Partnership 2018 Flashcards
(97 cards)
1
Q
What is a partnership?
A
An association of 2 or more persons to carry on as co-owners a business for profit.
2
Q
When is a partnership formed?
A
when the elements are met, there is no filing requirement and it doesn’t require a written agreement.
can form partnership even if you don’t intend to.
3
Q
Is there any liability for the partners of a general partnership?
A
No, all general partners are not protected from liability. Each partner is liable for the other partners and the partnership.
4
Q
What is the relationship between the partners?
A
each partner is an agent and principal of the other partners and the partnership. an act by a partner binds the other partners and the partnership
5
Q
What is required to form a limited liability entity?
A
- file a certificate of formation with SOS
- pay SOS fee
- file annual reports
6
Q
What entities are required to file a certificate of formation?
A
corporations, limited partnership, limited liability company, professional association, cooperative, or real estate investment trust
7
Q
when does a limited liability entity begin to exist?
A
when the SOS files the certificate of formation.
8
Q
What is a business?
A
trade, occupation, profession or commercial activity
9
Q
What is a partnership agreement and what effect does it have?
A
it regulates the operation and management of the partnership. It binds the partners but it is not binding on people who are not parties to the agreement.
10
Q
What are the restrictions or limitations of partnership agreements?
A
- can’t restrict partners access to books and records
- can’t eliminate duty of loyalty
- can’t eliminate duty of care
- can’t eliminate obligation of good faith
- can’t vary the power to withdraw
- can’t prevent a court from expelling partner
- can’t restrict rights of third parties
- can’t select a governing law that is not permitted
11
Q
What are the elements of a partnership?
A
- association - must be voluntary
- 2 or more persons - can be corporation or person
- as co-owners - each must have true ownership
- in business for profit - has to be for profit but they don’t have to be profitable
12
Q
How are new partners added?
A
with consent of all partners unless they have agreed to a different procedure in partnership agreement.
13
Q
What is the key to ownership?
A
- control - it’s the biggest ownership right (prima facie evidence in UPA, only factor in TBOC)
- share profits
- express intent of partners
- agreements to share losses or liabilities
- agreement to contribute money
don’t need all factors and no factor is dispositive
14
Q
what is the key to business
A
series of acts directed towards an end, passive ownership of property or asset not enough
15
Q
Is a partnership an aggregate entity?
A
UPA - yes, a partnership is an aggregate of the partners
TBOC - no, a partnership is a separate entity
16
Q
How are partnerships taxed?
A
pass through taxation, the partners are taxed individually the partnership is not.
17
Q
what is partnership property?
A
- property brought into the partnership or acquired by the partnership
- property acquired with partnership funds
- real estate can be acquires and sold in the partnership name
- does not include partner’s property even if partner allows it to be used for partnership business.
18
Q
What law governs the partnership?
A
state of formation or it’s central district.
19
Q
how are profits distributed?
A
evenly between partners unless otherwise provided in partnership agreement
20
Q
How do you determine if a partner’s property belongs to the partnership or is just being used by the partnership?
A
UPA - use facts to determine intent
TBOC - if title not transferred to partnership the default is it belongs to the partner
21
Q
What is paid first when dissolving a partnership?
A
- debts of the partnership
partnership creditors - partnership interests is returned to partners
- residual is distributed to partners based on ownership percentage or agreement
- losses are shared equally if there is no profit
22
Q
What is a partner’s right to partnership property
A
- owns it with other partners, not individually
- can use for partnership purposes
- can’t assign without consent from partners
- can’t attach unless debt is for partnership
- partners interest in the partnership is separate individual property
23
Q
Does owning an interest the partnership give the partner an interest in the partnership property?
A
no, it belongs to the partnership and must be used for partnership purposes. even if the partner gave it to the partnership.
24
Q
Can a partner transfer his interest in the partnership?
A
yes, he can transfer his interest but not his management rights. Needs consent of the partners to transfer management rights.
25
What is the difference between majority of partners and majority of interest?
Majority of partners consists of over 50% of the partners, majority of interest consists of over 50% of partnership interest. They can be the same if there equal ownership but different when there is unequal ownership distribution.
26
How can a partnership agreement be amended?
by consent of all the partners unless otherwise provided for in the partnership agreement.
27
what is required to make decisions on behalf of the partnership?
majority consent for normal decisions, decisions outside the scope of business require unanimous consent.
28
Are the other partners and the partnership bound by all acts of a partner?
yes, if the partners is acting within the scope of authorization or the third party has reason to believe the partner has the authority to act on behalf of the partnership and the act is part of the ordinary course of the partnership's business.
29
Who decides a partner's authority to conduct the partnership's business in the usual way?
A partner can decide because he is a principal and an agent. As a principal he gives himself authority and as an agent he uses the authority to conduct business on behalf of the partnership. Doesn't require additional consent if it is the normal course of business.
30
What happens when partners disagree on partnership business or scope of authority?
TBOC - majority in interest prevail
| UPA - majority of partners prevail
31
What is required to go against the partnership agreement or do something outside the scope of the partnership business?
unanimous consent of the partners.
