Partnerships & LLCs

Question 1

What is a partnership

Answer 1

An association of two or more persons to carry on as co-owners a business for profit. Partnership law is based on the law of contract and agency. Florida partnerships are governed y the Revised Uniform Partnership Act (RUPA).

Question 2

Except with respect to partners’ personal liability for partnership obligations, is a partnership a legal entity distinct from its partners?

Answer 2

yes

Question 3

Is title to land allowed to be held in the partnership name

Answer 3

yes

Question 4

May a partnership sue or be sued in the partnership name?

Answer 4

yes

Question 5

How does the governing law of a partnership work?

Answer 5

Generally, the RUPA provides a default set of rules. Partners are free to agree–through a partnership agreement–to abide by different rules for governing the relationships among themselves, and the RUPA will govern only those issues not provided for in the partnership agreement. Note, however, that certain RUPA provisions cannot be waived (e.g., the duty of loyalty, the right of a court to expel a partner).

Question 6

What level of agreement is needed for partnership formation

Answer 6

No formal agreement is required to form a partnership; the parties’ intent may be implied from their conduct

Question 7

Is writing required to form a partnership; what is the consequence if no writing is used

Answer 7

No writing is required to form a partnership. However, because of the Statute of Frauds, if partners wish to have an enforceable agreement to remain partners for more than one year, they generally must execute a writing reflecting their agreement

Question 8

What is the capacity requirement for partnership formation

Answer 8

Anyone who is capable of entering into a binding contract may be a partner. A would-be partner who lacks capacity is liable only to the extent of his capital contribution, but the partnership with such person is not void; it will continue to exist until steps are taken to dissolve it

Question 9

What happens if a partnership is formed to achieve an illegal purpose

Answer 9

A partnership formed to achieve an illegal purpose is void, and the court will not compel an accounting or a settlement of a void partnership’s affairs

Question 10

What consent is required for one to become a partner in the partnership

Answer 10

Unless otherwise agreed, no one can become a partner without the express or implied consent of all partners

Question 11

How can one find proof of partnership existence

Answer 11

Since no formalities are required to form a partnership, it is sometimes difficult to determine whether the relationship between the parties is a partnership or something else. To determine whether a partnership exists, courts generally look to the intent of the parties. If they intended to carry on a business as co-owners, there is a partnership even if they did not subjectively intend to be partners. Where the parties’ intent is uncertain, the court considers certain rules.

Question 12

Where the parties’ intent to form a partnership is uncertain, the courts consider what five things?

Answer 12

(i) the sharing of profits raises presumption of partnership unless the share was received as payment of a debt, for services rendered, as rent payment, as an annuity or other retirement benefit, as interest on a loan, or for the sale of goodwill of a business (this is the loan factor that raises a presumption of partnership); (ii) Title to property is held in joint tenancy or in common; (iii) the parties designate their relationship as a partnership; (iv) the venture undertaken by the parties requires extensive activity (e.g., if A and B each contribute $100,000 to buy a building of rental apartments that must be managed, it is more likely that they are partners than if they each contributed $100,000 to buy shares in a company that manages real estate); and (v) sharing of gross returns

Question 13

What is the liability of a person who by words or conduct represents himself as a partner or consents to being represented by another as a partner

Answer 13

He will be liable to third parties who extend credit to the partnership in reliance on the representation

Question 14

Is it true that a person held by another as a partner is not liable as a partner unless he actually consents to the holding out (the mere failure to deny a representation of partnership would not give rise to liability as a purported partner)

Answer 14

Yes

Question 15

What is the liability of a person who holds another out as a partner

Answer 15

He thereby makes that person his agent to bind him to third parties. (If there is a partnership, only those partners who know of or consent to this holding out will be bound.)

Question 16

What is includable in partnership property

Answer 16

There is no restriction on what may be partnership property, and sometimes it is not always obvious whether property is partnership property or the individual property of a partner. The RUPA has a number of provisions concerning ownership of titled property (both titled personal property and real property)

Question 17

Under the RUPA, titled property is deemed to be partnership property if: one of what two things

Answer 17

1) it is titled in the partnership name; or 2) it is titled in the name of one or more partners and the instrument transferring title notes the titleholder’s capacity as a partner or the existence of a partnership

Question 18

Under the RUPA, when is property presumed to be partnership property

Answer 18

if it was purchased with partnership funds, regardless of in whose name title is held. “Partnership funds” includes not only the partnership’s cash, but also the partnership’s credit.

Question 19

Under the RUPA, if property is held in the name of one or more partners and (what two things), the property is presumed separate property, even if the property is used for partnership purposes

Answer 19

(i) the instrument transferring title does not indicate the person’s capacity as a partner or mention the existence of a partnership and (ii) partnership funds were not used to acquire the property

Question 20

In cases not governed by the explicit RUPA provisions (e.g., in cases of property that is not titled), in determining whether property is partnership property or the separate property of a partner, courts will probably continue to look to the following common law criteria which tend to indicate that the property was intended to be partnership property (6)

Answer 20

a. Acquisition of the property with partnership funds; b. Use of the property by the partnership in conducting the partnership’s business; c. Entry of the property in the partnership books as a partnership asset; d. A close relationship between the property and the business operations of the partnership; e. Improvement of the property with partnership funds; and f. Maintenance of the property with partnership funds

Question 21

What are the rights of a partner in partnership property

Answer 21

A partner is not a co-owner of partnership property and has no transferable interest in specific property of the partnership. Thus, a partner’s creditor may not reach partnership property to satisfy the personal obligations of a partner.

