Agency and Partnership

Question 1

What is a general partnership under RUPA, and what are the requirements?

Answer 1

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

Question 2

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

Answer 2

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

Question 3

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

Answer 3

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.

Question 4

What are voting rights within a partnership

Answer 4

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.

Question 5

Is a partner entitled to remuneration?

Answer 5

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.

Question 6

What is apparent authority?

Answer 6

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.

Question 7

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

Answer 7

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.

Question 8

When may general partners be held personally liable?

Answer 8

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.

Question 9

Under ULPA, what rights are exclusive to general partners?

Answer 9

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.

Question 10

Under ULLCA, how may an LLC be formed?

Answer 10

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.

Question 11

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

Answer 11

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.

Question 12

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

Answer 12

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.

Question 13

Under RUPA, who can be sued within a partnership?

Answer 13

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

Question 14

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

Answer 14

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.

Question 15

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

Answer 15

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.

Question 16

What is partnership by estoppel?

Answer 16

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.

Question 17

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

Answer 17

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.

Question 18

What are partners’ transferable rights?

Answer 18

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.

Question 19

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

Answer 19

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.

Question 20

What does the duty of care entail?

Answer 20

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.

Question 21

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

Answer 21

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).

Question 22

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

Answer 22

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.

Question 23

When do outgoing partners retain/lose liability for partnership?

Answer 23

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.

Question 24

When is an incoming partner liable?

Answer 24

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.

Question 25

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

Answer 25

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.

Question 26

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

Answer 26

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.

Question 27

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

Answer 27

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.

Question 28

Can partners decide to continue the partnership after dissolution?

Answer 28

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.

Question 29

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

Answer 29

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),

Question 30

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

Answer 30

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

Question 31

What are the requirements of forming an LLP?

Answer 31

Financial rights and obligations of partners in an LLP, including profit/loss sharing and indemnity, are identical to those of general partners. To become an LLP, a partnership must file a statement of qualification with the secretary of state; general partnerships may, but need not, file a statement of partnership authority with the secretary of state. The major advantage of operating as an LLP is that the partners are not personally liable for the obligations of the partnership, whether arising in contract, tort, or otherwise; on the contrary, general partners are personally liable for such obligations. The LLP name must end with the words “Registered Limited Liability Partnership” or “Limited Liability Partnership,” or the abbreviation “R.L.L.P,” “L.L.P.,” “RLLP,” or “LLP"; a general partnership has no specific naming requirements.

Question 32

What are the requirements for limited partnership membership, and who is liable?

Answer 32

A limited partnership is composed of at least one general partner and one limited partner. The general partners (including limited partners who also are general partners) are personally liable for partnership obligations, while the limited partners are not personally liable for partnership obligations solely by reason of being limited partners. This means that limited partners are not personally liable even if they participate in the management or control of the partnership.

Question 33

What are appropriate ways for a limited partnership to be dissolved?

Answer 33

The consent of all general partners and of the limited partners holding a majority of the right to receive distributions (“majority in interest”) is required to dissolve a limited partnership. A limited partnership may be judicially dissolved upon application of a partner if it is no longer reasonably practicable to carry on the limited partnership in conformity with the partnership agreement. Additionally, a limited partnership may be administratively dissolved by the secretary of state for failure to pay fees or file an annual report. (Note, however, that the partnership may apply for reinstatement by curing the defect within two years of the dissolution.) Upon the happening of an event specified in the partnership agreement, the limited partnership also will be dissolved.

Question 34

Under Uniform Limited Partnership Act, what naming conventions are required for a limited partnership?

Answer 34

A limited partnership name may contain the name of any partner, whether general or limited, and must contain the words “limited partnership” or the abbreviation “L.P.” unless the limited partnership is a limited liability limited partnership, in which case that must be reflected in the name (e.g., “L.L.L.P.”).

Question 35

What is presumed, w/r/t management of LLCs?

Answer 35

Under RULLCA, management of an LLC is presumed to be by all members. Other management arrangements can be made (e.g., management by only some of the members or by outside managers), but they must be specified in an operating agreement. Each member (or manager, if the LLC is manager-managed) has equal rights in the management and conduct of the LLC unless otherwise agreed.

Question 36

When may courts pierce an LLC's corporate veil?

Answer 36

A court may piece an LLC's veil of limited liability under circumstances similar to those under which courts pierce the veil of a corporation: (i) where the LLC is the alter ego of the member(s) or manager(s); (ii) for inadequate capitalization at the inception of the LLC; or (iii) if the LLC was formed to perpetrate a fraud. Because LLCs can be run with fewer formalities than a corporation, the failure to observe formalities is not a ground for piercing an LLC.

Question 37

What is the two-party test for vicarious liability between principal and agent?

