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TX Bar > Partnerships (DONE) > Flashcards

Partnerships (DONE) Flashcards

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1
Q

What is a partnership?

A

An association of two or more persons to carry on as co-owners of a business for profit, where they intend to form a partnership or not.

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2
Q

What are the factors to determine who is a partner?

A

1) CAPITAL: Capital contribution is not required to be a partner.
2) CONTROL: The right to control may be enough, even if control is never exercised (because owners usually have the right to control operations.)
3) SHARING PROFITS: Just one factor; doesn’t create a presumption.
4) WRITING: Partnership law doesn’t require a writing, but SoF may. (e.g., a partnership that’s agreed to last more than a year)
5) JOINT VENTURES: A joint venture is treated like a partnership, but requires express agreement on how the losses will be shared.
6) ESTOPPEL: If no partnership was formed, parties may still be liable as if they are partners to protected reasonable reliance by third party (like apparent authority)

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3
Q

What is partnership property?

A

Property is partnership property if acquired in the partnership’s name or in a pattern’s name where it’s apparent from the document he’s acting for a partnership.

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4
Q

When is property PRESUMED to be partnership property?

A

If partnership funds are used to purchase or maintain the property, it’s presumed to be partnership property.

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5
Q

When is property PRESUMED to be a partner’s property, rather than the partnership’s?

A

If the property is acquired in his name without partnership funds another’s no sign he’s acting for a partnership.

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6
Q

What is the partnership’s rights in partnership property?

A

Rights are totally unrestricted, so the partnership may do whatever it wants (pledge it as collateral, etc)

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7
Q

What is a partner’s rights in partnership property?

A

Extremely limited. A partner can use partnership property only for partnership purposes, This right is NOT transferable.

e.g., A truck belonging to a partnership cannot be used by a partner for personal purposes unless the other partners consent.

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8
Q

What is a partner’s economic interest in the partnership?

A

A partner’s share of the profits.

This interest is transferable, like any other financial asset.

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9
Q

How is the relationship between the partners determined?

A

Statute applies default rules, but the partners may contract around them, so the partnership agreement usually governs in this area.

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10
Q

How do partners share profits and losses?

A

Equally! “Unless otherwise agreed” (“UOA” - this is a crucial element to answering partnership questions)

The amount of contribution towards creating the partnership is irrelevant in determining profits.

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11
Q

Can a partnership limit the losses of a partner so they don’t share in any loss?

A

Yes

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12
Q

Can the partners limit liability of a partner to a third party?

A

NO. Partners cannot limit a third party’s rights without that third party’s consent.

If a partner is found liable to a third party, that partner can have the other partners help pay for her losses.

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13
Q

Do partner’s have a right to compensation?

A

UOA, no.

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14
Q

What determines the proportion of management rights between partners?

A

UOA, partners have equal management rights.

BUT, ordinary business is decided by a majority in interest (based on profit share). If one partner gets more profits than the others, then her vote weighs more.

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15
Q

What are the rules for indemnification and interest between partners?

A

Partnership debts that are paid by a partner are paid back (indemnified) with interest by the partnership.

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16
Q

What duties do partners owe each other and the partnership?

A

Partners owe a duty of care, loyalty, and good faith, but may limit or even eliminate those duties in a partnership (except for the duty of loyalty)

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17
Q

What is required for the admission of new partners?

A

UOA, a new partner requires a unanimous vote by the partners.

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18
Q

Is a new partner liable to the debts incurred by the partnership before his admission?

A

No. Because he wasn’t around when those debts incurred.

He might be able to lose economic interest in the partnership, but nothing more.

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19
Q

What is the relationship between partners and third parties?

A

Based on AGENCY law.

Apply rules of actual and apparent authority, where the partnership is the principal, and the partner is the agent.

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20
Q

When is the partnership liable for a partner’s tort?

A

The only issue is whether it was committed in the ordinary course of the partnership’s business.

(servant, scope of employment analysis)

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21
Q

What is the partnership’s option when a partner converts real property without authority?

A

The partnership can get the property back from the initial transferee (who should have check on authority), but not from the subsequent BFP (who had no reason to check)

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22
Q

What is a partner’s liability for partnership obligations?

A

Partnership is liable.

But the plaintiff must first exhaust partnership resources before going after the individual partners. (Joint and several liability)

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23
Q

What is the liability exception for LLPs?

A

There is no liability on contracts or for the torts of others (“broad shield” statute).

e.g., If you form a PLLP, who would be liable for your partner’s negligence?

  • Tortfeasor = ALWAYS
  • PLLP = Yes, liable under agency principles.
  • You? = NEVER, this is the benefit of a PLLP.
24
Q

How do you form an LLP/PLLP?

A

1) File a certificate of formation with the SoS and pay a fee of $200 per partner.
2) Name must include the phrase “limited liability partnership” or abbreviation (provides notice)

25
Q

What events result in the withdrawal of a partner?

A

1) Notice of express will to withdraw
2) An agreed-upon event
3) A partner’s expulsion, death, bankruptcy, or incapacity
4) Appointment of a trustee, receiver, or liquidator for a partner
5) Or redemption of a transferee’s interest.

26
Q

What is the effect on a partnership of the withdrawal of a partner?

A

Not a big deal, the partnership can buy out the withdrawing partner and continue without them.

27
Q

What kind of authority does a withdrawing partner have?