Question 22

What is a partner’s interest in the partnership

Answer 22

Each partner has a transferable interest in the partnership, which consists of his share of partnership profits, losses, and distributions. Absent an agreement to the contrary, a partner shares equally in the partnership profits and must contribute to the losses in proportion to his share of the profits. 1. the interest in the partnership is treated as personal property; 2. the interest is transferable without dissolving the partnership or causing the transferring partner’s dissociation; and 3. It is attachable

Question 23

Does the transfer of a partner’s interest give the transferee rights with regard to the operation of the partnership?

Answer 23

No. It merely entitles the transferee to receive profits to which the transferring partner would otherwise be entitled. Also note that a partner may not sell his partner status (i.e., may not make another a partner) without the unanimous consent of the other partners

Question 24

A Minor lacks capacity to be a partner and thus is not personally liable for partnership debts. However…

Answer 24

He is bound to the extent of his capital contribution

Question 25

Under RUPA, the assets of the partnership must first be applied to discharge obligations to creditrs, including to the extent permitted by law, partners who are creditors

Answer 25

The obligations to partners who are creditors are discharged on a parity with other creditors, abolishing the rule that subordinated th payment of inside debt to outside debt.

Question 26

If a partner is dissociated and the partnership is not dissolved and wound up, the partnership must cause the dissociated partner’s interest to be purchased.

Answer 26

The Buyout Price is the amount that would have been distributable to the dissociating partner upon settlement of accounts upon winding up, if, on the date of dissociation, the assets were sold for an amount equal to the greater of (i) the liquidation value of the assets, or (ii) the valute of the assets based on a sale of the entire business as a going concern. Interest is paid from the date the amount becomes due, to the date of payment.

Question 27

Under the RUPA, a partner who dissociates without a dissolution and winding up of the business isliable to any 3rd party to a transaction enter into by the partnership within ONE YEAR after dissociation, only if the 3rd party at the time of entering into the contract or transaction (i) reasonably believed that the dissociated partner was then a partner, (ii) did not have notice of the partner’s dissociation, and (iii) is not deemed to have had notice or knowledge

Answer 27

Note: a 3rd party is deemed to have notice of the dissociaton 90 days after a statement of dissociation is filed.

Question 28

A partner may assign the rights to profits and losses for his share, but teh assignee has no right to management participation or to inspect boks and records. An assignee only has a right to an accounting upon dissolution, not at any time. An assignee is entitled only to the profits the assigning partner would receive.

Answer 28

However, the assigning partner can still participate himself in management, and can enforce other rights, just monetary benefits get transferred

Question 29

Under the RUPA, a partnerhsip will be dissolved upon issuance of a judicial decree that:

(i) the economic purpose of the partnership is likely to be frustrated,
(ii) a partner has engaged in conduct making it not reasonably practicable to carry on business or
(iii) the business cannot practicably be carried on in conformity with the partnership agreement.

Answer 29

In addition, a court of equity may issue a decree of dissolution upon application of a transferree of a partners transferable interest, upon a determination that it is equitable to wind up the partnership business.

HOWEVER< The incapacity of a partner to perform partnership duties is NOT a sufficient reason to give a court power to dissolve a partnership.

Question 30

A person admitted as a partner into an existing partnership CAN BE held liable for obligations by the partnership incurred prior to that newbie joining the partnership

Answer 30

HOWEVER< This new partner is required to satisfy the obligation only out of Partnership Property, unless otherwise agreed., and is not personally liable.

Question 31

A partner who retires from a partnership remains liable on all obligations incured by the partnership while he was a member of the partnership, unless there has been a release, payment, or novation.

Answer 31

Retirees remain liable to third parties personally if they had been general partners. However, a judgement creditor generally must exhaust partnership assets before levying on a partner’s individual assets.

Question 32

Limited partners share profits and losses according to the value of their contribtuiton oth eh limited partnership, absent agreement to the contrary.

General partners share equally under the RUPA.

A limited partner in a LIMITED LIABILITY PARTNERSHIPS is not personally liable for the obligations fo ra partnership, soley by reason of being a partner. However, a partner remains personally liable for his/her own wrongful acts.

Answer 32

Upon dissolution or winding up of a limited partnership, the assets are distributed first to creditors, including partners that made loans to the limited partnership. If there are sufficient assets, limited partners get return of capital contrubton and then their share of partership profits, losses and assets, according to the partnership agreement or relative contributions.

Question 33

A Florida Limited Partnership (LPs) is like a general partnership; however it has two types of partners. A Florida Limited Partnership must have at least one general partner who manages the business and is personally liable for its debts and claims. A Florida Limited Partnership must also have a Limited Partner who contributes capital to the business yet is not involved whatsoever in the management. The Limited Partner is not personally liable for business debts and claims as long they never participate in management.

