Partnership and Alternative Unincorporated Business Organziations

Question 1

What is the definition of a general partnership?

Answer 1

A general partnership is an association of two ore more partners who are carrying on as co-owners of a business for profit.

Question 2

What is prima facie evidence of a general partnership?

Answer 2

Contribution of money or services in return for a share of profits.

Question 3

Are any formalities required for forming a general partnership?

Answer 3

No formalities to becoming a GP. No wrirting or filings.

Question 4

What is the general rule for personal liability of general partnership?

Answer 4

In general, personally liable for all debts of the partnership and for each co-partner’s torts.

Question 5

What about incoming partner liability for pre-existing dbets?

Answer 5

Generally NOT liable for pre-existing debts, but any capital paid into the partnership can be used by the partnership to satisfy prior debts.

Question 6

What about dissociating partner’s liability for subsequent debts?

Answer 6

A withdrawing partners retains liability for future debts until actual notice of its withdraw is given to known creditors and until publication notice is given to all potential creditors.

Question 7

What is general partnership liability by estoppel?

Answer 7

One who represents to a 3P that a general partnership exists will be liable as if a general partnership exists.

Question 8

What duties do general partners own to each other and the partnership?

Answer 8

They are fiduciaries of each other and the partnership. Thus, they owe each other a duty of loyalty.

Question 9

What can the partnership do if a partner violates a duty to loyalty?

Answer 9

Partnership may recover losses that are caused by the breach and also may disgorge profits made by the breaching profit.

Question 10

What are partners’ rights to specific partnership assets?

Answer 10

Land/leases/equipment/etc. are owned by the partnership itself and therefore may not be transferred without partnership authorization.

Question 11

What are partners’ right to share of profits?

Answer 11

Share of profits are personal property of the partner. Thus, they can be transferred.

Question 12

What are partnership rights to share in management?

Answer 12

Asset of the partnership. Illiquid. Can’t be transferred.

Question 13

What is the test to determine if property is owned by the partnership or the partner personally?

Answer 13

Look to see whose money was used to buy the property.

Question 14

What is the general rule for each partners share of management (control) and profits?

Answer 14

Absent an agreement, each partner is entitled to equal control.

Absent an agreement, each partner is entitled to equal share of profits.

Question 15

What is the general rule for partner’s salary?

Answer 15

Absent an agreement, partners get no salary.

Exception: Partner’s do receive compensation for helping to wind up the business.

Question 16

What is the general rule for sharing losses?

Answer 16

Absent an agreement, losses shared like profits.

Question 17

When does a partnership automatically dissolve?

Answer 17

Automatically dissolves upon any material change in the partnership including the death or withdraw of any general partner.

Question 18

What is the partnership’s liability for “old business” when the business is being wound up?

Answer 18

Partnership and the individual GP retain liability on all transactions entered into to wind up old business by satisfying creditors who existed when the wind up began.

Question 19

What is the partnership’s liability for “new business” when the business is winding down

Answer 19

Partnership and individual GP retain liability on brand new transactions during winding up until actual notice of dissolution is given to all known creditors and publication notice is given to potential creditors.

Question 20

What is the order of priority when the partnership’s assets are being liquidated?

Answer 20

(1) Outside creditors must be paid
(2) Inside creditors must be paid (all partner loans)
(3) Capital contributions by partners must be paid or losses.
(4) Profits and surplus if any [w/o an agreement shared equallty.

Rule: Each partner must be repaid his or her loans and capital contributions, plus that partner’s share of any profits or minutes that partner’s share of any losses.

Question 21

What is the definition of limited partnership?

Answer 21

An LP is a partnership with at least one general partner and at least one LP.

Question 22

What is required for formation of an LP?

Answer 22

Unlike a GP, you form one by filing an LP certifcate that includes the names of all the general partnership.

Question 23

What liability and control do general partners have in an LP?

Answer 23

Liable for all LP obligations, but they have right to control the business.

Question 24

What liability and control do limited partners have in an LP?

Answer 24

Limited partners have limited liability. Not liable for limited partnership obligation, but they may not manage the business w/o giving up their limited liability status.

Question 25

What is the definition of a Limited Liability Companies?

Answer 25

Hybrid between a corporation and partnership in which the members have the same exact liability as shareholders plus the benefits of partnership tax status.

Question 26

What are the formation requirements for an LLC?

Answer 26

Must file the article of organization and you may adopt an operating agreement.

Question 27

What control do members have in an LLC?

Answer 27

May manage the business, but also can delegate control to a team of managers.

Question 28

What is limited liability?

Answer 28

A full members may not be transferred without unanimous consent of the members or as provided in the operating agreement.

Question 29

What is limited life?

Answer 29

Company will dissolve upon unanimous consent or as provided in the operating agreement.