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Flashcards in Agency and Partnership Deck (91)
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What is a general partnership under RUPA, and what are the requirements?

Under the Revised Uniform Partnership Act ("RUPA"), a partnership is an association of two or more persons to carry on as co-owners a business for profit. Although the partners need not intend to form a partnership, they must intend to carry on as co-owners of a business for profit. A writing is not required; a partnership can be formed by conduct (i.e., associating to form a business for profit). Partner contributions to partnership capital are not required to form a partnership

Each partner is an agent of the partnership for the purpose of its business


What factors raise the presumption that a partnership has been formed?

Under the Revised Uniform Partnership Act ("RUPA"), a person who receives a share of the profits of a business is presumed to be a partner.

Designation by the parties of the entity as a partnership, the sharing of gross returns, and joint or common tenancies of property are indicative of the intent to form a partnership, but they are not conclusive


When a partner transfers their interest to a transferee, what does the transferee get?

As against the other partners, in the absence of an agreement, a transfer of a partner’s transferable interest entitles the transferee to receive, in accordance with his contract, distributions to which the transferring partner would otherwise be entitled.

A transferee is not entitled to become involved in the management or administration of the partnership business or affairs, demand an accounting of partnership transactions, or to inspect the partnership books.


What are voting rights within a partnership

Decisions regarding matters within the ordinary course of partnership business may be controlled by a majority vote of all the partners, but matters outside the ordinary course of partnership business require the consent of all partners.


Is a partner entitled to remuneration?

Absent an agreement to the contrary, a partner is not entitled to remuneration except for reasonable compensation for services rendered in winding up the partnership’s business.


What is apparent authority?

Apparent authority is the authority that a third person would reasonably believe a partner has based on his being held out by the partnership as a partner. The act of any partner apparently carrying on in the ordinary course of the partnership business (or business of the kind carried out by the partnership) binds the partnership unless the partner had no authority to act for the partnership in the particular matter, and the person with whom the partner was dealing knew or had received notification that the partner lacked authority. Actual authority is the authority a partner reasonably believes he has based on the communications between the partnership and the partner.


Under RUPA, how long does a partnership continue to exist after dissolution?

Under RUPA, after an event of dissolution occurs, a partnership continues until the winding up of business is completed, at which time the partnership is terminated. A statement of dissolution does not end a partnership. The partnership will be bound by a partner’s post-dissolution acts where the party with whom the partner dealt did not have notice of the dissolution. If a partner files a statement of dissolution with the secretary of state, third parties will be deemed to have notice of the dissolution 90 days after it is filed.


When may general partners be held personally liable?

General partners may be personally liable for obligations of the partnership beyond their agreed-upon contributions. General partners are jointly and severally liable for all obligations of the limited partnership, unless the limited partnership is also a limited liability partnership. In that case, any liability incurred belongs to the partnership alone, and the general partners are not personally liable on the obligation.

Incoming general partners are not personally liable for any partnership obligations incurred before they became general partners.

General partners may be personally liable for obligations of the partnership beyond their agreed-upon contributions.


Under ULPA, what rights are exclusive to general partners?

ULPA’s grant of management rights is exclusive to general partners. However, as a matter of contract, the partnership agreement may allocate the right to manage or control the partnership to limited partners. Both general and limited partners are granted the right to information, although the right is not identical. Furthermore, both general and limited partners are granted the right to distributions and to assign the partner’s interest in the partnership.


Under ULLCA, how may an LLC be formed?

LC is formed by filing a certificate of organization with the secretary of state. An LLC can be formed with one member. An LLC may, but need not, adopt an operating agreement to control most aspects of the LLC’s business and management. Unless an LLC requests to be taxed as a corporation, it will receive partnership tax treatment. Thus, an LLC need not make a formal election to be taxed as a corporation or a partnership.


When may an LLC bring a derivative action on behalf of the corporation?

Members of an LLC, whether member-managed or manager-managed, may bring a derivative action to enforce a right of the LLC. The member first must make a demand on the other members or the managers (depending on how the LLC is managed), unless demand would be futile. If the members or managers do not bring an action within a reasonable time, then the demanding member may bring the derivative action. A derivative action may be maintained only by a person who is a member of the LLC at the time the action is commenced and who remains a member while the action continues. If a member has been personally injured by her LLC, she may bring a direct action against the LLC to recover, not a derivative action.


Under RULLCA, when may a member of an LLC apply for judicial dissolution?

Under RULLCA, a member of an LLC may apply for judicial dissolution of the LLC if:
(i) the conduct of all or substantially all of the LLC’s activities is unlawful;
(ii) it is not reasonably practicable to carry on the LLC’s activities in conformity with the certificate of organization and the operating agreement; or
(iii) the managers or controlling members have acted or are acting in a manner that is illegal, fraudulent, or oppressive.

The secretary of state may administratively dissolve an LLC when it fails to submit a required fee or annual report.


Under RUPA, who can be sued within a partnership?

A partnership may sue or be sued in the partnership name or in the names of the individual partners, or both.


Under RUPA, what provisions may be waived in a partnership agreement?

Each partner is entitled to an equal share of the partnership profits and must contribute towards the partnership losses in proportion to his share of the profits, but this rule may be modified in a partnership agreement.

Under RUPA, partners are free to adopt a partnership agreement governing the relationships among themselves, and RUPA will govern only those issues not provided for in the agreement.

However, certain provisions of RUPA may not be waived in an agreement, including a partner’s right to access the books and records of the partnership, the power to dissociate as a partner, and a partner’s duties of care and loyalty.


What is the inference when there is no agreement to share losses?

While there is no requirement under RUPA that sharing losses is necessary to create a partnership, the absence of an agreement to share losses is evidence that the parties did not intend to form a partnership.


