 years (but can protect himself by filing a public statement of dissociation)
• Partnership is liable for contracts entered with by dissociated partner with apparent authority (can protect itself by providing notice to creditors or filing a public statement of dissociation)

Question 10

Limited Partnership

Answer 10

Partnership with at least one general and one limited partner

• Must file a certificate of limited partnership with the secretary of state and include LP in the name
• General partner(s) manages the partnership; In most states, limited partners do not have a right to manage, but under the newly formed uniform limited partnership act, limited partners can manage.
• Limited partners receive distibutions limited by their contributions
• Limited partners have limited liability (they can only lose their contributions; not personally liable)

Question 11

Limited Liability Partnership

Answer 11

All partners have limited liability

• Must file a Statement of Qualification with the Secretary of State and include LLP in the name
• Partners are NOT personally liable for obligations of LLP

Question 12

Limited Liability Company (LLC)

Answer 12

Hybrid between partnership and corporation in which owners (called members) have limited liability as well as the benefits of partnership tax treatment.

• Must file Articles of Organization with the Secreatry of State and include LLC in name
• Profits and Losses are allocated on basis of contributions
• No personal liability
• Pass-through taxation; no entity level tax