PARTNERSHIPS Flashcards
Forming a General Partnership
A partnership is formed when there is an oral, inferred or written agreement between two or more people who intend to carry on as co-owners a business for profit.
No particular formalities or statutory requirements — formation is based on the agreement. (No writing required)
Intention to form a partnership is not required, only the intent to carry on together as a business.
Test of General Partnership
The key test of whether or not a partnership has been formed is the parties’ intentions behind the agreement.
Parties do not have to intend to form a partnership, only intend to carry on as co-owners a business for profit.
Additionally, the sharing of profits is prima facie evidence that they are a partner in a business. Profit sharing creates a presumption that a partnership exists.
Partner Agency
Unless specified otherwise, all partners have equal rights to co-manage the business and have at minimum apparent authority to bind the partnership.
Every partner is an agent of the partnership for the purpose of its business.
Actions by a partner in furtherance of the partnership business will bind the partnership unless unauthorized. Partners are then jointly/severally liable for partnership debts.
Partners Rights to Co-Manage
Unless specified otherwise, each partner has an equal right to manage the ordinary business affairs of the partnership.
Extraordinary affairs require a unanimous vote by all partners.
Partnership Liability
In general, all partners act as agents of the partnership when acting in the ordinary course of the partnership business.
In turn, all partners are jointly and severally liable for the debts, obligations, and liabilities of the partnership.
A partner can seek indemnification from the partnership, or contribution from the other partners, for any payments made on the partnership’s behalf.
Exception: an incoming partner is not personally liable for the prior debts of the partnership.
Partner Fiduciary Duties
Partners have a fiduciary duty to other partners to act in (1) good faith and with (2) reasonable care (3) in the best interests of the partnership.
Dissolution
Dissolution will occur upon —
1. Withdrawal of any one partner, whether it be by partner choice, death, or expulsion;
2. A specified definite term or particular undertaking has been reached/accomplished;
3. Partnership cannot lawfully continue; or
4. By court order.
Upon dissolution, the partnership is not terminated until winding up is completed.
Winding Up
After dissolution, the partnership is not terminated until winding up is completed.
Winding up is the process in which partnership assets are liquidated and distributed and creditors are notified/paid.
Partners are still liable for liabilities occurred during the winding up period, however, dissolution will terminate their authority to bind the partnership.
Limited Liability Partnership (LLP)
LLPs are general partnerships for all purposes except liability — in an LLP, no partner is personally liable for the obligations of the partnership.
While LLP partners are not personally liable for the LLP or other partners, but are still personally liable for their own wrongdoings.
Forming an LLP
Must record a “limited liability execution” in the officer of the clerk of the superior court in any county in which the partnership has an office, and pay a fee.
Election must include LLP name and nature of the business in which they are pursuing.
“Limited liability” or “LLP” must be included in the name of the partnership and be included in all partnership communication.
Limited Partnership
In a limited partnership exists where there is at least one general partner who manages the business, and a limited partner.
A limited partner’s liability is limited to only their capital contributions to the partnership.
General partners are liable for all debts/obligations of the partnership.
