Kaplan pgs 360-401 Partnerships

Question 1

If a partnership agreement is silent on anything, what controls?

Answer 1

The Uniform Partnership Act

Question 2

If a partnership agreement makes no mention of how profits and losses will be shared, what is the default?

Answer 2

That they will be shared evenly

Question 3

Do general partners have a right to be compensated for acting as a partner?

Answer 3

No, but the partnership agreement can provide for salaries

Question 4

What is involved in the duty of loyalty with regard to a partnership?

Answer 4

• duty not to compete
  – duty of care
  – duty to account

Question 5

What is involved in the duty to account that is part of the duty of loyalty for partnerships?

Answer 5

Partners have a duty to account to the general partnership

Question 6

What is involved in the duty of care with regard to a partnership?

Answer 6

The partner can not engage in gross negligence, reckless or intentional conduct, or in violation of the rules.

Question 7

What are all of the duties that a partnership owes?

Answer 7

• duty of loyalty: duty not to compete, duty to account, duty to refrain from adverse dealings
  – duty of care
  – good faith and fair dealing
  – duty to keep books and right to information

Question 8

What is required in order for a partnership to take on a new partner?

Answer 8

The consent of all of the partners

Question 9

Who owns property that is acquired by a general partnership?

Answer 9

The partnership, and not the general partners individually

Question 10

What are the different events that could lead to disassociation?

Answer 10

– notice to the partnership of the person’s express will to withdraw
- an event that was agreed-upon in the partnership agreement
– expulsion according to the partnership agreement
– expulsion by consent of the partners because of unlawful conduct or transfer of his interest
– expulsion by judicial order because of wrongful conduct, material breach of the partnership agreement or breach of duty
– person didn’t act or did act

Question 11

Upon dissociation of a general partner, what are the general partner’s rights to participate in the management and conduct of the business and what are his duties of loyalty?

Answer 11

Both of those are terminated, but he continues to have duties of loyalty and due care with regard to things that happened before disassociation.

Question 12

In what situation would a general partnership still be bound for up to two years after a general partner disassociates for any act of that general partner?

Answer 12

– if at the time the other party reasonably believed that the disassociated general partner was still a general partner
– if the other party didn’t have any notice of the disassociation
– if the other party would not otherwise have had knowledge or notice of the disassociation

Question 13

If a partnership has an open account with a vendor, and an ex-partner orders inventory, and the vendor has no reason to think that partner has exited the partnership, what happens?

Answer 13

The partnership is bound by the contract and the ex partner is liable for damages

Question 14

What is a good way to make sure that a disassociated partner can’t bind the partnership anymore?

Answer 14

Either party can file a statement of disassociation that says the general partner is disassociated. This acts as a limitation of authority for that disassociated partner and any non-partner is deemed to have notice of the disassociation 90 days after the statement is filed

Question 15

What are the powers and duties involved in winding up?

Answer 15

A person that is winding up can:
– preserve the general partnership business as a going concern for a reasonable time
– prosecute and defend actions
– settle and close the business
– dispose of or transfer property
– discharge liabilities
– distribute the assets and settle accounts
– settle disputes by mediation or arbitration
– do all necessary things

Question 16

If a cake bakery is winding up, what are the things it can and cannot do?

Answer 16

• can: fill all existing orders, sell inventory, collect amounts due, pay amounts due
  – cannot: take on new business

Question 17

Upon winding up of a general partnership when you do a settlement of accounts, how does that work?

Answer 17

• the general partnership must make a distribution (of the excess) to a general partner if the credits exceed the charges
• the partner must make a contribution to the partnership if the charges exceed the credits (in the amount of the excess)

Question 18

What is the statutory default law for limited partnerships in California?

Answer 18

The Uniform Limited Partnership Act

Question 19

If you are a limited partner in a limited partnership, what does that mean?

Answer 19

You contribute capital and share in the profits, but you do not take part in control or management and your liability is limited to your contribution

Question 20

If you are a limited partnership, what does your name have to say?

