Partnership Basics Flashcards
(43 cards)
Partnership: general partnership?
Association of two or more persons to carry on as co-owners of a business.
Applies regardless of whether they intend to form a formal partnership.
Important Factors:
- Capital (not required though)
- Control (right to control, not actual exercise of the business)
- Sharing Profits (not required )
No writing required unless statute of frauds requires one
Partnership: joint venture
similar to partnership, but just for one task
Partnership: partnership by estoppel
If no partnership was actually formed, parties may still be liable as if they are partners to protect reasonable reliance by third party
Partnership: determining partnership property vs an individual partner’s property
Is partnership property: if acquired in partnership’s name or a partner’s name where it is apparent from the document that he is acting for a partnership
Presumed to be Partnership Property: if partnership funds are used
Presumed to be Individual Partner’s Property: if acquired in individual partner’s name without partnership funds and there’s no sign he is acting for a partnership.
Partnership: effect of property being the partnership’s vs. an individual partner’s?
If individual partner, he can do whatever he wants with it (use it, pledge it as collateral, sell it, satisfy personal creditors, etc.)
If partnership property, can only use for partnership purposes (right is not transferable)
Partnership: What is a partner’s economic interest in the partnership?
Partner’s share of the profits.
It is transferrable.
No right to compensation unless winding up affairs at end of life cycle.
Community property if acquired during the lifetime.
What typically dictates profits and loss?
Division of profits and losses is dictated by the agreement.
Partnership: If one partner agrees that she will not bear any loss, is she free from liability to a third party?
No, partners cannot limit a third party’s rights without the third party’s consent.
BUT, the agreement will be valid among the partnership.
Partnership: management rights of partnerships
Unless otherwise agreed, partners have equal management rights.
But, under ordinary business, majority in interest (profit share) makes management decisions.
Partnership: duties owed among general partners
Duties of care, loyalty, and good faith
They may be eliminated, except for duty of loyalty.
Partnership: Do other partners owe indemnification and interest to a partner who pays out on a partnership debt?
Yes, with interest.
Partnership: admitting new party?
Unless otherwise agreed, adding a new partner requires unanimous consent.
If new partner is admitted, partner is only personally liable for debts incurred after he was admitted.
agency law in general partnerships and contracts?
Partnership is principal; partner is the agent.
Actual Authority: created by partnership agreement, majority vote of partners, or the statute (*which makes every partner an agent when carrying on business the usual way (unless negated by other partners))
Apparent Authority: look at partner’s title and prior conduct
If no authority at time of K, partnership may adopt/ratify
agency law work in general partnerships and torts
To make partnership liable for torts committed by partner or employee, the tort must have been committed in the ordinary course of the partnership’s business.
What if partner accidentally conveys real property without actual authority?
Partnership can get the property back from the intial transferee (who should have checked on authority), but not subsequent bona fide purchase (who had no reason to check)
Partnership: partner’s personal liability for partnership obligations
Joint and severally liable, but first must exhaust partnership resources.
winding up a partnership
- Triggering event: e.g. all partners consent or majority-in-interest of partners consent in a partnership at will (rare: business becomes illegal, assets sold outside the usual course of business, judicial decree, term is completed)
- Partners who have not wrongfully withdrawn may wind up
- May be apparent authority to bind innocent third parties on new business even after the event requiring winding up (but partnership can protect itself by notifying potential creditors)
How are Distribution of partnerships assets on winding up
- to creditors (including partners who are creditors) pro rata (proportional)
- to partners for what is in their capital accounts (contributions + profits - losses)
What if partnership assets are insufficient to cover liabilities?
- Creditors split the remaining assets pro rata
- Partnership must pay for the rest in the same proportion they bear profits, unless otherwise agreed.
Partnership creditors have priority over a partner’s creditors on partnership property and equal claims on a partner’s separate property
When is a leaving or entering partner liable for partnership debts?
Entering: debts accrued by partnership only after he became a partner
Leaving: debts accrued by partnership only before he left the partnership
Who may form partnership: individual or company
- person with capacity to contract
- legal entities, such as corporations, LLCs, trusts, etc.
How does liability work for a partnership?
- Separate Legal Entity
- Distinct from each of the partners who are part of the partnership.
- The partnership can hold property and sue and be sued in its own name. - Partnership liability
- Partners are personally liable for partnership obligations.
- No limited liability
How does taxation liability work for partnership?
No entity-level taxation
o A corporation is taxed as a business; investors are also taxed when money is paid out
o A partnership is not taxed as an entity; partners are taxed when money is paid out
What is a partnership agreement and what happens if one does not exist?
partnership agreement is the law governing the relationship.
State partnership law will govern
*but partnership agreement will govern if in conflict (except see exceptions slide)
