Partnerships

Question 1

Partnership formation

Answer 1

A partnership is created when two or more persons carry on as co-owners in a business for profit. This is an objective standard, determined by 1) the intent of the parties, 2) the language of the agreement, 3) the conduct of the parties, 4) the treatment of returns and 5) who bears the financial loss. Profit sharing raises a presumption of partnership.

Question 2

Partnership decisions

Answer 2

All partners have an equal right to participate in the management of the partnership. Decisions of the partnership regarding the ordinary course of business require a majority vote. Decisions outside the ordinary course of business require a unanimous vote. Further, admissions of a new partner require a unanimous vote.

Question 3

Default profit shares and losses

Answer 3

Unless specified in the partnership agreement, profits are shared equally among partners and losses are shared in the same manner as profits.

Question 4

General partnership

Answer 4

In a general partnership all partners share in decision making authority, all are liable as principals on all contracts, and they share equally in control of the business. Partners may have actual and apparent authority with respect to contracts entered into in the ordinary course of business.

Question 5

Limited partnership

Answer 5

In a limited partnership, there is at least one general partner who is liable for partnership debts who has the decision-making power, and many limited partners who have limited liability and no decision-making power (however, they may still vote on certain extraordinary matters). This is a statutory creation, and thus an LP must follow statutory procedures to create the LP.

• Limited partners do not owe a general duty of loyalty to the other limited partners or to the partnership.

Question 6

General partnership Liability

Answer 6

All partners are jointly and severally liable. But, P must exhaust partnership resources before going after the partners’ individual assets.

Question 7

General partnership duties

Answer 7

General partners have a heightened fiduciary duty towards one another, including a duty of loyalty and care to one another and the partnership. Partners also have a duty of disclosure and a duty of obedience.

Question 8

partnership property

Answer 8

A partner may not use partner property for anything outside the partnership.

Question 9

When a partner can leave

Answer 9

Any partner may choose to leave the partnership at any time, but the termination of an at-will partnership is subject to the duty of good faith.

Question 10

Express dissociation and dissolution

Answer 10

An express will to withdraw from the partnership automatically triggers dissolution. Dissolution continues until the winding up of the partnership is completed. When it winds up, all assets are sold off to pay any liabilities (all creditors and any capital contributions) and the remainder goes to the partners as profit. If the assets are in sufficient to pay off the liabilities, the partners may be required to contribute individually. But, partners may waive dissolution at any time by unanimous vote.