Partnership Flashcards
Define: Partnership
A partnership is the “association of two or more persons to carry on as co-owners, a business for profit. . . whether or not the persons intended to form the partnership.
What creates the presumption that a partnership exists?
Profit sharing.
Profit sharing creates a presumption that a person is a partner, unless the profits were received in payment of a debt, rent to a landlord, wages, etc.
What is the default form of partnership?
A general partnership is the default.
Sometimes a general partnership is formed because a limited partnership was improperly formed.
Do partners have equal rights to comanage the partnership?
Yes.
Partners have equal rights to comanage ordinary affairs (e.g., signing a lease), even if profits are not shared equally.
What type of vote is required to resolve disagreements in partnerships?
A majority vote wins if there is a disagreement.
Extraordinary matters require a unanimous vote.
What type of liability do partners have for partnership debts?
Joint and several liability.
What liability do incoming and outgoing partners have in regards to partnership debts?
Incoming: None. But his capital contributions can be used to satisfy the debts.
Outgoing: Personally liable for debts incurred during their time at the partnership.
What duties do partners owe to the partnership?
- Duty of loyalty
- Duty of care
- Duty to account
Duty of Loyalty
Partners are charged with the duty of loyalty. They may not usurp corporate opportunities for a personal advantage, engage in self-dealing, or compete with the partnership.
Duty to Account
Partners must account for any profits.
How is a partnership dissolved?
- Dissociation: Notice is given about the dissolution of the partnership to all relevant parties.
- Winding Up: Partnership assets are liquidated and creditors are paid.
- Termination
What are a creditor’s claims to partners and partnerships?
- Partner: If a creditor has a claim against a partner, the creditor can establish an interest in the partnership. This includes profits but not management or voting rights.
- Partnership: If a creditor has a claim against the partnership, the creditor can try to collect from the individual partners (jointly and severally liable).
Define: Limited Liability Partnership (LLP)
An LLP is a partnership in which no partner is personally liable for the obligations of the partnership (but partners are liable for their personal torts).
If a general partnership converts into an LLP, then partners remain jointly and severally liable for actions that took place before the conversion.
Define: Limited Partnership (LP)
An LP is a partnership in which at least one general partner must be listed on the certificate, filed with the state. Limited partnerships have limited liability (limited to their capital contributions).
