Partnership

Question 1

How is a partnership formed?

Answer 1

a partnership is formed as soon as two or more people ASSOCIATE to carry on as CO-OWNERS of a business for PROFIT

Question 2

Do you need a formal agreement to form a partnership?

Answer 2

No, the parties intent may be implied from their conduct

Question 3

What raises the presumption of partnership?

Answer 3

Sharing of profits raises a presumption
(unless payment of debt, services, rendered, rent payment, annuity or retirement benefit, interest on a loan, sale of goodwill)

Question 4

What factors do not raise a presumption of partnership?

Answer 4

1. title held in joint tenancy or in common
2. parties designate their relationship as a partnership
3. venture undertaken by the parties requires extensive activity
4. sharing of gross returns

Question 5

Is there liability to a person who holds out to be a partner?

Answer 5

yes, liability by estoppel. when a person by words or conduct represents themselves as a partner, they’ll be liable to third parties

Question 6

Who is the principal and who is the agent in a partnership?

Answer 6

Partnership = principal
partners = agents

Question 7

What is apparent authority?

Answer 7

a. act of any partner;
b. for carrying on in the ordinary course of business or business in kind carried out by the partnership;
c. binds the partnership unless:
- the partner had no authority to act AND
- the person with whom the partner was dealing KNEW or had received NOTIFICATION that the partner lacked authority

Question 8

Does it matter that a 3rd party should have known the partner lacked authority to act?

Answer 8

NO only if they actual knew or received notification

Question 9

What % of vote is required to authorize ordinary business?

Answer 9

majority vote

Question 10

What types of liability are partners liable for?

Answer 10

all contracts entered into by a partner in the scope of partnership business or authority of the partnership

all torts committed by any partner or employee within the ordinary course of business

Question 11

What is the nature and extent. of partnership liability?

Answer 11

Joint and several for ALL obligations of the partnership and individually liable for the entire amount of partnership obligations

Question 12

What is the liability of an incoming partner?

Answer 12

an incoming partner is not personally liable for obligations incurred by the partnership before the person became partner BUT their capital contribution can be used for that purpose

Question 13

What is the liability of an outgoing partner?

Answer 13

an outgoing partner remains liable for obligations arising while they were partner unless there has been release, payment, or novation

can also be liable for acts after dissociation - retain liability until actual notice is given to creditors OR 90 days after filing a notice of dissociation with SCC

Question 14

Are partners generally liable for criminal crimes of another partner?

Answer 14

No, unless the partners participated

Question 15

What are the first three steps in a partnership question?

Answer 15

(1) formation
(2) liability
(3) estoppel

Question 16

What duties are owed to partners?

Answer 16

Fiduciary duties: loyalty and care

Question 17

What is the duty of loyalty?

Answer 17

requires that the partner:

1) not make a secret profit
(2) not engage in self-dealing
(3) not compete with the partnership (usurp opportunities

Question 18

Recourse for a breach of duty?

Answer 18

Action for accounting - recoup losses or disgorge profits

Question 19

What is the duty of care?

Answer 19

Refrain from negligent, reckless, or unlawful conduct or intentional misconduct

Question 20

What is partnership property?

Answer 20

everything that the partnership owns, including both capital and property subsequently acquired in partnership transactions

Question 21

Titled property is deemed partnership property if:

Answer 21

1. it is titled to the property
2. it is titled in the name of 1 or more partners and the instrument transferring title notes the titleholder’s capacity as a partner or existence of the partnership

Question 22

When is property PRESUMED to be partnership property?

Answer 22

if it was purchased with partnership funds, regardless of whose name title is held

Question 23

When is property presumed to be partner’s separate property?

Answer 23

(1) if property is held in the name of one or more partners;
(2) the instrument transferring title doesn’t indicate the person’s capacity as a partner or mention the partnership; AND
(3) partnership funds weren’t used to acquire the property

Question 24

What are the rights of partners in partnership property?

Answer 24

a partner isn’t a co-owner and thus has no transferrable interest in specific property of the partnership

Question 25

What is the only property that can be transferred by a partner?

Answer 25

share of profits

Question 26

What is a share of profits?

Answer 26

transferable interest in the partnership which consists of a partner's share of profits, losses, and distributions it is attachable by a creditor and transferable

Question 27

Share in Management

Answer 27

- not personal property and nontransferable | * you cannot sell your right to vote **

Question 28

Right to participate in management

Answer 28

all partners have require rights in management absent an agreement to the contrary - ordinary business = majority vote - outside ordinary business = unanimous consent of all partners

Question 29

Salary in a partnership

Answer 29

default rule - no right to salary except for reasonable compensation for winding up the partnership

Question 30

Partner's share of profits and losses

Answer 30

absent an agreement, profits are shared equally and losses are shared like profits ** profits first **

Question 31

How does dissociation occur?

Answer 31

A partner becomes dissociated from the partnership by: (1) notice of partner's express will to withdraw; (2) happening of an event the partners agreed would cause dissociation; (3) expulsion; (4) bankruptcy; (5) death or incapacity; (6) appointment of receiver; or (7) termination of a business entity that is a partner

Question 32

What is dissociation?

Answer 32

change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business

Question 33

When can a dissociated partner bind the partnership?

Answer 33

within 1 year after dissociation if: (1) the act would have bound the partnership before dissociation; and (2) the other party to the transaction (a) reasonably believed the dissociated partner was still a partner; and (b) did not have notice of the dissociation ** personal notice is required for existing creditors and publication for all others**

Question 34

What is a dissociated partner's liability to other parties?

Answer 34

can be liable for obligations incurred by the partnership within 1 year after dissociation if: (1) when entering into the transaction the other party reasonably believed the dissociated partner was still a partner; and (2) did not have notice of dissociation ** can be cut short by filing a notice of dissociation with State Corporation Commission (after 90 days)

Question 35

What triggers dissolution?

Answer 35

1. partnership at will - notification of any partner to withdraw/dissociate 2. partnership for definite terms - expiration of the term, consent of all partners, within 90 days of partner's death, bankruptcy, wrongful dissociation and at least half the remaining partners vote to wind up 3. agreed upon event happens 4. happening of an event that makes it unlawful for the partnership to continue 5. issuance of a judicial decree

Question 36

Partnership's liability for old business after dissolution?

Answer 36

the partnership and its individual partners retain liability on all transactions entered to wind up old business with existing creditors

Question 37

Partnership's liability on new business after dissolution?

Answer 37

a partnership can be bound after dissolution by any act of a partner appropriate for winding up the business - can be limited to other acts by filing a notice of dissolution with the State Corporation Commission

Question 38

Who can wind up a partnership?

Answer 38

all living partners have a right to participate except those who have wrongfully dissociated and bankrupt partners

Question 39

What is the order of distribution of partnership's assets?

Answer 39

1. pay all creditors (trade creditors/suppliers AND partners who loaned money to the partnership) 2. MUST repay all capital contributions paid into the partnership by partners 3. any money remaining must be shared equally (profits and losses) in the absence of an agreement

Question 40

What is a registered limited liability partnership?

Answer 40

no partner is individually liable for their own wrongful acts or the wrongful acts of those under their direct supervision

Question 41

How to form a registered limited liability. partnership?

Answer 41

must contain the words R.L.L.P., L.L.P., RLLP or LLP and file a statement of qualification with the SCC