Partnerships Flashcards
General Partnerships
A general partnership is formed when two or more persons intends to carry on as co-owners of a business for profit. No formal agreement is required and there are no filing requirements. Furthermore, each partner has managerial control and each is subjected to unlimited personal liability.
Limited Partnerships (Limited Liability for Passive Investors)
A limited partnership (LP) permits passive investors to share in the profits of a business with their risk of loss limited to their investment. A limited partnership consists of a general partner and a limited partners. The general partner has complete control over the business, manages the enterprise, and is subject to full liability. The limited partner has limited liability and usually very little managerial control. Generally, the limited partner does NOT take part in the day to day operations.
a. The purpose of a limited partnership is to enable persons to invest capital and share in the profits without becoming personally liable for the partnership debts.
b. Unlike a general partnership, a limited partnership is formed only by complying with statutory formalities. This requires filing a certificate of limited partnership with the Secretary of State.
Limited Liability Partnerships
A limited liability partnership (LLP) permits general partners to stand behind a limited liability shield. In a limited liability partnership, a limited partner may become a general partner without losing limited liability. This allows limited partners to become general partners and have significant control over the day to day operations. Limited liability status requires filing with the Secretary of State.
Fiduciary Obligations
The only fiduciary duties a partner owes to the other partners are the duty of loyalty and the duty of care and the obligations of good faith and fair dealing. A partner’s fiduciary duty often involves full candor and disclosure.
Liability of Each Party for the Partnership Debts
Each partner in a general partnership is subject to unlimited personal liability for all debts and obligations incurred by the partnership. Such liability is joint and several. The partnership itself is primarily liable.
Vicarious Liability
A partnership is liable for the torts committed by a partner or employee acting in the ordinary course of the partnership business.
