Partnershp Flashcards
Limited Partnership
Consists of one or more general partners and one or more limited partners.
General partners remain personally, jointly, and severally liable for ALL debts of the limited partnership, while limited partners are personally liable for debts ONLY to the extent of their investment in the limited partnership.
General partner duty in LP
manage and control day to day operations; limited partners do not and only have voting rights in extraordinary situations
Formation of LP
with secretary of state: (1) signature of each general partner, (2) name of the limited partnership AND (3) the name, street, and mailing address of: each general partner, the initial designated office, and the initial agent for service of process
Limited liability partnersnhip
limits a partner’s potential liability for professional malpractice that is committed by another partner.
A partner in an LLP remains liable for professional malpractice if he:
(1) committed the malpractice himself or was directly involved in the activity that resulted in the malpractice OR (2) supervised or directed the person who committed the malpractice
Partnership becomes an LLP upon the
(1) approval of the partners by vote AND (2) filing of a statement of qualification with the secretary of state (does not create a new partnership, the LLP continues to be the same entity that existed prior to the filing)
LLP statement of qualification
Must contain: (1) the name and address of the partnership and agent for service of process; (2) a statement that the partnership elects to be an LLP; and (3) a deferred effective date, if any
Annual reports and LLPS
If an LLP fails to file an annual report with the appropriate state office or pay the annual required filing fee, the state may revoke the partnership’s statement of qualification. A partnership whose statement of qualification was revoked may apply to the state for reinstatement within 2 years after the effective date of revocation
Tort liability of the partnership
A general partnership, limited partnership, or LLP is liable for the wrongful acts or omissions of any partner acting: (1) within the ordinary course of the partnership’s business; or (2) with the authority of all partners
tort liability of the partners
General partners are jointly and severally liable for all obligations of the partnership arising from any wrongful act or omission of any partner acting: (1) within the ordinary course of the partnership’s business or with the authority of all partners.
Limited partners are NOT personally liable for obligations of the limited partnership arising from the wrongful acts or omissions of other partners. However, limited partners are always liable for their own misconduct
contract liability of the partnership
Each partner is an agent of the partnership.
Therefore, the actions of every partner that are made within the ordinary course of business to carry on the partnership’s business, bind the partnership unless the partner taking the action (1) has NO authority; and (2) the other side has knowledge or notice that the partner lacks authority.
Actions taken by a partner that are OUTSIDE the ordinary course of the partnership’s business do NOT bind the partnership UNLESS the other partners unanimously authorize the action with actual or apparent authority.
Contract liability of the partners
General partners = jointly and severally liable for ALL debts and obligations
Limited partners = personally liable for the debts of the limited partnership ONLY to the extent of their investment in the limited partnership.
Transferability of Partner’s Interest
May transfer his interest in the profits and losses of the partnership but transferee does not automatically become a partner nor does the partnership terminate or dissolve
Transferee does NOT become liable for the obligations of the partnership before or after the transfer, but may become a partner is the other partners unanimously consent. If the transferee becomes a partner, he will be liable for the obligations of the partnership incurred AFTER his admittance pursuant to the normal rules of agency and partnership
Liability during dissolution
Dissolution of a partnership does NOT immediately terminate the partnership. Enters winding up phase, during which a partner’s actual authority to bind the partnership is limited to the actions that are necessary to wind up the partnership’s affairs.
However, a partner may still have apparent authority to bind the partnership so long as the other side does not have notice of the partner’s dissolution
partnership equal rights to manage and control
Absent an agreement to the contrary, general partners have equal rights to manage and control the partnership’s business, limited partners no say.
Disagreements relating to ordinary matters connected with the business of the partnership are decided by a majority of the partners.
Use of partnership property
Absent an agreement to the contrary, a partner may ONLY use partnership property on (1) behalf of the partnership OR (2) to carry out the business of the partnership.
**Any personal use of partnership property requires the consent of the other partners
Partnership books and records
Every partner must have access to the partnership’s books and records during normal business hours, and upon reasonable demand, the partnership MUST render true and full information of all things regarding the affairs of the partnership that is just and reasonable under the circumstances
Partnership and sharing of profits and losses
Each partner is generally: (1) entitled to an equal share of the partnership profits; AND (2) responsible for a share of the partnership losses in proportion to the partner’s share of the profits
Partnership duty of care
duty goes to partnership and partners to refrain from engaging in: (1) grossly negligent or reckless conduct; (2) intentional misconduct; or (3) a knowing violation of the law. If he breaches, personally liable for damages!
Partnership duty of loyalty
(1) Act in good faith and fairly toward the other partners; (2) account for any property, profit, or benefit derived by the partner from the partnership business or property; AND (3) refrain from competing with the partnership within the scope of the business and usurping a business opportunity that properly belongs to the partnership
Dissolution
Does not immediately terminate, but starts winding up period
partnership dissolution causes
(1) actions taken by the partners; (2) operation of law (becomes illegal to do the business of the partnership); or (3) court order (a court may grant a judicial dissolution if it is no longer reasonably practicable to continue operation of the partnership business)
UPA dissolution
Under UPA, any change triggers dissolution unless agreement to contrary
RUPA dissolution
absent an agreement to the contrary, the “disassociation” of a partner does not automatically trigger dissolution unless:
(1) at will partnership-any member of an at will partnership can disassociate at any time automatically triggering dissolution and liquidating
(2) will of the parties-a partnership will automatically dissolve upon the occurence of an event that the partners specified would cause dissolution in the partnership agreement
Term partnerships
Exists for a specified duration of time or until a specified event occurs. May be dissolved before its term expires if:
(1) at least half of the partners express their will to wind up the business within 90 days after a partner’s disassociation by death, bankruptcy, becoming incapacitated, or wrongful disassociation OR
(2) ALL of the partners agree to amend the partnership agreement by expressly agreeing to dissolve the partnership
Partners are agents and comanagers of the partnership
Partners have equal rights to co-manage ordinary affairs; majority vote wins if there is a disagreement. Extraordinary matters require a unanimous vote
If a creditor has a claim against a partner, the creditor can obtain an interest in the partnership. This includes profits but not management or voting rights. If a creditor has a claim against the partnership, the creditor can try to collect from the individual partners.
Partners are jointly and severally liable for the obligations of the partnership. Even if a partner enters into a contract without actual authority to do so, the partnership and the partners are bound(so long as the partner had apparent authority). The creditor must obtain a judgment against the partners personally to go after each partner’s personal assets. The creditor should attempt to collect from the partnership before seeking the partner’s personal assets.