Answer 37

The principal will be liable for the torts committed by its agent if: 1. There is a principal-agent relationship, and 2. The tort was committed by the agent within the scope of the relationship

Question 38

What are the three requirements for the existence of a principal-agent relationship?

Answer 38

ABC (need all 3) Assent - informal agreement/consent between principal, who has capacity, and the agent. (Note: anyone can be an agent, even if you lack capacity.) Benefit (agent's conduct must be for the principal's benefit) Control (principal must have right to control agent by having power to supervise the manner of agent performance

Question 39

When will the principal be vicariously liable if its agent gets the help of a sub-agent, and a sub-agent commits a tort?

Answer 39

Liability only if there is ABC (assent, benefit, control) between the principal (defendant) and the sub-agent tortfeasor. Typically, the principal does not assent to the sub-agent's help and doesn't have the right to control. Therefore, there usually isn't vicarious liability for sub-agent torts.

Question 40

Will a principal who borrows another principal's agent be vicariously liable for the borrowed agent's tort?

Answer 40

Note: this isn't a sub-agent relationship because there are two separate principal-agent relationships. The principal will be liable only if assent/benefit/control between the principal (defendant) and the borrowed agent. Typically, although the borrowing principal may assent to and benefit from the borrowed agent, the borrowing principal doesn't assume any right to CONTROL the borrowed agent. Therefore, without all three, there will be no VL. If no principal-agent relationship, look to independent contractor

Question 41

What is the key distinction between agents and independent contractors?

Answer 41

No right to control the independent contractor, because there is no power to supervise the manner of its performance.

Question 42

What is the rule for vicarious liability between principals and independent contractors?

Answer 42

Generally there is no liability, due to lack of control. Exceptions: 1. Inherently dangerous activity (if IC commits tort while engaged in inherently dangerous activity, principal will be vicariously liable) Ex. brake repair 2. Estoppel (if you hold out IC with appearance of agency, will be estopped from denying liability as well) Ex. store that calls itself brake repair shop, the repairer is under liability If a principal negligently selects an incompetent independent contractor, she will be liable to the injured third party for her own negligence in selection. A principal will be liable for the independent contractor’s negligence if the principal hired the incompetent contractor with knowledge of the contractor’s incompetence.

Question 43

What is the three-part multifactorial test for the scope of a principal-agent relationship?

Answer 43

1. Was conduct of the kind the agent was hired to perform? 2. Did the conduct occur on the job? (frolic v. detour) 3. Did the agent intend to benefit principal? If the agent even in party intended to benefit principal by its conduct, that is enough to be within scope.

Question 44

What is the difference between frolic and detour for determining whether principal will be liable for agent's conduct (scope of job)?

Answer 44

Frolic: new, independent journey - outside scope, no liability Detour: mere departure from an assigned task Ex. Side errand on the way back from a job

Question 45

When will a principal be vicariously liable for the intentional torts of their agents?

Answer 45

Rule: intentional torts are generally outside scope of liability Exceptions: intentional torts are within the scope if the conduct was 1. Authorized by the principal, OR 2. Natural from the nature of employment, OR 3. Motivated by a desire to serve the principal

Question 46

When will the principal be liable for the contracts entered into by its agents?

Answer 46

One test: Principal is liable to third parties for contracts entered into by agents ONLY if the principal authorized the agent to enter into the contract (but authority can be apparent or implied).

Question 47

What are the four types of authority that could permit principal-agent contract liability?

Answer 47

1. Actual express authority 2. Actual implied authority 3. Apparent authority 4. Ratification

Question 48

What are the requirements for actual express authority?

Answer 48

Rule: can be oral and even private, but must have used words to express authority to the agent. Exception: if the contract itself must be in writing, then the authority must be in writing as well (ex. conveyance of land must be in writing) Actual express authority is narrowly limited to the actual words within it

Question 49

When will express authority be revoked?

Answer 49

Unilateral act of either principal or agent, OR death/incapacity of the principal. Exception: if the principal gives the agent a durable power of attorney

Question 50

What is a durable power of attorney?

Answer 50

Power of attorney: written expression of authority to enter transaction Durable: clearly survives death/lunacy, with words in the K to that effect.

Question 51

What are the requirements for actual implied authority?

Answer 51

Implied actual authority is the authority that the agent reasonably believes she has as a result of the actions of the principal.Apparent authority results from a situation where a principal gives a secret limiting instruction, and the agent, when dealing with a third party, acts beyond the scope of the limitation. In such situations, the principal is bound by the agreement made. Authority which the principal gives the agent through conduct or circumstance. Three types: 1. Necessity (all tasks necessary to accomplish an expressly authorized task) 2. Custom (all tasks which by custom are performed by persons with the agent's title or position) 3. Prior acquiescence by the principal (prior silence counts)

Question 52

What are the requirements for apparent authority?