32
What is considered extraordinary business?
not party of usual scope of business, includes selling property or major assets, requires consent of all partners unless provided for in partnership agreement.
33
How is apparent authority applied to partners?
Under UPA - Partners have apparent authority to conduct business with third parties if it is the usual course of business and third party has no reason to believe partner does not have the authority.
34
How is power of position applied to partners?
TBOC - to determine authority courts look at:
1. the way the partnership operated in the past
2. the way similar partnerships in that industry operate
35
How is partnership by estoppel applied?
partner believes he has authority
third party believes he has authority
they have done this before
both rely on past authority to enter transaction
transaction is valid even if other partners object after the fact.
36
can the partners remove or override a managing partner?
most partnership agreements allow for partners to remove or override a managing partner by vote. a unanimous vote is required if not provided for in partnership agreement.
37
Test for partnership by estoppel
if A
represents that A&B are partners or consents to someone representing A&B are partners
if T
hears representation and gives credit based on it
or
the representation is made in public and T gives credit based on it
38
Does a partnership dissolve if the partners end the partnership but do not finish winding it down?
no, it continues to exist as long as they continue to use the partnership name. It terminates when they finish winding it down.
39
Can a person be a partner if he is represented as such and doesn't know he is being represented as such?
No, the person must consent to someone representing him as a partner.
UPA - There is no duty to disclaim a partnership interest by if it is easy to deny he must deny it or the court can find he is a partner.
TBOC - there is a duty to take reasonable steps to deny partnership.
40
What is the actual authority of partners?
they have the right in equal management and operations of the partnership business. They have the authority to bind the partnership and partners.
41
Can partners delegate their authority and duties?
Yes, partners can contract away their duties or authorities in the partnership agreement. The agreement may be modified by consent of all partners to change the partner's duties as needed.
42
When does a person have notice of a fact?
1. has knowledge of the fact
2. received communication about fact
3. can reasonably conclude the fact from known facts
43
What is knowledge?
UPA - actual knowledge and bad faith
RUPA - actual knowledge
TBOC -knowledge and actual knowledge
44
Are partners trustees?
No, partners have the right to further their own interests and are not bound by the fiduciary obligations of a trustee.
45
Do partners have a duty of loyalty?
Partners can look out for their own interests but are still bound by the duty of loyalty. They can't steel business opportunities, self-deal, or appropriate partnership property for personal use.
46
When does the duty of loyalty begin?
Duty of loyalty starts when the partners agree to an association for the purpose of doing business. they don't have to create the partnership and draft the partnership agreement, the partnership is formed when they meet the elements through their actions.
47
How do you determine if a partner and stolen a business opportunity from the partnership?
1. did a business opportunity exist
2. did the opportunity belong to the partnership
3. did the partner use partnership resources to get opportunity
4. did the partner learn of the opportunity while engaged in partnership business
5. did the partnership have a chance to turn down the opportunity
48
If the partnership is dissolving, does a partner breach the duty of loyalty by soliciting the partners?
no, the partner is free to present a new business opportunity to his partners.
49
When a partner is leaving a partnership can he solicit employees and clients?
only if he gives notice to the partnership and the partnership is given a fair opportunity to retain the employees and clients. The partner can't take advantage of an unfair business advantage.
50
what are the 3 most common breaches of duty of loyalty?
1. stealing partnership opportunities
2. self-dealing
3. appropriating property for personal use.
51
when is self-dealing ok?
when partner discloses all material facts, the deal is fair to the partnership and all partners agreed. Burden is partner to prove compliance with the elements.
52
Does the duty of loyalty only apply during the partnership?
No, it also applies before formation, during formation and during dissolution.
53
Can partners contract to eliminate the duty of loyalty?
No, they can modify the duty of loyalty within reason but they can't eliminate it with the partnership agreement.
54
What are the defenses to stealing business opportunity?
1. partnership rejected opportunity
2. opportunity too expensive
3. not in the normal scope of business
4. was found through independent knowledge
55
What is a partner's duty of care?
must exercise ordinary skill
| use the business judgment rule
56
what is the business judgment rule?
A partner must use ordinary care of an ordinary prudent person when making decisions for the partnership.
1. no conflicts
2. in good faith
3. duly informed
4. partnerships best interest in mind
57
Can a partner request access to the books and records?
Upon reasonable request a party has the right to request access to the books and records of the company. The right cannot be taken away in the partnership agreement.
58
What is material?
enough to induce a decision or change of circumstances, information a person would want to know to make a decision.
59
what is the duty of good faith and fair dealing?
A partner's duty to be honest, not take advantage and to act fairly. TBOC applies it to all transactions.
60
Can creditor go straight after partners or must he exhaust partnership assets first?
UPA & TBOC don't require partnership assets to be exhausted. TBOC does a have 90 day waiting period before creditor can go after partners.
61
What is exhaustion?
A doctrine that requires a plaintiff to exhaust all of one defendant's assets before going after the other defendant's assets.
62
Is the partnership vicariously liable for a partner's torts?
yes, if partner acts in scope of authority.
UPA - 3rd party can sue partners
TBOC - 3rd party can sue partners or partnership
63
Are partners protected from torts of the partnership or the other partners?
