Term
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Definition
An association of two or more person who carry on a for-profit business as co-owners. An agreement can be oral or written. A partnership is a legal entity. It can sue people, hold property, etc. These persons can be corporations or business entities or natural persons must have the legal capacity to enter into a contract.
The persons do not need to "intend to form a partnership". No filings required. |
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Term
| What are the major factors considered when determining whether a partnership relationship has formed? |
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Definition
Sharing profits:there is a presumption that there is a partnership. However: wages, rent, taxes are not profits.
Control: If one person has all the power, the person might be an employee etc. If partners divide control between areas of control, generally they are partners.
Common non-partnership formations: Lender-borrower, employer-employee |
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Term
| Do partnerships have a limited liability shield? Are they taxed? |
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Definition
| No, the partners are personally liable for partnership obligations. A partnership does not pay entity level taxes, the taxes are passed to the partners and they are taxed individually. |
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Term
| Which state laws cannot be overridden in a partnership agreement? |
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Definition
1. Liability to 3rd parties.
2. All partners must have access to the books and records.
3. Fiduciary duties cannot be overridden. |
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Term
| What are the fiduciary duties owed by partners to the partnership? |
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Definition
1. Duty of loyalty-
Must not compete with the partnership business
Advance an interest adverse to the partnership
Usurp partnership opportunity or derive personal benefit without notifying the partnership
A partnership agreement may not restrict the duty of loyalty.
Except: The partnership agreement may define certain acts as not violative of the duty of loyalty as long as they are not manifestly unreasonable.
2. Duty of care-A partner is required to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct etc.
Cannot limit it to unreasonable level. |
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Term
| If a partner is worried he has breached a fiduciary duty, what can he do to prevent a lawsuit? |
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Definition
| Disclose and seek ratification from other partners. |
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Term
| Who does the fiduciary duties apply to in partnership law? |
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Definition
| Only actual partners. Not former or prospective partners. |
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Term
| By what are profits and losses of the partnership agreement governed by? How are they distributed? |
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Definition
If there is an agreement, the agreement. If the profits are the only thing talked about in the agreement, the losses are divided based on how the profits are divided.
In the absence of an agreement, profits and losses are divided equally. |
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Term
| Do partners have the right to demand a distribution? |
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Definition
| NO, it must be specified in the partnership agreement, typically a vote. |
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Term
| How does a partner transfer his interest in the partnership to a 3rd party? |
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Definition
1. Partnership agreements govern whether transfer is permissible
2. All existing partners must consent to the new partner becoming a partner governed generally by the agreement |
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Term
| What is the general rule regarding voting on ordinary business of the partnership? |
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Definition
Ordinary business- Requires a majority vote
Special partnership business (outside the ordinary course requires the consent of all partners.) |
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Term
| Is the partnership bound to contracts entered into by a partner? |
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Definition
Only if there is authority:
Actual express authority (partnership agreement, statement of authority,spoken word)
Implied authority-partner's reasonable belief that action is necessary to carry out actual authority
Apparent authority-Authority based on the partner acting in the oridinary course that causes a 3rd party to reasonably believe there is authority to enter into the contract. |
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Term
| Is the partnership liable for partner torts? |
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Definition
| If the tort was committed within the agent's scope of the partnership. (detour v. frolic) |
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Term
| Are partners personally liable for personal obligations of the partnership? |
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Definition
Yes, unless they are incoming partners and the commission occurred before they entered the partnership
OR
an outgoing partner only may be liable if they make it clear they are disassociating, but have not fully left. |
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Term
| What is the difference between dissociation and dissolution? |
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Definition
| Dissociation is where the partner leaves. Dissolution is the end of the entity. |
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Term
| How can a partner dissociate? |
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Definition
1. Voluntarily
A. Giving notice of intent to withdraw. A partnership cannot prevent a partner from leaving.
2. Involuntarily by expulsion
A. Event in the partnership agreement that requires termination or a vote for termination.
B. If it would be unlawful for the partnership to continue with the partner
C. Court ordered dissociation
D. Partner goes bankrupt
E. Partner dies
F. Incapacity of the partner
G. One of the entity's which is a partner, dissolves. |
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Term
| What restrictions can be put on a partner's dissociation? |
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Definition
1. Notice period
2. Writing. |
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Term
| When a person leaves the partnership, what happens to their capital contribution? |
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Definition
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Term
| What are the two steps to ending a partnership? |
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Definition
1. Dissolution-triggered by the occurrence of an event or a vote.
2. Winding up-settlement of accounts...paying accounts, liquidating assets.
Any partner who has not been wrongfully dissociated can wind up. Should seek judicial oversight of winding up |
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Term
| Who has priority over partners in winding up? |
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Definition
| Creditors have priority over partners. |
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Term
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Definition
| A partner's liability for obligations of a partnership is eliminated. An LLP must be filed with the state. |
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Term
| To change from a general partnership to LLP, what kind of vote is needed? |
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Definition
| Default is a unanimous vote. |
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Term
| What does the name of an LLP have to come with? |
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Definition
| LLP or Limited liability partnership language required by law so others can know that they enter a business agreement with an LLP |
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Term
| What is a limited partner in an LLP responsible for? |
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Definition
| For your own negligent conduct. However, the other limited partners' negligence does not flow to liability. |
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Term
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Definition
| 1. Partners can vote to go back to a regular parnership 2. State can revoke because you haven't filed reports, fees, conducted business without LLP status. |
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Term
| What is an LP or limited partnership? |
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Definition
| Formed by 2 or more persons (individuals or entities) that has at least one general partner and one limited partner. The limited partner's liability is limited to the amount of the LP's contribution, but are not personally liable beyond that. Must be filed with the state. |
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Term
| How can a limited partner forfeit its limited liability? |
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Definition
1. Serve as the general partner.
2. Participate in the control of the partnership. |
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Term
| How can someone become GP of an LP? |
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Definition
| Consent of all partners OR being GP from the get go. He is liable to 3rd parties and other partners. |
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