General Partnerships

Question 1

General Partnerships

Taxation

Answer 1

Income and Losses are allocated and passed through to partners either equally (Default Rules) or according to the partnership agreement

Question 2

General Partnerships

Allocation of Profits & Losses

Answer 2

Profits and Losses are allocated either:
1. Equally (under Default Rules), or
2. In accordance with the Partnership Agreement

Question 3

General Partnerships

Governing Law

Answer 3

Both internal affairs of a partnership and liability of a partner for debt, obligation, or other liability of the partnership are governed:

1. According to the jurisdiction in which the partnership has its principal officer or
2. As specified in the partnership agreement

Question 4

General Partnerships

Partnership Agreement:
When Default Rules Apply

Answer 4

State partnership statutes contain default rules that apply when:

1. The partnership agreement is silent
2. The partners fail to agree on departures from default rules, or
3. The matter at issue involves a limited list of non-waivable or non-modifiable rules

Question 5

General Partnerships

Partnership Agreement:
Prohibited Modifications

Answer 5

1. Vary:
   a. Rights and duties for filing with the state
   b. The power to dissociate (except to require notice)
   c. The right of the court to expel a partner
   d. The wind up requirement
   e. The law applicable to LLPs
2. Eliminate:
   a. The Duty of Loyalty, except
   …..i. Identifying specific allowed categories of activities
   …..ii. Where sufficient partners authorize a specific act
   b. The obligation of Good Faith and Fair Dealing
3. Unreasonably Reduce: The Duty of Care
4. Restrict:
   a. The rights of Third Parties
   b. Unreasonably, partners’ right of access to books and records

Question 6

General Partnerships

Duty of Loyalty:
Acceptable Modifications

Answer 6

1. Identifying specific exempted categories of activities in the partnership agreement
2. Where sufficient partners have authorized a specific act as exempt

Question 7

General Partnerships

Formation

Answer 7

General Partnerships may be formed expressly or inadvertently where:

2. 1. Two or more persons associate and carry on as co-owners of a for-profit business
      AND
3. The founders do not file paperwork necessary to form a different type of business entity

Question 8

General Partnerships

Formation:
Inadvertent General Partnerships
Factors to Consider

Answer 8

1. Equal Rights to Manage and Control
2. Profit Sharing
3. Loss Sharing
4. Joint Liability to Creditors
5. Capital Contributions to the Enterprise
6. Extensions of Loans

Early People Like Jogging Crazy Lengths

Question 9

General Partnerships

Types of Partnerships

Answer 9

1. Partnership at Will
2. Partnership for a Definite Term
3. Partnership for a Particular Undertaking

Question 10

General Partnerships

Adding a New Partner

Answer 10

Either:
1. Unanimous Consent of existing partners
2. Alternative Methods, per the partnership agreement

Question 11

General Partnerships

“Pick Your Partner” Principle

Answer 11

Default Rule: The consent or all partners is required to become a partner, or to exercise information or management rights, in an existing partnershipa partner

Management rights are nontransferable.

Question 12

General Partnerships

Partners’ Interest Rights

Answer 12

1. Partnership Status Rights (Management & Voting)
2. Financial Rights
3. Other Rights

Question 13

General Partnerships

Partners’ Rights:
Management Rights

Answer 13

Partners have equal rights to participate in management of the partnership, usually exercised through voting

Question 14

General Partnerships

Partners’ Rights:
Voting

Answer 14

Default Rule: Voting is equal/per capital, regardless of unequal contributions

Voting rules may be modified in the partnership agreement

Question 15

General Partnerships

Voting Rules:
Decisions Requiring Majority Vote

Answer 15

Default Rule: Differences concerning matters within the Ordinary Course of Business

Question 16

General Partnerships

Voting Rules:
Decisions Requiring Unanimous Approval

Answer 16

Default Rule:
1. Differences concerning matters outside the Ordinary Course of Business
2. Partnership Agreement Amendments

Question 17

General Partnerships

Partnership Property v. Separate Property

Answer 17

Property acquired with partnership assets is presumed to be partnership property

When it is unclear –> courts rely on the intention of the parties.

Question 18

General Partnerships

Partnership Capital

Answer 18

Property or money contributed by each of the partners for the purpose of establishing and carrying on the business of the partnership

Partners may contribute almost anything (cash, real property, office furniture, cars, trademarks, and services) to the partnership (capital contributions)

Question 19

General Partnerships

Capital Account

Answer 19

(+) Initial Capital Contributions
(+) Subsequent Capital Contributions
(-) Distributions
= Capital Account

Question 20

General Partnerships

Partner as Agent

Answer 20

Partners are agents of the partnership for the purpose of partnership business

They have the power to bind the partnership when acting within their authority

To determine authority –> Consider the *facts *and circumstances

Question 21

General Partnerships

Partner Acting Without Authority:
Response Options

Answer 21

If the partnership is aware of a partner acting without authority, they can send written notice stating the partner does not have the authority to bind the partnership

Question 22

General Partnerships

Partners’ Fiduciary Duties

Answer 22

1. Duty of Loyalty
2. Duty of Care
3. Obligations of Good Faith and Fair Dealing

Question 23

General Partnerships

Partners’ Fiduciary Duties:
Duty of Loyalty

Answer 23

1. No Usurpation of partnership opportunity
2. No Competing with the partnership
3. No Conflicting Interest transactions

Cannot be eliminated, but may be reasonably limited

UCI

Question 24

General Partnerships

Partners’ Fiduciary Duties:
Duty of Care

Answer 24

1. No grossly negligent or reckless conduct
2. No intentional misconduct
3. No knowing violations of the law

Cannot be eliminated or unreasonably reduced

Question 25

# General Partnerships **Partnership Liability**

Answer 25

The **partnership** is liable for: 1. **Actionable conduct** of a partner 2. Acting: a. In the **ordinary course of business** ***OR*** b. with the **authority** of the partnership A partnership may **sue** and **be sued** in the name of the partnership

Question 26

# General Partnerships **Partner Liability**

Answer 26

All partners are **jointly-and-severally liable** for all obligations ***of the partnership*** that occured *while* they were partners. **Any or all** partners *may* be **sued**, BUT a **partner** must recieve a judgment **against themselves** to be held liable for the partnership.

