Chapter 37

Question 1

Partnership

Answer 1

Arises from an agreement, expressed or implied, between two or more persons to carry on a business for a profit

Question 2

Partnerships are governed by

Answer 2

Common law, statutory law

Question 3

Uniform partnership act

Answer 3

Governs the operations of partnerships in the absence of express agreement

Question 4

Elements of a partnerships

Answer 4

1. Sharing of profits and losses
2. A joint ownership of the business
3. An equal right to be involved in the management of the business

Question 5

Partnership does not exist if shared profits were received as payments of

Answer 5

1. Debt by installment or loan interest
2. Wages of an employee or the services of an independent contractor
3. Rent to a landlord
4. Annuity to a surviving spouse
5. Sale of the goodwill of a business/property

Question 6

A partnership is an entity

Answer 6

• can sue and be sued

Question 7

Pass-through entity

Answer 7

Any entity that does not have its income taxed at the level of the entity; examples are partnerships, S corporations, and limited liability companies

Question 8

Information return

Answer 8

A tax return submitted by a partnership that reports the income earned by the business. The partnership as an entity does not pay taxes on the income received by the partnership. A partners profit from the partnership is taxed to the individual income to the individual partner

Question 9

Agreements to form partnership can be be

Answer 9

Oral, written or implied by conduct

- but to transfer interests in real property must be in writing/electronic record

Question 10

Articles of partnership

Answer 10

A written agreement that sets forth each partners rights and obligations with respect to the partnership

Question 11

Partnership for a term

Answer 11

Partnership will continue until a designated date or completion of a project
- withdrawal before date constitutes breach of agreement

Question 12

Partnership at will

Answer 12

No fixed duration is specified, can be dissolved at any time

Question 13

Partnership by estoppel

Answer 13

A judicially created partnership that may, at the courts discretion, be imposed for purposes of fairness. The court can prevent those who prevent themselves as partners (but who are not) from escaping liability if a third person relies on an alleged partnership in good faith and is harmed as a result

Question 14

Nonpartner agents

Answer 14

When there is a partnership by estoppel the nonpartner is regarded as an agent whose acts are binding on the partnership

Question 15

Rights of partners

Answer 15

Management - equal rights
Interest - Agree on proportions
Compensation- depends on partners share in the business
Inspection of the books- must be accessible to all partners
Accounting- required to determine partners shares
Property - partnership of the property not the individual

Question 16

Charging order

Answer 16

An order granted by a court to a judgement creditor that entitles the creditor to attach profits or assets of a partner on dissolution of the partnership

Question 17

Duties of partners (agency law)

Answer 17

Fiduciary duties

• duty of loyalty
• liability of partners

Question 18

Joint liability

Answer 18

Shared liability. Partners incur joint liability for partnership obligations and debts. For example, if a third party sues a partner on a partnership debt, the partner has the right to insist that the other partners can be sued with him or her

Question 19

Joint and several liability

Answer 19

A doctrine under which a plaintiff may sue, and collect a judgement form, one or more of the partners separately (severally) or all of the partners together (jointly). This is true even if one of th partners sued did not participate in, ratify or know about whatever gave rise to the cause of action

Question 20

Dissociation

Answer 20

The severance of a relationship between a partner and a partnership when the partner ceases to be associated with the carrying on the partnership business
- although you have the power to, you may not have the right

Question 21

Ways of dissociation

Answer 21

1. Partner voluntarily giving notice of an express will to withdraw
2. Occurrence of an event specified in the agreement
3. Unanimous vote of other partners
4. By order of a court
5. Partner declaring bankruptcy

Question 22

Wrongful dissociation

Answer 22

When the partner has the power but not the right to dissociate
- liable for damages caused by the dissociation

Question 23

Effects of dissociation

Answer 23

1. The right to participate in management terminates
2. Duty of loyalty is done
3. Their interest must be purchased
4. For two years after, if a third party believes the dissociated partner is still there, the partnership is liable

Question 24

buyout price

Answer 24

The amount payable to a partner on his or her dissociation from a partnership based on what the amount distributable to that partner of the firm were wound up on that date, and offset by any damages for wrongful dissociation

Question 25

Dissolution

Answer 25

The formal disbanding of a partnership or a corporation

- commencement of the winding up process

Question 26

Winding up

Answer 26

The second stage in terminating a partnership. Once the firm is dissolved, it continued to exist legally until the process of winding up all business affairs (collecting and distributing the firms assets) is complete
- collecting, liquidating, and distributing the partnership assets

Question 27

Buy-sell agreement (buyout agreement)

Answer 27

An express agreement made at the time of partnership formation for one or more of the partners to buy out the other should the situation warrant - and thus provide for the smooth dissolution of the partnership
- if a dissociation does not result in dissolution, a buyout is mandatory

Question 28

Limited liability partnership

Answer 28

A form of partnership that allows professionals to enjoy the tax benefits of a partnership while limiting their personal liability for the malpractice of other partners

Question 29

Family limited liability partnership

Answer 29

The partners are related to each other

Question 30

Limited partnership

Answer 30

A partnership consisting of one or more general partners and one of more limited partners

Question 31

General partner

Answer 31

A partner who assumes responsibility for the management of the partnership and liability for all partnership debts

Question 32

Limited partner

Answer 32

A partner who contributes capital to the partnership but has no right to participate in the management and operation of the business.

Question 33

Formation of a limited partnership

Answer 33

• a public and formal proceeding

Question 34

Certificate of limited partnership

Answer 34

The basic document filed with a designate state official by which a limited partnership is formed

Question 35

Rights and duties in a limited partnership

Answer 35

• with exception of the right to participate in management, limited partners have the same rights as general partners

Question 36

Limited partner dissociation

Answer 36

• give 6 months notice

- bankruptcy does NOT dissolve partnership unless it causes bankruptcy of the firm

Question 37

Limited liability limited partnership

Answer 37

A type of limited partnership.

- the liability of all partners is limited to the amount of their investments in the firm