Form of contribution.—A contribution of a partner may consist of tangible or intangible property or other benefit to the limited partnership, including money, services performed, promissory notes, other agreements to contribute cash or property, and contracts for services to be performed.

Answer 33

Liability for contribution.—

(1)  A partner’s obligation to contribute money or other property or other benefit to, or to perform services for, a limited partnership shall be in a record signed by the partner, and such obligation shall not be excused by the partner’s death, disability, or other inability to perform personally.
(2)  If a partner does not make a promised nonmonetary contribution, the partner is obligated at the option of the limited partnership to contribute money equal to that portion of the value, as stated in the required information, of the stated contribution which has not been made.
(3)  The obligation of a partner to make a contribution or return money or other property paid or distributed in violation of this act may be compromised only by consent of all partners. A creditor of a limited partnership which extends credit or otherwise acts in reliance on an obligation described in subsection (1), without notice of any compromise under this subsection, may enforce the original obligation.
(4)  A partnership agreement may provide that the interest of any partner who fails to make any contribution that the partner is obligated to make shall be subject to specified penalties for, or specified consequences of, such failure. Such penalty or consequence may take the form of reducing the partner’s proportionate interest in the limited partnership, subordinating the partner’s partnership interests to that of nondefaulting partners, a forced sale, or the forfeiture of the partner’s interest in the limited partnership, the lending by other partners of the amount necessary to meet the partner’s commitment, a fixing of the value of the partner’s interest in the limited partnership by appraisal or by formula and redemption or sale of such interest at such value, or other penalty or consequence.

Question 34

Dissociation as limited partner.—

(1)  A person does not have a right to dissociate as a limited partner before the termination of the limited partnership.
(2)  A person is dissociated from a limited partnership as a limited partner upon the occurrence of any of the following events:
(a)  The limited partnership’s having notice of the person’s express will to withdraw as a limited partner or on a later date specified by the person;
(b)  An event agreed to in the partnership agreement as causing the person’s dissociation as a limited partner;
(c)  The person’s expulsion as a limited partner pursuant to the partnership agreement;
(d)  The person’s expulsion as a limited partner by the unanimous consent of the other partners if:
1.  It is unlawful to carry on the limited partnership’s activities with the person as a limited partner;
2.  There has been a transfer of all of the person’s transferable interest in the limited partnership, other than a transfer for security purposes, or a court order charging the person’s interest, which has not been foreclosed;
3.  The person is a corporation and, within 90 days after the limited partnership notifies the person that the corporation will be expelled as a limited partner because the corporation has filed a certificate of dissolution or the equivalent, the corporation’s charter has been revoked, or its right to conduct business has been suspended by the jurisdiction of its incorporation, and there is no revocation of the certificate of dissolution or no reinstatement of its charter or its right to conduct business; or
4.  The person is a limited liability company or partnership that has been dissolved and whose business is being wound up;
(e)  On application by the limited partnership, the person’s expulsion as a limited partner by judicial determination because:
1.  The person engaged in wrongful conduct that adversely and materially affected the limited partnership’s activities;
2.  The person willfully or persistently committed a material breach of the partnership agreement, any duty the person may have under s. 620.1305(1), or the obligation of good faith and fair dealing under s. 620.1305(2); or
3.  The person engaged in conduct relating to the limited partnership’s activities which makes it not reasonably practicable to carry on the activities with the person as limited partner;
(f)  In the case of a person who is an individual, the person’s death;
(g)  In the case of a person that is a trust or is acting as a limited partner by virtue of being a trustee of a trust, distribution of the trust’s entire transferable interest in the limited partnership, but not merely by reason of the substitution of a successor trustee;
(h)  In the case of a person that is an estate or is acting as a limited partner by virtue of being a personal representative of an estate, distribution of the estate’s entire transferable interest in the limited partnership, but not merely by reason of the substitution of a successor personal representative;
(i)  Termination of a limited partner that is not an individual, partnership, limited liability company, corporation, trust, or estate; or
(j)  The limited partnership’s participation in a conversion or merger under this act, if the limited partnership:
1.  Is not the converted or surviving entity; or
2.  Is the converted or surviving entity but, as a result of the conversion or merger, the person ceases to be a limited partner.

Answer 34

Effect of dissociation as limited partner.—

(1)  Upon a person’s dissociation as a limited partner:
(a)  Subject to s. 620.1704, the person does not have further rights as a limited partner.
(b)  The person’s obligation of good faith and fair dealing as a limited partner under s. 620.1305(2) continues only as to matters arising and events occurring before the dissociation and such person’s duties, if any, under s. 620.1305(1) terminate or continue in the same manner as provided in s. 620.1605(1)(b) and (c).
(c)  Subject to s. 620.1704 and ss. 620.2101-620.2125, any transferable interest owned by the person in the person’s capacity as a limited partner immediately before dissociation is owned by the person as a mere transferee.
(2)  A person’s dissociation as a limited partner does not of itself discharge the person from any obligation to the limited partnership or the other partners which the person incurred while a limited partner.