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Bar Exam: Outline > Partnerships (MEE) > Flashcards

Partnerships (MEE) Flashcards

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1
Q

Partnership Formation: Requirements

A

Requires an association of two or more persons to carry on a for-profit business as co-owners
* Requires sharing of profits
* Persons: Must have legal capacity to contract
* Intent: No need to have specific intent to form a partnership, merely to (i) carry on as co-owners, (ii) for profit
* No formal agreement or writing required: Except, if contract cannot be performed in one year must be in writing per Statute of Frauds

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2
Q

Partnership Formation: Profit Sharing Test

A

If there is profit sharing, it is presumed to be a partnership, unless falls under one of following statutorily enumerated circumstances:
* Debt payments;
* Interest or loan charges;
* Rent;
* Wages;
* Goodwill payments from sale of business; and
* Annuities or other retirement or health benefits

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3
Q

Partner by Estoppel: Elements

A

Person may be treated as a purported partner if:
* There is a representation that a person is a partner in a partnership;
* The person makes or consents to the representation;
* Third party reasonably relied on the representation; and
* Third party suffered damages as a result of reliance

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4
Q

Partner by Estoppel: Liability

A
  • P is liable: Purported partner liable as if she were a partner
  • P is not liable: Purported partner jointly & severally liable with those who consented to representation.

Note: It is not a defense that purported partner was unaware that he had been held out as a partner to specific third party if representation was made in a public manner

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5
Q

Partnership Liability

A
  • Partners are personally liable for partnership’s obligations
  • No limited liability
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6
Q

Partnership Agreement

A
  • Need not be a written partnership agreement
  • No written partnership agreement: state law will govern the partnership with default rules
  • Partnership agreement conflicting with default rule: Partnership agreement will govern unless state law is mandatory (e.g., waiving personal liability)
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7
Q

Fiduciary Duties: Duty of Loyalty

A

Partner cannot **compete **with P’s business, advance an interest adverse to the P, or usurp a P opportunity.

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8
Q

Duty of Loyalty: Exceptions

A
  • PA can designate certain activities as not violating duty (cannot eliminate duty altogether)
  • PA may provide a safe harbor allowing other partners to authorize/ratify a transaction between a partner and the P after full disclosure of material facts
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9
Q

Duty of Care

A
  • Duty to refrain from engaging in grossly negligent or reckless conduct, intentional conduct, or a knowing violation of the law
  • PA may not unreasonably reduce this duty
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10
Q

Fiduciary Duties: Timing

A
  • Duties of loyalty apply only to current partners, not to prospective or former partners
  • Upon a partner’s dissociation or P’s dissolution, duties do not apply unless partner is engaged in winding up P’s business
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11
Q

Duty of Good Faith and Fair Dealing

A
  • Must act fairly and in good faith
  • PA cannot eliminate this obligation but can prescribe reasonable standards
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12
Q

Profits and Losses

A
  • Division of profits and losses need not be the same or be affected by financial or capital contributions
  • If there is no PA or PA is silent: Each partner is entitled to an equal share of profits and losses
  • If PA only specifies division of profits: Losses are shared in same manner as profits
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13
Q

Distributions

A
  • Default Rule: Partners do not have right to demand a distribution but is entitled to have her account credited with share of profits
  • Partners can agree in advance to allow distributions to be made according to PA
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14
Q

Transfer of Partnership Interest

A

Partners can transfer all of part of P interest to a third party, absent a restriction in the PA (could require majority vote of partners)

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15
Q

Transfer of Partnership Interest: Effects on Transferor Partner

A
  • Transferor partner retains all rights and duties of a partner, except for an interest in the distributions
  • Transfer does not cause dissolution or dissociation
  • Creditor of partner can enforce a judgment against partner’s financial interest
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16
Q

Transfer of Partnership Interest: Transferee Rights

A
  • Right to: Receive distributions, seek judicial order for dissolution of partnership, and an accounting upon dissolution.
  • No right to: Participate in management or conduct of P business, access P’s records, or demand other information
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17
Q

Property Ownership

A
  • All property acquired by P belongs to P and not to individual partners
  • Intent of partners controls:
  • Property presumed to be P property if it was purchased with P assets or if P credit is used to get financing
  • If ownership is unclear, consider other factors (e.g., property’s use, tax treatment of property, source of funds to maintain or improve property)
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18
Q