Answer 52

Apparent authority is created where a principal holds another out as his agent to a third party. Apparent authority makes the principal a party to the contract—with contractual rights and liabilities. Actual authority is created when the agent and principal agree that the agency shall exist Two-part test? 1. Principal "cloaked" agent with the appearance of authority, and 2. Third party reasonably relies on the appearance of authority

Question 53

What is ratification, and what are its requirements?

Answer 53

After-the-fact authorization. Authority can be granted after the K has been entered into if: 1. Principal has knowledge of all material facts re: contract, AND 2. Principal accepts its benefits Exception: ratification cannot alter the terms of the K. Principal must accept the entire contract as-is. Therefore, if alters, it is unauthorized K and P is not liable.

Question 54

What are the rules governing agency liability on the principal's authorized contracts?

Answer 54

General rule: principal is liable on its authorized contracts, and therefore the authorized agent is not liable (only principal is). Exception: The undisclosed principal If principal is partially disclosed (only the identity of the principal is concealed) or undisclosed (fact of principal is concealed), the authorized agent may nonetheless be liable at the election of the third party. Where the third party knows of the principal’s existence but does not know his identity, both the authorized agent and the principal are liable on the contract. If a principal negligently selects an incompetent independent contractor, she will be liable to the injured third party for her own negligence in selection. A principal will be liable for the independent contractor’s negligence if the principal hired the incompetent contractor with knowledge of the contractor’s incompetence. Note: third party cannot recover twice

Question 55

What are the duties owned to principals, in return for reasonable compensation and reimbursement of expenses?

Answer 55

1. Duty of care 2. Duty to obey instructions that are reasonable (not lie, not break law, be reasonable) 3. Duty of loyalty (cannot self-deal, usurp principal's opportunity, or make secret profits) Self dealing means receiving a benefit to the detriment of the principal. Remedies for breach: P may seek indemnity, and recover losses caused by the breach. P may disgorge profits.

Question 56

What are the formalities required in creating a general partnership?

Answer 56

There are no formalities to becoming a general partnership (filing, writing, formalities). Mere conduct alone creates a general partnership.

Question 57

What is the definition of a general partnership?

Answer 57

An association of 2+ persons carrying on as co-owners of a business for profit

Question 58

What is the key factor to a true general partnership?

Answer 58

Sharing profits. Therefore, the contribution (paying-in) of money or services in return for a share of the profits will create a strong presumption that a general partnership exists. Note: not salary, wages, benefits. It's the contribution for profits that counts.

Question 59

When are general partners liable to third parties for tort and contract breaches, generally?

Answer 59

Agency principles apply. Partners are agents of the partnership for apparently carrying on usual partnership business. Therefore, the general partnership is liable for 1. each partner's torts in the scope of the partnership business, and 2. for each partner's authorized contracts.

Question 60

When are general partners personally liable, within a general partnership?

Answer 60

Liable for all debts of the partnership and for each co-partner's torts.

Question 61

When is an incoming partner liable for pre-existing debts of a general partnership?

Answer 61

A brand new, incoming partner is generally not liable for prior debts. But any capital paid into the partnership by that brand new partner CAN be used by partnership to satisfy prior debts (but no personal, out-of-pocket liability).

Question 62

When does a dissociating/withdrawing partner retain liability for subsequent debts of the partnership?

Answer 62

A leaving partner retains liability for future debts until actual notice of their dissociation is given to creditors, or until 90 days after filing notice of dissociation with the state (under RUPA).

Question 63

What is liability by estoppel, within a general partnership?

Answer 63

One who represents to a third party that a general partnership exists will be liable as if a general partnership exists.

Question 64

Who are general partners fiduciaries to?

Answer 64

General partners are fiduciaries of each other and the partnership.

Question 65

What duties do general partners owe to each other and the partnership?

Answer 65

1. Duty of loyalty (no self-dealing, usurpation, secret profit)

Question 66

What is the remedy for a breach of the general partner's duty of loyalty?

Answer 66

Action for accounting. Partnership can recover losses that are caused by the breach, and may also need to pay to disgorge profits.

Question 67

What are the general partner's rights to specific partnership assets?

Answer 67

Assets like land, leases, equipment - owned by the partnership itself. May not be transferred by individual partners without partnership authority. Illiquid, non-transferable.

Question 68

What are the general partners' rights to share of profits? Transferable/liquid?

Answer 68

Personal property owned by individual partners may be transferred by individual partners to third parties. It is their own share. Transferable, liquid, personal.

Question 69

What are general partners' rights to share in management? Transferable/liquid?

Answer 69

An asset owned only by the partnership itself, and therefore may not be transferred by individual partners to third parties. It is not theirs, and is therefore illiquid to third parties. Ex. share to vote General partnership is thus generally illiquid. Only the share of profit is liquid/transferable.

Question 70

How can one determine whether a fact pattern involves the partnership property or personal property owned by individual partner?