Answer 20

Something to the effect of “Limited Partnership“ or the abbreviation “LP“

Question 21

What are things that a limited partnership must maintain?

Answer 21

– a current list of all the names and addresses of all partners
– copies of the certificate of limited partnership and the partnership agreement
– copies of all financial statements and all tax returns for the past six years
– copies of any filed certificates of conversion or merger
– copies of any record made in the last three years of consent given or vote taken by any partner
– other records relating to contributions or events involved in dissolution and winding up

Question 22

If a partner lends money to a limited partnership, what are his rights?

Answer 22

The same as any general creditor

Question 23

What are the two situations when you need consent of every partner in a limited partnership?

Answer 23

• to amend the partnership agreement

– to sell or dispose of all or substantially all of the partnership’s property other than the usual course of business

Question 24

What are things that a limited partner is allowed to do without losing his limited partner status?

Answer 24

– contract for the partnership
– be an officer, director, or shareholder
– be a member, manager, or officer of an LLC that is a general partner
– be a limited partner of a partnership that is a general partner
– consult with an advisor general partner
– act as a surety for a general partner
– approve or disapprove an amendment to the partnership agreement
– vote on meetings of the partners
– wind up the partnership
– serve on an audit committee
– serve on a committee that approves actions of the general partner
– participate in a meeting of the partners
– bring a derivative action

Question 25

Does a limited partner have the right or power to act for or bind the limited partnership?

Answer 25

No

Question 26

Does a limited partner have the right to inspect and copy partnership records?

Answer 26

Yes, and he doesn’t have to show a particular purpose for requesting that information

Question 27

What are different ways that someone can become a limited partner?

Answer 27

– as provided in the partnership agreement – because of conversion or merger – with the consent of all the parties

Question 28

What duty does a limited partner owe?

Answer 28

He has no fiduciary duties, he only has to discharge his duties with good faith and fair dealing

Question 29

If a limited partner transfers his interest in the partnership, what is the only thing that can actually be transferred?

Answer 29

His right to distributions, which is personal property.

Question 30

Does the transfer of partnership interests cause a disassociation or dissolution?

Answer 30

No

Question 31

If there has been a transfer of a limited partner’s interest, what does that entitle the transferee to?

Answer 31

Only the right to distributions, he cannot participate in management, access information, or inspect or copy records

Question 32

What is the difference between a limited partnership and a limited liability partnership?

Answer 32

– limited partnership: has general partners and limited partners, and the general partners have full liability while the limited partners are protected – limited liability partnership: all the partners are protected from liability although they stay liable for their own negligence or negligent supervision of others

Question 33

What is important for the name of a limited liability partnership?

Answer 33

It must say “Limited Liability Partnership“ or "Registered Limited Liability Partnership“ or “LLP“ or “RLLP“

Question 34

If your law firm is an LLP, but you do not write the name of your firm with LLP at the end of it on all communications, what can happen?

Answer 34

You can lose the liability shield

Question 35

In California is it possible for a licensed professional to form an LLC instead of a PC?

Answer 35

No, their only option is a PC

Question 36

What is the major advantage for LLCs?

Answer 36

They are the most flexible entity, have flow through taxation, and limited liability for its members

Question 37

What is the default rule for how LLCs are managed unless the articles of organization say otherwise?

Answer 37

Member managed

Question 38

What is the requirement for the name of an LLC?

Answer 38

It must contain the words “Limited Liability Company“ or “LLC“ or it can abbreviate the words to “Ltd“ or "Co."

Question 39

What is the difference between member-managed and manager-managed LLC’s?

Answer 39

- member-managed: the LLC will only have members | – manager-managed: it will have members and managers, but managers do not have to be members

Question 40

What is the basic rule structure for LLCs?

Answer 40

According to the operating agreement

Question 41

Why is it hard to pierce the corporate veil for LLCs?

Answer 41

Because they do not have many required formalities or meetings

Question 42

When can a member withdraw from an LLC?

Answer 42

Anytime as long as it is written notice to the other members