A

The withdrawing partner may have apparent authority to bind the partnership to an innocent third party for one year.

BUT the partnership can protect itself by notifying creditors of the withdrawal.

28
Q

What is the liability of the withdrawn partner to existing creditors?

A

Liability of a withdrawn partner remains to an existing creditor unless released by them, expressly or impliedly.

29
Q

What is the liability of the withdrawn partner to subsequent creditors?

A

There is still liability to subsequent creditors who were unaware of the withdrawal.

This can be negated by NOTIFYING potential creditors of their withdrawal.

30
Q

What is the liability of the withdrawn partner to OTHER creditors?

A

There is still liability to other creditor if she withdraws before the term is up or the specific task is completed (“wrongful withdrawal”)

31
Q

If a partnership has a two-year term, may a partner withdraw before that term is up?

A

Yes, but they’ll be liable for BREACH OF CONTRACT since they agreed to stay for two years.

32
Q

If a partnership is formed to complete a specific task, may a partner withdraw before that task is completed?

A

Yes, but they’ll be liable for breach of contract because they agreed to stay until the task was completed.

33
Q

What is a partner’s liability for withdrawing from an at-will partnership?

A

NONE. A partner may withdraw from an at-will partnership at any time.

Most partnerships are at-will, meaning they have no term or specific task (open-ended)

34
Q

What triggers the winding up of a partnership?

A

1) Business becoming illegal
2) All assets are sold outside the ordinary course of business
3) Entry of judicial decree
4) The term is up/task completed
5) All partners consent
6) Or a majority-in-interest consent in a partnership at will.

(Winding up is rarely required)

35
Q

Which partners bear the right to wind up?

A

Partners who have not wrongfully withdrawn may wind up.

36
Q

Can liability still be incurred after the process of winding up has begun?

A

YES. There may still be apparent authority to bind the partnership to an innocent third party on NEW BUSINESS even after an event requiring winding up.

(BUT the partnership can protect itself by notifying potential creditors)

37
Q

How are the assets of a partnership distributed during winding up?

A

1) First to creditors, including partners who are creditors

2) Then to partners for what is in their capital accounts.

38
Q

How is a distribution to partners calculated during winding up?

A

Contributions + Profits - Losses

39
Q

What happens if partnership assets are insufficient to cover liabilities?

A

The creditors split the assets pro-rata based on the proportion of debt owed (e.g., [partnership owes A twice more than it owes B, so A gets twice more of the remaining assets.]

40
Q

What is the priority of creditor’s in a partnership?

A

Partnership creditors have priority over a partner’s creditors on partnership property, and equal claims on a partner’s separate property.

41
Q

What is a limited partnership?

A

A partnership with one or more general partners (general liability), and one or more limited partners (liability limited to their investment).

42
Q

What formalities are required to form a limited partnership?

A

Must file a certificate of formation with the SoS along with a fee, and must have a written limited partnership agreement.

43
Q

What is the liability of limited partners?

A

Limited partners can only lose their capital contributions.

44
Q

What is the exception to the limited liability of a limited partner?

A

Where a limited partner takes part in control. The statute doesn’t say what “control” is, but it does provide certain safe harbors.

45
Q

What are the safe harbors of a limited partner that don’t incur additional liability?

A

Things such as:

1) One partner being employed by the limited partnership in a collateral job (such as maitres d)
2) Advising the general partners
3) Guaranteeing a note for the limited partnership
4) Being an officer or director of the corporate general partner

46
Q

What is the test for imposing liability on a partner that participates in control of the LP?

A

Reliance test

If the creditor reasonably believed that the limited parter was a general partner based on their conduct, then they acted in reliance and can recover from the limited partner under the reliance test.

47
Q

What is the liability of partners for a failure to file for the limited partnership?

A

Joint and several liability, BUT a limited partner can avoid future liability by filing a certificate or withdrawing from the LP within a reasonable time after discovering the failure to file.

48
Q

What are the rights and obligations of a limited partner?

A

1) Promise to contribute must be in signed writing to be enforceable
2) May withdraw ONLY if the agreement permits

49
Q

What is the liability of general partners?

A

General rule: Jointly and severally liable

50
Q

What is the exception to imposing liability to general partners?

A

If a limited liability limited partnership is formed (LLLP), then this shields general property from liability just like an LLP does.

Formula: LP (shield limited partners) + LLP (shields general partners) = LLLP

51
Q

How is a limited liability company formed?

A

1) Filing: Must file a CoF with the SoS and pay $300 fee.

2) Name: Must include “LLP” or abbreviation

52
Q

What is the nature of a PLLC?

A

Professional LLC. Members and managers must be licensed to render professional services somewhere.

NOTE: No mixing of professions allowed.

53
Q

What is the management structure of an LLC?

A

1) FLEXIBLE MANAGEMENT: Can be structured like a corporation or a partnership, but managers run the LLC unless otherwise provided in the certificate.

54
Q

What is a series LLC?

A

Can partition assets/liabilities among separate (independent) series.

Designed for asset protection (shield assets of one series from creditors of another)

55
Q

What kind of liability is imposed on members of an LLC?

A

No liability for other members, only for the tortfeasor and the PLLC itself.

56
Q

If a member of a PLLC with authority contracts for the PLLC, who is liable for the obligation?

A

Only the PLLC, as the principal of the contract.

TX Bar (29 decks)

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