No they are jointly and severally liable under UPA & TBOC.
Partners with clean hands can sue for indemnification from the partners or partnership.
64
Are partners allowed to sue each other regarding torts from partnership related business?
UPA - no, contributory negligence is imputed on all partners because they are co-principals
TBOC - yes, they can sue each other
extraordinary action that requires unanimous consent
65
Are partners allowed to sue each other regarding contracts from partnership related business?
UPA - partners are jointly liable, must obtain an account before filing suit
TBOC - partners are jointly and severally liable, no accounting required
extraordinary action that requires unanimous consent
66
Is the partnership liable if a partner misapplies 3rd party funds?
yes, if the partner acted in scope of authority and 3rd party has reasonable belief partner was acting in scope of authority.
67
What is required for a partner to obtain an accounting?
either:
1. dissolution
2. the partner is excluded from the business
3. there is self-dealing
4. by agreement
5. a court order
68
Can partners file a derivative suit?
No because they are active owners not passive investors.
69
Can partners suit third parties in their individual capacity.
Yes, but if the other partners disagree the partner must get a majority in interests to approve
70
Do personal creditors have a right to partnership property?
No, they only have access to the partner's interest because it is partner's personal property. They do not get management rights, are not owed fiduciary duties, have no right to seek judicial dissolution and can't request information.
71
Does the partnership terminate when a partner withdraws from the partnership?
UPA - yes, ceases to exist because of aggregate theory, it terminates and partners can form a new entity
TBOC - no, it can continue to exist because it's a separate entity, if the partner holds a majority in interest it can lead to termination.
72
What is the difference between dissolution and termination?
Dissolution begins the process of winding up, ending the partnership's existence
termination is the event that occurs after winding up, it actually ends the partnership's existence.
73
Does a withdrawing partner have a right to demand a judicial sale?
Yes, he can demand a judicial sale of the assets and return of his investment. The other partners also have the ability to buy him out without a judicial sale.
74
What are the four ways a partnership can dissolve?
1. with or without a breach
2. completion of the term
3. express will
4. voluntary decision to windup
75
What happens when a partner withdraws in breach of the agreement?
He is allowed to withdraw but can be held liable for breaching his obligations under the agreement.
76
What is completion of the term?
when a purpose of the partnership is accomplished and the partnership terminates based on the agreement.
77
What happens when a partner dies or declares bankruptcy?
UPA - partnership terminates
TBOC - simple withdraw of partner, partnership continues to operate unless majority in interest decides to wind up and terminate
78
Can winding down be canceled?
yes, within 1 year if the process is not complete and all partners decide to continue the partnership.
79
How long does actual authority last after termination?
it terminates immediately.
80
How long does apparent authority last after termination?
it can last until third parties have notice or knowledge of the termination if the third party has transacted with the partner within the last year.
81
what happens to a withdrawing partner's interest if the partnership continues to operate?
he can be bought out, continuation clauses can be included in the agreement, he can negotiate the terms of his buyout, they can enter into a buy sell agreement
82
Is the withdrawing partner still liable for the debts and liabilities of the partnership?
Yes, dissolution doesn't end the debts and partners are still personally liable.
TBOC - partners can remain liable for 2 years after withdrawal
83
Are new partner's liable for old partnership debt?
UPA - yes unless otherwise agreed
| TBOC - no unless otherwise agreed
84
What is a limited partnership?
a partnership that is registered with SOS
has full liability for general partners
has limited liability for limited partners (passive investors)
governed by LP agreement
85
What is a limited liability company?
```
company registered with SOS
pass through taxation
owners are members - have limited liability
can be managed by members or managers
similar to corporation
```
86
What are the Kinder regulations
1. continuity of life
2. freely transferable
3. centralized management
4. limited liability
87
What is a limited liability partnership?
a partnership registered with SOS
limited liability for all the partners - full shield
limited partner can control actions of the LLP without losing limited liability
must file annual reports
88
In a limited partnership, can a limited partner lose his limited liability?
yes, if the limited partner takes part in the management of the company or gives third party a reason to believe he is a general partner.
89
can a limited partner's promise to contribute be enforce?
yes, the obligation can only be released by the other partners.
90
Are there limited to distributions to the partners?
yes, distributions cannot exceed the assets of the limited partnership.
91
Do the limited partners have fiduciary duties and obligations?
partnership law applies to the partnership and the partners so the fiduciary duties and obligations are the same.
92
How are losses and profits distributed?
The default rule is they are distributed based on the ownership percentage.
93
Do members and managers of a limited liability company have fiduciary duties and obligations?
yes, partnership law applies to LLCs and the member and managers have the same fiduciary duties and obligations.
In theory fiduciary duties can be eliminated by contract.
94
What is the primary requirement for all managers of a professional limited liability company?
they must have a license in the company's particular profession to be members.
95
What is a professional limited liability company?
an LLC created to conduct business in a particular profession
96
what are the limits on services for a professional limited liability company?
they can only provide one type of professional service
97
Who bears liability in a PLLC?
the PLLC is liable, the owners, managers, or employees are not liable for the PLLC but may be liable for their own individual torts.