Answer 70

Factors: - whose money was used to buy the property - if partnership money used, becomes partnership property - if personal money used, becomes personal property

Question 71

What are the gap-filling rules regarding management in a general partnership?

Answer 71

If they agree, their agreement controls. If not, gap filling rules: - Each partner entitled to equal control (vote) - One partner, one vote - Majority vote governs ordinary matters - Fundamental/out of ordinary course matters require unanimous consent

Question 72

What are general provisions re: general partner's salary, absent agreement?

Answer 72

Absent agreement, partners get no salary. Exception: partners receive compensation for helping to wind up a business.

Question 73

Absent an agreement, how are general partners' profits and losses shared?

Answer 73

Absent agreement, profits are shared equally. Losses are shared like profits (ex. if agreement states profits shared 60/40 but silent on losses, losses will be 60/40).

Question 74

When will a general partnership dissolve, and what is dissolution?

Answer 74

In the absence of an agreement that sets forth events of dissolution, a general partnership dissolves upon notice of express will of any general partner to dissociate. It dissolves by default upon these conditions.

Question 75

What is winding up?

Answer 75

The period between dissolution and termination (real end of partnership), in which the remaining partners liquidate the partnership's assets to satisfy the partnership's creditors.

Question 76

What are general partners' liability to old business during winding up

Answer 76

The partnership (and therefore its individual general partners) retain liability on all transactions entered into to wind up old business by satisfying creditors who existed before winding up began. Individual general partners are liable.

Question 77

What are general partners' liability to new business during winding up?

Answer 77

Partnership and individual general partners retain liability on brand new transaction during winding up until actual notice of dissolution is given to creditors OR until 90 days after the filing of a statement of dissolution with a state

Question 78

What is the priority of distribution of a general partnership?

Answer 78

1. Partnership must pay all creditors (outside plus all insiders who loaned money to partnership and became creditors thereby) 2. Repay all capital contributions paid into the partnership by partners 3. Partners share in leftover profit equally without agreement. Rule: each partner must be repaid his/her loans and capital contributions, PLUS that partner's share of any profits, or MINUS the partner's share of any losses

Question 79

What is a limited partnership?

Answer 79

Partnership with at least one general partner and at least one limited partner.

Question 80

How is a limited partnership formed?

Answer 80

Formalities - must file with the state a Limited Partnership Certificate, including the names of all general partners

Question 81

When are general partners liable within a limited partnership, and what do they control?

Answer 81

General partners are still personally liable for all limited partnership obligations. They also have control (right to manage)

Question 82

What are limited partners' liabilities and privileges in a limited partnership?

Answer 82

They have limited liability and are not personally liable on the obligations of the limited partnership itself. Control - the law in most states is still that a limited partner may not control/manage the business. However, under the newly revised Uniform Limited Partnership Act, limited partners now may manage without forfeiting their limited liability status.

Question 83

What is a Registered Limited Liability Partnership?

Answer 83

Formation: register with state (statement of qualification + annual reports) Liabilities: No partner is liable for the obligations, not even general partners. But you can always sue a partner for their own individual torts, just not for underlying debts/obligations.

Question 84

What is the definition of a Limited Liability Company (LLC)?

Answer 84

Hhybrid between a corporation and a partnership, in which the owners who are called members have the same rights and limited liabilities as shareholders in a corporation, plus the benefits of partnership tax treatment (corporate tax is very bad, but partnership tax is good). Thus, you get the best of both worlds.

Question 85

What are the formation requirements for an LLC?

Answer 85

Must file articles of organization | May (not must) adopt operating agreement

Question 86

Who controls an LLC?

Answer 86

Owners choose. Owners (members) may manage, or may delegate to a team of managers. Just like a board of directors in a corp.

Question 87

What is limited liquidity, within an LLC?

Answer 87

Full membership interest may not be transferred without unanimous consent of members, or as provided otherwise in the operating agreement.

Question 88

What is limited life within LLC?

Answer 88

Company dissolves upon unanimous consent of members, or as provided otherwise in operating agreement.

Question 89

What are the requirements for an agent to be able to transfer good title without principal's authority?

Answer 89

For the possessor of goods to be able to transfer good title without authority, she must either have: (i) some indicia of ownership (e.g., title), or (ii) be a dealer in the goods. Although a dealer in goods will be a merchant, one may be a “merchant” without being a dealer in the goods at issue.

Question 90

When may a principal NOT unilaterally revoke a principal-agent relationship?

Answer 90

There are two types of agency relationships that may not be unilaterally terminated by the principal (and that generally are not terminated by operation of law): where (i) the agent has an interest in the subject matter of the agency, or (ii) a power is given for security.

Question 91

Talk about the order in which creditors should go after partnership vs individual partners in a GP?

Answer 91

Must first go after partnership asses before it can try to recover from individual partners.