Partnership- FORMATION OF A GENERAL PARTNERSHIP Flashcards
(24 cards)
How is a General Partnership formed?
A partnership is formed as soon as two or more persons associate to carry on as co-owners a business for profit, regardless of whether the parties subjectively intend to form a partnership. No state filing or other formalities are required.
Is a partnership formed if the parties did not intend to be partners?
Yes it is a partnership regardless of whether the parties subjectively intend to form a partnership
What if the partners do not file with the state that they have a partnership?
It is still a general partnership. No state filing or other formalities are required.
Mikey and Ikey start a bakery. They split the profits and jointly make decisions for the business. They do not call themselves partners; in fact, they do not even know what a partnership is. Have they formed a general partnership? Why or why not?
Yes. They are two or more persons who are carrying on, as co-owners, a business for profit. Their subjective intent to form or not form a partnership is irrelevant. The only question is whether the circumstances meet the definition of a general partnership.
Mikey and Ikey start a bakery. They split the profits and jointly make decisions for the business. They do not call themselves partners. What if they both sign a piece of paper saying “We are not partners,” and they repeat that one hundred times?
Yes, they are general partners. Subjetive intent is irrelevant.
What is the most important factor in deciding whether an association rises to the level of a partnership?
The most important factor in deciding whether an association rises to the level of a partnership is the sharing of profits.
Is a person who receives a share of the profits a partner?
Generally yes, a person who receives a share of the profits is presumed to be a partner
What 4 instances is a person who receives a share of profits not a partner?
The person is not a partner if the profits were received in payment:
(1) of a debt;
(2) as wages or other compensation;
(3) as rent; or
(4) as interest on a loan.
Sam has loaned money to the bakery of Mikey and Ikey. He is to receive 10% of the profits until the loan is paid off. Is there a presumption that Sam is a partner?
No, it is payment of a debt, this rebuts the presumption
What if Sam was getting 10% of the gross returns of the business (as opposed to the profits)?
The sharing of gross returns does not by itself establish a partnership (has to be profits)
What is the second most important factor with regards to if there is a general partnership or not?
is the person’s right to participate in the control of the business (even if control is never actually exercised).
If there is profit-sharing, and therefore a presumption of partner status, how can one can try to rebut that presumption?
with evidence suggesting the lack of a co-ownership relationship, such as no right to control or no sharing of losses (something that owners would typically share).
What are the two most important factors in determining if a general partnership exists?
- The sharing of profits
2. The right to control the business.
When will partnership require a writing?
Partnership does not require a writing, but the statute of frauds may.
Ice T and Ice Cube form a partnership to record several rap albums. Is a writing required?
No.
Ice T and Ice Cube form a partnership to record several rap albums where they agreed that the partnership was to last for two years. Is a writing required?
Yes, the contract is for over 2 years and the statute of frauds requires a writing.
What is partnership by estoppel?
If no partnership was formed in fact, parties may still be liable as if they were partners to protect reasonable reliance by third parties.
Grace applies to Citbank for a loan. Will lets Grace say that he is her partner, even though he is not. Is Will liable to Citibank if it loans money to Grace based on the statement? Why or why not?
Yes .Will let Grace hold him out to the bank as her partner, so it is only fair to hold Will liable to the bank as if he really were her partner.
Grace applies to Citbank for a loan. Will lets Grace say that he is her partner, even though he is
not. Can Citibank recover from Grace?
Yes, the person who does the holding out is liable too.
Grace applies to Citbank for a loan. Will lets Grace say that he is her partner, even though he is not. Can Grace’s other creditors recover from Will based on the statement?
Only if they too relied on the statement. It is on a creditor-by-creditor basis.
Is a partnership agreement necessary to form a general partnership?
No, no formal agreement is necessary.
What does partnership law allow partners to do in a contract?
partnership law allows the partners to contract around almost all of the statutory provisions. Look for an agreement first, and then fall back on the statutory default rules in the absence of an agreement.
How can a partnership agreement be manifested?
partnership agreement may be written, oral, or implied (e.g., by conduct).
Does a partnership have entity status? When?
Once formed, a partnership is considered to be a legal entity distinct from its partners.
