Formation Flashcards
(25 cards)
Substantive requirements
A partnership is an association of two or more people joining to carry on a for-profit business as co-owners
The agreement may be written, oral, and it can be expressed or limited
Agency
Partners our agents of the partnership end of each other for business purposes. As an agent, a partner can commit the partnership to binding contract with third parties.
Partners have fiduciary duties of loyalty and care
Partners generally share losses and profits, equally, or may share losses in proportion to their share of profits . When there is an agreement, the agreement controls share of losses end, profits.
Distributions
A partner cannot demand distributions. They can only have their partnership account credited with their share of prophets.
Any distribution will be liquid as in cash Dash partners cannot demand distributions in-kind as in specific property
Partners partnership interest
There is no transferable ownership, interest in partnership property. Partners, own profits, losses, and a right to receive distributions. This interest is personal property, regardless of the nature of the partnership property. It is transferable to a third-party, and may include the entire interest or part of it
Transfer of partners partnership interest
A transfer does not trigger dissolution of the partnership, and the partnership does not need to give a factor the transfer until the partnership knows of it.
The transferring partner retains all other rights and duties to the partnership.
A transferee does not become a partner, cannot participate in management or control of the partnership, cannot access partnership records, or demand other information from the partnership.
Charging orders
While individual creditors of individual partners cannot get to partnership property, a creditor of a partner, who has obtained a judgment against a partner, may enforce that judgment against the partners partnership interest by obtaining a charging order.
A charging order is a lien on the partners partnership interest
Property ownership
A property acquired by a partnership is considered partnership property, and belongs to the partnership not to the individual partners.
Capital refers to the property or money, contributed by each partner to carry on partnership business.
Property refers to everything the partnership owns, including both capital, contributed by partners, and the property subsequently acquired through partnership transactions
New partner
To become a partner, a person, my secure, the consent of all existing partners
Management rights
Each partner has a legal right in the management and conduct of the partnership
Ordinary partnership business, such as the distribution of prophets can be made by a majority vote of partners
Special partnership business requires a consent of all partners. This would include amendments to the partnership agreement.
Renumeration for services
A partner is not entitled to remuneration for services performed for the partnership.
Except for when the partner renders services in winding up the business of the partnership. In that case, the partner is entitled to remuneration, which would be reasonable compensation. this is because winding up is not done for profits.
Reimbursement
A partner can become a creditor of the partnership by loaning the partnership of money. This is different from a partners contribution. The partner is entitled to reimbursement including interest.
Upon dissolution partnerships, first pay outside creditors, then partner, creditors, then capital contributions.
Indemnification
A partner may incur personal liability, while conducting partnership business. The partnership mess than indemnify the partner for this liability.
For example: a partner foots the bill to keep business running
Use of partnership property
A partner may use partnership property only on the half of the partnership. Otherwise they must compensate the partnership for personal use.
Access to records
The partnership mask of partners and their agents access to partnership records
Disassociation
This is similar to a partnership divorce. Dissociation may be voluntary or involuntary and me in some cases be wrongful.
The association does not automatically cause the dissolution of a partnership.
Consequences:
Dissociated partners can no longer take part in partnership business
Remaining partners must by the dissociating partners interest
Dissociating partner must be paid the fair market value of their partnership interest
A partner kins associate after the partnership or dissociated partner files, a statement of disassociation with the department of state. This gives third parties conclusive notice of the association as of 90 days after the statement is filed. This means our partner retains liability for up to 90 days post filing .
Partners binding power – contracts
A partner is an agent of the partnership for the purpose of its business, and contractually buying the partnership, when the partner acts with either actual or apparent authority.
Actual authority is binding on the partnership. This includes express authority and implied authority. Implied authority is based on the partners, reasonable belief that an action is necessary to carry out his express authority.
Apparent authority is binding, if in the ordinary course of business and action must be performed in the ordinary course of caring on business. There is no apparent authority if a third party with whom the partner was dealing noon or had received notification that the partner liked authority.
Torts
A partnership is liable for a partners, tortious acts, including fraud, committed in the ordinary course of the partnership business, or with actual or apparent partnership authority. There is no immunity for the partnership.
Liability to third parties
A partnership is a separate entity, and is subject to sue for its obligations.
For partnership obligations partners are jointly and severally liable for contractual and tortious liabilities
Incoming partners are not liable for anything before their admission as a partner other than capital contributions
Outgoing partners continue to be liable for anything before disassociation, and anything after dissociation for up to 90 days
Individual partners do not need to be named in a suit against a partnership in order to reach the partnerships assets
Termination of a partnership
Termination of a partnership requires a two-step process of dissolution and winding up
Dissolution is triggered by a certain date or event
Winding up may be done by any partner who has not dissociated and includes the disposal of partnership property, discharging partnership, liabilities, preserving business as an ongoing concern for a reasonable time, and paying off creditors
Distribution of partnership assets after dissolution
Outside creditors
Partners who loaned money
Partnership contributions
Distribution of profits (equally)
- if there are losses instead of profits, the losses are shared equally
Limited liability partnerships
LLPs are partnerships that eliminate a partners personal liability for obligations of the partnership. Must register with the states it’s not the default is a general partnership with normal joint and several liability.
To form a limited liability partnership, partners must file a statement of qualification with the department of state, containing the name of the partnership, address of its principal office, the name and address of the partnerships agent for service of process, and a statement of limited liability
A partner in the limited liability partnership is not personally liable for an obligation of the limited liability partnership solely for the reason of being a partner in Toryn or contract. A partner is personally liable for their own misconduct, such as negligence
Limited partnership
Limited partnerships, must have at least one general partner, and at least one limited partner. They must file a certificate of limited partnership with the state.
Limited partners become a limited partner by agreement, acquisition or merger, with the consent of all parties. They do not have the right or power to act for the limited partnership or bind the limited partnership. General partners have authority to bind the partnership.
A limited partner is not personally liable for the obligations of a limited partnership solely by reason of being a limited partner, even if they participate in management work control of the limited partnership
A limited partnership as liable for injuries, or other harm, is caused by a wrongful act, or omission of a general partner acting in the ordinary course of business.
Profits and losses are allocated among partners, on the basis of the value of each partners contribution to the limited partnership
Derivative Action
A partner in a limited partnership has the right to bring a derivative action on the half of the limited partnership, if the partner first makes a demand on general partners requesting that they bring the action to enforce the right, but they failed to bring the action within a reasonable time, or if demand would be futile
Limited, liability limited partnership
A limited partnership who’s certificate of limited partnership states that the limited partnership is a limited liability, limited partnership
General partners manage the LLLP while limited partners only have a financial interest
The LLLP provides the obligations of a partnership incurred while it is an LLLP no matter what they may be our Soli the partnerships obligations - NONE of the partners, general or limited are personally liable for such obligations
LLLPs are most common in the real estate business