Property: Use by Partners

A
  • Property acquired by partnership must be used for benefit of partnership, not for personal benefit
  • If partner uses for personal benefit, must compensate P for such use or possession
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19
Q

New Partner

A

Incoming partner must secure consent of all existing partners

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20
Q

Management Rights

A
  • Every partner has equal rights in management and control of partnership
  • Can be changed by agreement
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21
Q

Management Rights: Ordinary vs. Extraordinary Business Decisions

A
  • Ordinary Business Decisions (ex. declaring distribution): Requires majority vote of partners
  • Extraordinary Business Decisions (ex. dissolving partnership): Requires vote of all partners

Note: This is a default rule; can be changed in PA.

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22
Q

Renumeration

A

No right to renumeration, except for reasonable compensation for winding up P’s business or when all partners agree

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23
Q

Reimbursement

A

P must reimburse a partner for loans made in furtherance of P business

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24
Q

Indemnification

A

P is required to indemnify partners for personal liability incurred in ordinary course of P business

25
Q

Access to Books and Records

A
  • P must permit its partners and agents to access all P records
  • Mandatory: Cannot be waived by PA
26
Q

Dissociation

A
  • Occurs when a when a partner ceases to be associated with the partnership
  • Can be either voluntary or involuntary
27
Q

Voluntary Dissociation

A

Partner must give notice of withdrawal to partnership

28
Q

Involuntary Dissociation

A

Events causing dissociation:
* Partner’s expulsion due to PA, unanimous vote of other partners, or partner’s bankruptcy
* Partner’s death
* Appointment of guardian for partner or judicial determination of partner’s incapacity
* Termination of an entity partner

29
Q

Wrongful Dissociation

A

Partner is liable to P and other partners for damage caused by wrongful dissociation

30
Q

Wrongful Dissociation: P unlimited by time/undertaking vs. P definite term/undertaking

A
  • P unlimited by time or undertaking: Partner’s dissociation is wrongful only when it is in breach of express provision of PA
  • P for definite term/undertaking: Partner’s dissociation is wrongful if partner withdraws before expiration of term or completion of undertaking; is expelled by court order; is a debtor in bankruptcy; or is not an individual, trust, or estate, and the partner willfully dissolved or terminated
31
Q

Effects of Dissociation: Dissociated Partner

A
  • Dissociated partner is not permitted to participate in management or conduct of P business
  • Partner’s duty not to compete terminates upon dissociation
  • Partner’s other duties of loyalty and care terminate with respect to post-dissociation events
32
Q

Effect of Dissociation: P’s Duties to Dissociated Partner

A
  • Buy out : If P continues, it must buy out dissociated partner’s P interest
  • Indemnification: P must indemnify dissociated partner against all P liabilities, whether incurred before or after dissociation

Note: P may not have to buy out dissociated partner if partner’s liability for wrongful dissociation exceeds buy out value.

33
Q

Effect of Dissociation: Dissociated Partner’s Liability

A

Dissociated partner is generally liable for P obligations
incurred before dissociation

34
Q

Dissociated Partner’s Ability to Bind P

A

Dissociated partner can bind himself and P to a transaction if other party:
* (i) reasonably believes dissociated partner is a partner,
* (ii) does not have notice of dissociation, and
* (iii) is not deemed to have knowledge of dissociated partner’s lack of authority

Note: Liability limited to transactions within two years of partner’s dissociation

35
Q

Partner as Agent of P

A

Partner can contractually bind P when partner acts with **actual **or apparent authority

36
Q

Actual Authority

A

Express Authority: Can arise from PA, authorization of partners, or statement of authority filed with state
Implied Authority: Based on partner’s reasonable belief that an action is necessary to carry out his express authority

37
Q

Apparent Authority

A
  • Exists when a partner acts in ordinary course of partnership business and third party reasonably believes partner has authority to act
  • Third party cannot hold P liable if third party knew or was notified that partner lacked authority
38
Q

Transfer of Titled Property: P prperty held in P’s name

A

Partner has authority to execute an instrument of transfer in P’s name

39
Q

Transfer of Titled P Property: P Property Held in Partner’s Name

A

Partner has authority to execute an instrument of transfer in one or more partners’ names

