Partnership Flashcards
(34 cards)
What are the five partnership areas? (If partnership is on the bar 85% of the time it will be about general partnership formations)
- General Partnership Formation
- Liabilities of General Partners to Third Parties
- Rights and Liabilities Between General Partners
- General Partnership Dissolution
- Alternative Unincorporated Business Organizations
What is a general partnership formation?
- Formalities: No formalities - truly unique among business forms in America - the problem is that you will be called by the law a general partnership even if you dont want to
- Definition: A general partnership is an association of two or more persons who are carrying on as co-owners of a business for profit
- Sharing profits is the key factor, therefore the contribution of money (ie capital) or services in return for a share of profits creates a presumption (use this word) that a general partnership exists (not salary or wage) but profit
What are the Liabilities of General Partners to Third Parties?
- Agency Principles Apply, partners are agents to the partnership for apparently carrying on usual partnership business therefore, the general partnership is liable for each partner’s torts in the scope of partnership business and for each partner’s authorized contracts
Each General Partner is Personally Liable for All Debts of the Partnership and for?
For each co-partners torts; Make them liable (this is the cardinal rule)
Is the partnership liable for incoming partner’s pre-existing debts?
Are generally not liable for prior debts, BUT any money paid in to the partnership by that incoming partner can be used to satisfy prior debts
Dissociating (withdrawing) partner’s liability for subsequent debts
The answer: Dissociating partners retain liability on future debts until notice of their dissociation is given to creditors OR until 90 days after filing “notice of dissocation” with the state
What is General Partnership Liability by Estoppel?
One who represents to a third party that a general partnership exists will be liable as if a general partnership exists (Was on a CO Bar)
Hypo: Paula convinced her friend Peter to start a sailing school and agreed to lend Peter money to purchase a boat for that purpose. At a party, Paula told a wealthy friend: “My partner Peter and I are starting a sailing school and we need a boat.” The wealthy friend offered to sell Paula and Peter a boat and agreed to allow Peter to take it for a test ride the next day. Later that night, however, Peter and Paula fight and decide to drop the sailing school idea. The next day, Peter takes the boat for a ride and tortiously destroys the boat. May the wealthy friend sue Paula for the loss of the boat? (Bar examiners love this fact pattern)
3rd Party tort victim sue Paula (Partner?) for Peter’s (Co-Partner?) tortious activity? LIABILITY
As a rule the general partners are liable for all partnership obligations including, co-partners torts (was the partnership formed) IN THIS CASE, however Paula and Peter never formed a partnership because, their’s was a lending arrangement not based on sharing profits
Nonetheless under estoppel Paula will be liable to that 3rd party tort victim because she did represent to him that she is a partner of Peter's and therefore will be liable as if she were (which means oiable for his tort) The 3 areas of the fact pattern are met: 1. Formation 2. Liability and; 3. Estoppel
What are the rights and liabilities between partners?
General Partners are Fiduciaries of Each Other and the Partnership Therefore, general partners owe to each other and the partnership loyalty which means that general partners may never engage in self dealing and may never usurp partnership opportunities; and may never make a secret profit at the partnership’s expense.
If a partner breaches his duties to the partnership what are the remedies available?
Action for Accounting; May recover losses that are caused by the breach and also may disgorge profits made by the breaching partner as we
What are the Partners’ Rights in Partnership Property and Liquidity?
- Specific Assets - Land, leases or equipment which are owned only by the partnership itself, and therefore may not be transfered by individual partners without partnership authority -They are il-liquid; Liquidity (whether you can transfer)
- Share of Profits - Is personal property owned by individual partners and therefore it may be transferred by individual partners to 3rd parties
- Share in Management - General partners have the right to do so, asset owned only by the partnership itself, and therefore it may not be transferred by individual partners to 3rd parties, Cannot sell your right to vote, cannot leave control to a loved one
- In order to determine whether the fact pattern involves property owned by the partnership or personal property owned by an individual partner, the test is: Who’s money was used to buy the property? -If partnership money used, than it becomes partnership property, if personal money, than it becomes personal property
Hypo: John buys a car in John’s own name with John’s money which John uses in partnership business. John dies. Does John’s spouse Yoko get the car or is it a specific asset of the partnership?
Because John bought the car with John’s own money, it becomes John’s own car, and therefore he may leave that car to Yoko through inheritance
What is the general rule for management of a partnership?
Absent an agreement, each partner is entitled to EQUAL control (vote)
Hypo: A, B and C agree to contribute money and share profits 60-30-10. How do they vote?
This is a trap, WITHOUT AN AGREEMENT ON CONTROL, control is equal, which means one partner one vote and majority vote governs ordinary affairs but unanimous consent is required for fundamental matters
WITHOUT AN AGREEMENT, control is equal (this is the rule)
What is the general rule for salary of a partnership?
Absent an agreement, partners get NO SALARY.
EXCEPTION: partners are entitled to compensation when winding up the partnership
Hypo: A and B are partners. A works 96 hours a week. B sleeps all day. Does A get any salary?
No - WITHOUT AN AGREEMENT, no salary is our default rule
What is the general rule for profits and losses of a partnership?
- Absent an agreement, PROFITS SHARED EQUALLY
2. Absent an agreement, LOSSES SHARED LIKE PROFITS
HYPO: If an agreement is silent on profits and losses?
WITHOUT AN AGREEMENT ON PROFITS, they are shared equally, secondly WITHOUT AN AGREEMENT ON LOSSES, they are shared just like profits, which would be equally as well
HYPO: If an agreement states that “profits are shared 60/40” but is silent on losses. Losses shared?
As adults they may share profits, and WITHOUT AN AGREEMENT ON LOSSES, they are just like profits, which this time would be 60/40 as well
Conversely, if there is an agreement on losses that states they are shared 60/40 and there is no agreement about the sharing of profits, they are shared equally (don’t be fooled here)
Hypo: Partner A puts up all of the money. Partner B does all of the work. Partner C gives the partnership its fine name. Partner D does nothing. How are profits shared?
WITHOUT AN AGREEMENT, Equally
What is the definition of dissolution of the partnership?
IN THE ABSENCE OF AN AGREEMENT that sets forth events of dissolution, *a general partnership dissolved upon notice of the express will of any general partners to dissociate; The real end of the partnership is called termination
When bringing the partnership to an end, what is the winding up stage?
The period between dissolution and termination in which the remaining partners liquidate the partnerships assets to satisfy the partnerships creditors
Old business. The partnership and therefore its individual general partners retain liability on:
All transactions entered into to wind up old business by satisfying creditors who existed when winding up began
New business. The partnership and therefore its individual general partners retain liability on brand new transactions during winding up until:
Notice of dissolution is given to creditors, or until 90 days after filing a statement of dissolution of the state
