Partnership Flashcards
Formation
A partnership is an association of two or more persons to carry on a for-profit business as co-owners
- Sharing of Profits: The key test to determine a partnership exists is whether there is a sharing of
profits from the business; if so, a partnership will be presumed. - Intent: It is not necessary that people have the specific intent to form a partnership.
- Agreement: The only agreement required is the agreement to conduct a for-profit business as
co-owners. No writing is required.
Partner’s Liability (Contracts)
Contract: The partners are liable for all contracts entered into by a partner that are within the scope of partnership business and/or are made with authority of the partnership
Partners are agents
Partner Fiduciary Duties
A Partner owes the partnership and the other partners fiduciary duties of loyalty and care.
Duty of Loyalty
A partner is required to refrain from competing with the partnership business, advancing an
interest adverse to the partnership; and usurping a partnership opportunity or using partnership
property or business to derive a profit, without notifying the partnership
Usurping partnership opportunity
If a business opportunity is presented to a partner that is the type of the business the partnership engages in, the partner must present the opportunity to the partnership; he cannot take the opportunity for himself without first informing the other partners and receiving their permission to do so.
Duty of Care
A partner is required to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law
Profits/Losses
The partnership agreement controls a partner’s rights to share in the partnership’s profits and losses. If there is no agreement, each partner is entitled to an equal share of profits and losses
Management Right
Each partner has equal rights in the management and conduct of the partnership.
A majority of the partners can make a decision as to an ordinary matter of business.
All partners must consent to a matter outside the course of ordinary business.
Partnership Liability
A partnership is liable for a partner’s tortious acts, including fraud, committed in the ordinary
course of partnership business or with partnership authority.
Liability to Third Parties
As a separate entity, a partnership is subject to a lawsuit for its obligations. A partner is jointly and severally liable for all partnership obligations.
Effect of Judgment
A partnership creditor must exhaust the partnership’s assets before taking the partner’s individual assets
Dissolution
A partnership at will is an open-ended partnership that does not have a fixed termination dateor event. It is dissolved when a partner chooses to dissociate from the partnership by giving
notice
Winding Up
A partnership that is dissolved only continues to exist to “wind up” its business.
a. Assets: Creditors have priority over partners to the partnerships’ assets.
b. Obligations: Partnership assets are first applied to pay off obligations to creditors (creditors may include partners who made loans to the partnership) before being distributed to the partners.
LLP- Limited Liability Partnership
An LLP requires paperwork to be filed with the state. A limited partner in an LLP is not personally liable for the obligation of an LLP.
Partnership Outline
1, Formation
2. Relationship of Partners
3. Relationship with Partnership
3. Relationship with 3P
4. Dissolution and Winding Up
5. LLP’s
Partnership Liability (Torts)
The partners are liable for all torts committed by any partner or partnership that are within the scope of partnership business or are made with authority of the partnership
