Formation Flashcards
(19 cards)
Definition of Pship
- an association of 2 or more persons who carry on a for profit business as co-owners
- may be formed by an individual or a company
Persons
- anything that has legal capacity to K
- humans who are not incapacitated minors
- includes legal entities such as corporations, LLCs, trusts, etc
Intent to Form
- no intent needed to form a partnership
- simple requires intent to carry on a for profit business as co-owners
Co-Ownership
- sharing of profits, which creates a presumption of a partnership
- NOT debt payments, interest charges, rent, wages, goodwill
Sharing Control
- share voting or areas of control
- divisions of ownership and control need not be equal but both are required
- employer/employee and borrower/lender are not a partnership
Separate Legal Entity
- distinct from each of the partners who are part of the partnership
- partnership can hold property and sue and be sued in its own name
partnership liability
- partners are personally liable for partnership obligations
- no limited liability
No Entity Level taxation
- a corporation is taxed as a business
- investors are also taxed when money is paid out
- a partnership is not taxed as an entity
- partners are taxed when money is paid out
Partnership Agreement
- the law of the partnership
- written agreement is not required
- in absence of agreement, state partnership law governs
- written agreement governs
Exceptions to when agreement governs
1) disclaims liability to 3p
2) cannot deny partners ccess to books and records
3) fiduciary duties cannot be eliminated
Defined Generally
- created by the association of two or more persons to carry on as co-owners of a business for profit, regardless of whether:
(i) the persons intend to create a partnership, or
(ii) the association is called a “partnership,” “joint venture,” or other name. - no formalities required
- As soon as two or more people associate to carry on, as co-owners, a business for profit, a partnership comes into existence.
Partnership Agreement
- Although not required, partners may agree to rules for the governance of their partnership through a partnership agreement.
- partnership agreement can modify or waive the default rules provided by the TBOC.
TBOC Partnership agreement overrides
-TBOC does place limitations on the partners’ ability to override the statute in certain matters.
-PA may not unreasonably restrict any partner’s access to the partnership’s books, records, and other partnership information.
-A partnership agreement can never eliminate the partners’ duties of loyalty, care, or good faith.
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Location of Partnership’s REcords
- Unless there is an agreement to the contrary, all partnership books must be kept at the partnership’s chief executive office.
- Every partner has the right to inspect and copy those books.
Liability
- All partners are jointly and severally liable for all obligations of the partnership, whether in contract or tort.
- a partnership creditor may bring an action against any one or more partners, or against the partnership, in the same or in separate actions
- Because partners are severally, as well as jointly, liable for partnership obligations, every partner is personally and individually liable for the entire amount of all partnership obligations
Indemnification
- a partner who is compelled to pay the entire partnership obligation is entitled to indemnification from the partnership.
- may also require that the other partners contribute their pro rata shares of the payment in the event the partnership is unable to completely indemnify her
- these remedies do not permit her to limit her liability to partnership creditors to her own contributions, and this liability cannot be lifted by the partnership agreement.
Things partnership agreement can say
- may identify specific types or categories of activities that do not violate the duty of loyalty if they are not manifestly unreasonable, and the partnership agreement may determine the standards by which the performance of these obligations is to be measured, provided that the standards are not manifestly unreasonable.
- a broad statement that only willful or intentional misconduct will violate these duties would likely be unenforceable.
Transferring partnership interest
- If the partnership agreement does not restrict the partner’s right to do so, a partner may voluntarily transfer all or part of his partnership interest to a third party at any time.
- However, a partnership may restrict this right
Jurisdiction
- formation and internal affairs of a partnership are governed by the law of its jurisdiction of formation.
- partnership’s jurisdiction of formation is the jurisdiction chosen in the partnership agreement, provided that the jurisdiction bears a reasonable relation to the partners or to the partnership’s business