What is partnership by estoppel?

Partnership by estoppel arises when a person, by words or conduct:
(i) represents herself as a partner or consents to being represented by another as a partner, and a third party extends credit to the actual or apparent partnership in reliance on the representation; or
(ii) holds another person out to be her partner, making the alleged partner her agent with the power to bind her to third parties as if the other were, in fact, a partner.

A person held out by another as a partner is not liable as a partner unless she actually consents to the holding out; mere failure to deny a representation of partnership does not give rise to liability as a purported partner.

Thus, the mere fact that one fails to deny partnership status when named by another in a statement of authority, or a partner’s failure to file a statement of dissociation after leaving the partnership, does not alone give rise to liability as a purported partner.


When will property titled in the partners' name be deemed partnership property?

It is not enough for title to be in the name of one or more partners for the property to be deemed partnership property. Under the Revised Uniform Partnership Act, titled property is deemed to be partnership property if it is titled in the partnership name, or it is titled in the name of one or more partners and the instrument transferring title notes the titleholder’s capacity as a partner or the existence of a partnership.

Property is rebuttably presumed to be partnership property if it was purchased with partnership funds (i.e., cash and credit), regardless of in whose name title is held.


What are partners' transferable rights?

Each partner has a transferable interest in the partnership, which consists of a right to receive his share of the profits and losses and the right to receive distributions. A partner is not a co-owner of partnership property and has no interest in partnership property. As such, a partner cannot transfer his interest in individual items of partnership property or use partnership property for personal purposes. Furthermore, a partner may not transfer his interest in management.


Under a duty of loyalty, what are partners' duties?

Partners owe the partnership and other partners the duty of loyalty. This duty is threefold:
(i) to account for profits, property, opportunities, or other benefits derived by the partner in conjunction with the partnership business;
(ii) to refrain from dealing with the partnership as, or on behalf of, a party having an interest adverse to the partnership; and
(iii) to refrain from competing with the partnership.


What does the duty of care entail?

Partners have a duty to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law, but this duty is part of the duty of care rather than the duty of loyalty.


When will a partnership be bound by the acts of a partner?

A partnership will be bound by an act of a partner if the partner has actual authority. One way that actual authority can be granted is in the partnership agreement. If the agreement authorizes a partner to act, no further action is required for a partner to act.

Actual authority also can be granted by the consent of the partners. Generally, a majority vote of the partners is all that is needed to grant a partner actual authority. However, for acts outside the ordinary course of business, the unanimous vote of the partners is required.

A partner does not have actual authority to act on behalf of the partnership simply by virtue of being a partner (although a partner may have apparent authority to carry on business apparently within the scope of partnership business by virtue of being a partner).


When do partners share liability for the acts of their co-partners?

A partner is not CRIMINALLY responsible for crimes committed by a co-partner unless the partner participated in the commission of the crime as a principal or accessory.

A partner is liable for any TORTS committed by a copartner or by an employee of the partnership within the ordinary scope of partnership business or with authority of the partnership, including any fraud—even if the partner has no connection with, knowledge of, or participation in the fraud. Additionally, a partner is liable on contracts made by a co-partner within the scope of partnership business, as well as any other contracts expressly authorized by the partners.


When do outgoing partners retain/lose liability for partnership?

An outgoing partner remains liable on all obligations incurred by the partnership while a member of the partnership, unless there has been payment, release, or novation, or the creditor has agreed to a material alteration in the obligation without the partner’s consent.

All partners are jointly and severally liable for all obligations of the partnership, whether they arise in contract or tort. As such, an action may be brought against any one or more of the partners or the partnership.

Moreover, each partner is personally and individually liable for the entire amount of all partnership obligations.


When is an incoming partner liable?

An incoming partner is not personally liable for any partnership obligation incurred before her admission to the partnership, although the incoming partner’s contributions to the partnership may be used to satisfy existing partnership obligations.


What is dissociation, and what are the consequences of it?

Dissociation is a change in relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business.

The dissociated partner generally remains liable for obligations incurred by the partnership before the partner’s dissociation, and also after the dissociation if the other party to the transaction:
(i) reasonably believed when entering the transaction that the dissociated partner was still a partner, and
(ii) did not have notice of the partner’s dissociation.

When a partner dissociates, the partner’s right to participate in management ceases. If the partnership business continues after a partner dissociates, the partnership must buy out the dissociated partner’s interest.


When will a dissociation be considered wrongful? When will it not be considered wrongful?

The decision of a court that the partner is incapable of performing a partner’s duties is an event of dissociation, but it is not necessarily a wrongful dissociation.

A partner will be deemed to have wrongfully dissociated if the dissociation is in breach of an express term of the partnership agreement; or the partnership is for a definite term or a particular undertaking and the partner withdraws, is expelled, or becomes bankrupt before the end of the term of completion of the undertaking.


What is the correct order of paying liabilities post-dissolution, under RUPA?

After a partnership is dissolved and its assets are reduced to cash, the cash must be used to pay its liabilities in the following order under RUPA: first to creditors (including partners who are creditors), then to partners in settlement of their accounts.


Can partners decide to continue the partnership after dissolution?

Any time after dissolution and before winding up is completed, the partners may decide to continue the partnership business, but they must do so by unanimous vote.


When will a partnership be bound by a partner's act after dissolution?

A partnership will be bound by a partner’s act after dissolution if the act is appropriate for winding up the partnership (e.g., settling claims, selling partnership assets, collecting debts, paying creditors),


Can a partner who wrongfully dissolves a partnership be responsible for wind-up?

No. A partner who wrongfully dissolves a partnership is not entitled to wind up the affairs of the partnership.