Formation

Question 1

What is a partnership?

Answer 1

An association of two or more legal persons who carry on a for-profit business as co-owners

Question 2

Who can form a partnership?

Answer 2

Anyone or anything that has legal capacity to contract

Note: Includes legal entities

Question 3

Who cannot form a partnership?

Answer 3

Humans

Question 4

What intent is required for a partnership?

Answer 4

• To carry on as co-owners
• For profit

Note: No specific intent to form a partnership is required

Question 5

When is there a presumption of a partnership relationship?

Answer 5

When two or more persons share profits

Question 6

When does the presumption of a partnership relationship not apply?

Answer 6

• Payment of a debt
• Interest payments
• Rent
• Wages
• Goodwill

Question 7

Can a partnership hold property?

Answer 7

Yes

Question 8

Can a partnership sue and be sued in its own name?

Answer 8

Yes

Question 9

Are partners personally liable for the partnership’s obligations?

Answer 9

Yes

Question 10

Do partnerships have entity-level taxation?

Answer 10

No

Question 11

Does there need to a written partnership agreement?

Answer 11

No

Question 12

What law governs partnerships?

Answer 12

• The partnership agreement, if a written one exists
• Otherwise, state law

Exception: When state law is mandatory

Question 13

Which state laws are mandatory in governing partnerships?

Answer 13

• Liability to third parties
• Right to access books and records
• Fiduciary duties

Question 14

What duties do partners owe?

Answer 14

• Fiduciary duty
• Duty of loyalty
• Duty of care

Question 15

Is every partner a fiduciary of the partnership?

Answer 15

Yes

Question 16

What does the duty of loyalty entail?

Answer 16

Partners must not:

• Compete with the partnership business
• Advance an adverse interest
• Usurp a partnership opportunity

Question 17

Can a partnership limit the duty of loyalty?

Answer 17

Yes, as long as it is not manifestly unreasonable

Question 18

Can a partnership eliminate the duty of loyalty?

Answer 18

No

Question 19

What is the safe harbor option for something that may be considered disloyal?

Answer 19

If a partner makes full disclosure of all material facts, then a certain percentage of the other partners may authorize or ratify the transaction

Question 20

What does the duty of care entail?

Answer 20

Partners must not engage in:

• Grossly negligent or reckless conduct
• Intentional misconduct
• Knowing violations of the law

Question 21

Can a partnership reduce the duty of care?

Answer 21

Yes, as long as it’s not unreasonable

Question 22

Who does the duty of loyalty and duty of care apply to?

Answer 22

Current partners

Note: NOT former or prospective partners

Question 23

How is the division of profits and losses generally determined?

Answer 23

By the partnership agreement

Question 24

Do the division of profits and losses need to be the same?

Answer 24

No

Question 25

Must financial/capital contributions affect the division of profits and losses?

Answer 25

No

Question 26

When there is no partnership agreement on it, how are profits divided?

Answer 26

Evenly

Question 27

When there is no partnership agreement on it, how are losses divided?

Answer 27

Losses follow profits

Question 28

What is the default rule for distributions in a partnership?

Answer 28

Partners do not have the right to demand a distribution

Question 29

What can partners do to allow for distributions?

Answer 29

Agree to allow distributions to be made according to the partnership agreement

Question 30

What is the default rule for transferring partnership interests?

Answer 30

A partner does not have the right to transfer their partnership interest

Question 31

Can partners change the default transfer rule?

Answer 31

Yes, by a majority vote of the partners

Question 32

What is the default rule for new partners?

Answer 32

All existing partners must consent to the new partner

Question 33

What is the default rule for division of management and control in a partnership?

Answer 33

Every partner has equal rights in the management and control of the partnership

Question 34

Can parties agree to a different division of management and control in a partnership?

Answer 34

Yes

Question 35

By default, ordinary business requires a vote of \_\_\_\_\_\_\_\_\_\_\_\_ of partners

Answer 35

the majority

Question 36

By default, extraordinary business requires a vote of \_\_\_\_\_\_\_ partners

Answer 36

all

Question 37

What is the default rule for quorum for partnership voting?

Answer 37

No default rule

Question 38

Who must be provided access to records?

Answer 38

Partners and their agents