Question 27

# General Partnerships **Partner Liability:** Reaching a Partner's Assets

Answer 27

1. Judgment against the **partnership** 2. Judgment against the **partner**, and 3. At least one of the following: a. A **writ of execution** stating partnership assets insufficient b. The partnership is in **bankruptcy** c. The **partner agrees** d. The **court grants permission** when there has been a **reasonable showing** that the partnership cannot repay e. The partner is also **liable** under tort law, independent of the partnership

Question 28

# General Partnerships **Partners' Rights:** Financial Rights

Answer 28

**Default Rule:** Each partner is entitled to an **equal share** of profits and losses (***allocation***) Partners **do not** have a right to **recieve distributions** *unless* stated in the **partnership agreement** Financial rights are **transferrable**, and their transfer **does not** automatically cause **dissociation/dissolution**

Question 29

# General Partnerships **Transferred Financial Rights:** Partner & Transferee's Rights

Answer 29

Transferee: **Distribution Rights** of the Partner Partner: **Management & Control Rights** + **Personal Liability **for Partnership Obligations

Question 30

# General Partnerships **Partners' Rights:** Information & Accounting

Answer 30

Partners have a **right of access** to the partnership's **books and records**.

Question 31

# General Partnerships **End Game Timeline**

Answer 31

Dissociation --> Dissolution --> Winding Up --> Termination --> Partnership No Longer Exists OR Dissociation --> No Dissolution --> Partnership Continues

Question 32

# General Partnerships **Events Resulting in Partner Dissociation**

Answer 32

1. Partnership has **notice** of a partner's express will to withdraw 2. The occurrence of and **agreed upon event** 3. The partner's **expulsion** a. Under the *partnership agreement* b. By *unanimous vote* c. By *judicial determination* 4. The partner's a. Becoming a **debtor** in bankruptcy b. Executing an **assignment** for creditors c. **Appointment** of a **trustee**, receiver, or liquidator of all or substantially all the partner's property d. **Failing to remove** such trustee within 90 days of appointment 5. When the partner is an individual a. Their** death ** b. The appointment of a **guardian** or general conservator c. A** judicial determination** of partner's incapability of performing 6. **Termination** of a partner who is not an *individual*, *partnership*, *corporation*, *trust*, or *estate*

Question 33

# General Partnerships **Dissolution**

Answer 33

A partnership dissolves in a sense that it **no longer exists to generate profits as a business** and now **exists for the purposes of winding up** the partnership business. At any time *after dissolution* and *before winding up*, **all of the partners**, including any dissociating partners **not wrongfully **dissociated **may waive** the right to wind up and terminate after dissolution.

Question 34

# General Partnerships **Events Causing Dissolution:** Generally

Answer 34

1. **Occurence of event** that dictates **winding up** in the *partnership agreement* 2. Subject to cure, an **event causing illegality** of the partnership business 3. Certain **judicial determinations**

Question 35

# General Partnerships **Events Causing Dissolution:** Partnership At Will

Answer 35

Upon **notice** to the partnership of a partner's express will to withdraw (**dissociate**) *RUPA 801(1)*

Question 36

# General Partnerships **Partner Dissociation Events:** Partnership for a Definite Term/Undertaking

Answer 36

1. **Completion** of the term/undertaking 2. **Unanimous decision** to *wind up* 3. **50% of *remaining* partners** seek to wind up within 90 days of **certain dissociation events**

Question 37

# General Partnerships **Where Partner Dissociation Does Not Cause Dissolution:** Effect on Rights, Liabilities, & Authority of Partners

Answer 37

**Dissociated Partner** 1. **Ended** Rights & Duties a. Partnership Status Rights b. Fiduciary Duties 2. **Lingering** Rights & Duties (2 years) a. Authority (Apparent) b. Liability (For apparent authority) 3. **May** have a **right to buyout** **Remaining Partners** 1. Have a **right to buyout** the dissociating partner 2. **May** file a statement of dissociation

Question 38

# General Partnerships **Winding Up**

Answer 38

A partnership winds up when it: 1. Completes its work, 2. Sells its assets, 3. Pays its obligations (including Partner Accounts), and 4. Settles internal financial matters.

Question 39

# General Partnerships Partner Accounts

Answer 39

Upon dissolution, Partner Accounts become **partnership liabilty** *After* liquidation, all profits/losses must be **allocated** to each Partner Account Partner Accounts **must** be addressed in the **partnership agreeemnt** A partnership account includes the sum of: (+) Partner's Contributions (Money & value of Property) (+) Share of the partnership's profits (-) Money Received (distributions & Profits) (-) Value of Property Received (-) Share of the partnership's losses

Question 40

# General Partnerships **Winding Up:** Remaining Debts

Answer 40

If the partnership has **more obligations than assets** in the partnership and partnership accounts, then the **partners must contribute the difference**, proportionately. If one partner fails to pay, the other partners must proportionately pay his share and then they can recover their contribution from that partner.