Formation Of A Partnership Flashcards
What is a partnership?
An association of two or more persons who carry on a for-profit business as co-owners
Who can form a partnership?
Partnerships can be formed by an individual or a company
What is meant by “persons” in a partnership context?
Persons refers to anything that has legal capacity to contract
- Humans who aren’t incapacitated or minors
- Includes legal entities, such as LLCs, trusts, etc.
What intent is necessary to form a partnership?
No specific intent to form a partnership is required
-Simply requires the intent to carry on a for-profit business as co-owners
What is co-ownership?
The sharing of profits, which creates a presumption of a partnership
Give some examples of what is NOT an agreement to share profits?
- Debt payments
- Interest charges
- Rent
- Wages
- Goodwill
What is sharing control in a partnership?
Requiring voting or establishing areas of control
Must divisions of ownership be equal?
Divisions of ownership need not be equal, but both are required
What special relationships are NOT partnerships?
Employer-employee and borrower-lender relationships are not partnerships
What does it mean that a partnership is a separate legal entity?
- The partnership is distinct from each of the partners who are part of the partnership
- The partnership can hold property and sue and be sued in its own name
What is partnership liability?
- Partners are personally liable for partnership obligations
- No limited liability
What does no-entity-level taxation mean?
- 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
What is the partnership agreement?
The partnership agreement is whatever the partners say it is:
- A written partnership agreement is not required
- In the absence of an agreement, state partnership law will govern
- When there is a written partnership agreement, the agreement will govern
What are exceptions that cannot be included in a partnership agreement?
Agreement can’t conflict with mandatory state laws
1) Liability to third parties
2) Can’t deny partners access to books and records
3) Fiduciary duties can’t be eliminated