40
Q

Transfer of Titled P Property: Recovery of P Property From Unauthorized Transferee

A

Recoverable if:
* P interest was indicated in transfer instrument through which P acquired property, or
* If transferee was aware that property belonged to P and that partner executed transfer without authority

41
Q

P’s Knowledge and Notice of Facts

A

Absent fraud, partner’s knowledge or notice of a fact relating to P is generally immediately imputed to P

42
Q

Partnership Tort Liability

A

P is liable for a partner’s tortious acts committed in the ordinary course of partnership or with P authority

43
Q

Parnership Liability to Third Parties

A
  • As a separate entity, P is suject to lawsuits for obligations
  • Partners are jointly and severally liable for all P obligations
  • Creditors must generally exhaust P’s assets before taking partner’s individual assets
44
Q

Partnership Liability to Third Parties: Criminal Liability

A

P can be convicted of a crime and a penalty levied on P assets

45
Q

Merger

A

All partners of a general P must approve as required by law or as specified in PA for LPs

46
Q

Termination of Partnership: Dissolution

A
  • Triggered by occurrence of an event
  • Not the end of partnership; it is the beginning of the end
  • Can be brought about by a partner or by operation of law
47
Q

Events Causing Dissolution: P at Will

A

Dissolved when a dissociating partner gives notice of withdrawal

48
Q

Events Causing Dissolution: P for a Term/Undertaking

A

Dissolved when:
(i) term expires or undertaking is completed;
(ii) all partners agree to dissolve P; or
(iii) partner is dissociated due to death, bankruptcy, or other event and at least half of remaining partners agree to dissolve P within 90 days

49
Q

Events Causing Dissolution: Any P

A

Any P is dissolved upon:
* Occurrence of an event agreed to in PA;
* Event that makes it unlawful for P business to be continued unless cured within 90 days; or
* Judicial determination

50
Q

Termination: Winding Up

A
  • Person winding up P business may dispose of and transfer P property and may discharge P’s liabilities
  • Obligations: P assets are first applied to pay off obligations to creditors (creditors may include partners who made loans to P) before being distributed to partners.
  • Statement of dissolution: Filing that gives notice to third parties that P has been dissolved after 90 days
  • Person can also preserve partnership business to maximize value as a going concern
51
Q

Limited Liability Partnership

A
  • P in which a partner’s personal liability is eliminated; partner only personally liable for his own personal misconduct
  • Conversion to LLP: Must file with the state and partners must vote authorizing transformatoin
  • Name: Must always end with LLP or RLLP
52
Q

Limited Partnerships: General Rule

A
  • Must be formed by at least one general partner and one limited partner;
  • Limited partner’s liability: Limited to her capital contribution to P;
  • General partner’s liability: Personally liable to third parties for obligations of LP
  • Formation: Must file certificate of limited partnership
53
Q

Conversion from P to LP

A
  • Conversion must be approved by all partners and P must file articles of conversion with the state
  • Former GPs remain liable from pre-conversion obligations
54
Q

Conversion from LP to P

A
  • Conversion must be approved by all partners, and LP must cancel its LP certificate
  • Partners remain liable as LP for pre-conversion LP obligations and are liable as GPs for post-conversion P obligations
55
Q

Limited Partners

A
  • Can only be admitted by written consent of all partners after creation
  • Not personally liable for LP obligations unless LP is also a GP or participates in control of business
  • LP may do the following without participating in control of the business: vote, lend money, transact business like a non-partner with the LP, inspect business and financial records
  • Withdrawal: Can withdraw from LP by giving six months written notice.
56
Q

General Partners

A
  • Can only be admitted by written consent of all partners after creation
  • Rights and powers: Same as in a general partnership without LPs, or as specified in PA.
  • Liability to Third Parties: Personally liable to third parties for obligations of LP
  • Withdrawal: Can withdraw from LP by giving written notice to other partners
57
Q

Limited Partnerships: Profits and Losses

A

Allocated based on each partner’s P contributions, unless allocated differently in writing

58
Q

Limited Partnerships: Distributions

A

Allocated based on how profits/losses are shared unless allocated differently in writing

Bar Exam: Outline (16 decks)

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