Partnership Flashcards
(40 cards)
Define partnership.
An association of 2+ persons to carry on as co-owners a business for profit.
How are the debts of a partnership treated re: the individual partners of a partnership?
The debts of the partnership are the debts of the individual partners.
May title of land be held in the partnership’s name and not the individual partners?
Yes.
What rules govern partnership agreements?
Contract rules.
What are the rules re: forming a partnership?
No formalities are required.
The partnership agreement can be express or implied.
A writing is required only if the partnership agreement cannot be performed within a year. If it is greater than 1 year and not in writing, it will be treated as an “at will” partnership.
What are the factors to consider when determining if there is a partnership?
(1) Title to property (in partnership’s name or individual’s name),
(2) How the parties refer to the entity,
(3) Amount of activity involved (the more activity, the more likely it is a partnership),
(4) Sharing of gross returns,
(5) Sharing of profits (= prima facie evidence of a partnership), and
(6) Sharing of losses (absence of an agreement to share losses is evidence the parties did not intend to form a partnership).
What is partnership by estoppel?
Where there is no formal agreement re: partnership, but the parties are held liable to 3rd parties as if they were:
(1) When a person represents herself or permits another to represent her as a partner, she will be liable to 3rd parties who extend credit to the actual or apparent partnership in reliance on the representation; or
(2) When a person holds another out as a partner, he thereby makes that person his agent to bind him to 3rd parties.
*The knowing partners are liable.
What is partnership capital?
The property or money contributed by each of the partners for the purpose of carrying on the partnership’s business.
What are the factors to determine whether property is of the partnership?
The controlling factor: the partners’ intent to devote the property to the partnership purposes.
(1) The source of the funds for the acquisition (weighted),
(2) The use of the property,
(3) Improvement of the property by the partnership,
(4) The relation of the property to the business,
(5) Title to the property,
(6) Treatment of the property in partnership books, and
(7) Payment of maintenance costs and expenses by the partnership.
What are the characteristics of a tenancy in partnership?
(1) Right of possession for partnership purposes,
(2) Not assignable, mortgageable, attachable, or subject to any individual claims on a partner, and
(3) Right of ownership vests in surviving partners.
*A partner has no right to use partnership property other than for the benefit of the partnership.
How is a partner’s interest (i.e. his profits and surplus) in the partnership treated?
(1) As personal property,
(2) Assignable without dissolving the partnership, and
(3) Attachable.
What are the rights of a partner?
(1) Management (an equal right unless otherwise stated in the agreement),
(2) Distributions of profit (shared equally unless otherwise stated in the agreement),
(3) Renumeration (no right to payment for services to the partnership, unless winding up),
(4) Indemnification,
(5) Contribution,
(6) Inspection, and
(7) Lawsuits (generally no right to sue the partnership).
The authority of a partner to bind the partnership when dealing with 3rd parties is governed by the law of?
Agency.
When is unanimous consent required by the partners?
(1) To authorize a submission to arbitration,
(2) Assignment for the benefit of the creditors,
(3) Confession of judgment,
(4) Disposition of the partnership’s goodwill, and
(5) To engage in business other than that contemplated by the partnership agreement.
How is title of real property conveyed in a partnership?
If title is held in the partnership name, title may be conveyed in the partnership name by any one partner.
If title is held in the name of some, but not all, of the partners, conveyance by the titleholders in their own names is effective.
If title is held in the name of all partners, only a conveyance by all of the partners is legally allowed.
When is a partnership held liable for a partner’s fraud on a 3rd party?
When a partner, acting within the scope of a partnership, defrauds a 3rd party.
If the fraudulent act involves a transaction outside the scope of partnership, the partnership will not be held liable.
When are partners liable for torts committed by a partner or employee of the partnership?
If it was done during the course of the partnership business.
What is the extent of a partner’s liability for the debts of the partnership?
Each partner is personally and individually liable for the entire amount of partnership obligations, but a creditor must first exhaust partnership assets before levying against a partner’s individual assets.
What is the liability of an incoming partner v. a retiring partner?
A retiring partner generally remains liable for all partnership obligations incurred while he was a partner.
An incoming partner generally has no liability for obligations incurred before she became a partner, except to the extent of her capital contribution.
When are partners liable for the criminal acts of other partners?
Only if they participated in the commission of the crime as principals or accessories.
How may a partnership be dissolved?
Acts of the partners:
(1) Per partnership agreement,
(2) Mutual assent of partners,
(3) Expulsion of partner, or
(4) By will of partners.
Operation of law:
(1) Illegality,
(2) Death of partner, or
(3) Bankruptcy of partner or partnership.
Decree of court:
(1) Breach of partnership agreement by partner,
(2) Unprofitability of partnership,
(3) Misconduct of partner,
(4) Incompetency of partner,
(5) Incapability of partner, or
(6) Circumstances rendering dissolution equitable.
How does a partnership terminate the apparent authority of partners to bind the partnership after dissolution?
Property notice is required to those who are creditors at the time of dissolution and to those who have extended credit to the partnership in the past. Failure to give notice binds partners personally to third parties who, without the notice, extend credit to the partnership.
Old business v. new business.
Re: winding up.
After dissolution, but before termination, the liquidating partners can bind the partnership in transaction winding up old business, but not in transactions constituting new business.
Old business examples:
(1) Selling partnership assets,
(2) Performing contracts made prior to dissolution,
(3) Collecting debts due,
(4) Compromising claims, and
(5) Paying off creditors.
New business examples:
(1) Extending time on credit,
(2) Entering into new contracts, and
(3) Increasing any obligation of the partnership, even by one cent - except necessary contracts to wind up the business (hiring an accountant).
What is the order for distribution of assets after dissolution?
(1) Outside creditors,
(2) Partners’ advances,
(3) Partners’ contributions to capital, and
(4) Surplus or profits.
