Partnerships Flashcards
(92 cards)
1
Q
What is RUPA?
A
Revised Uniform Partnership Act – governs business partnerships in the U.S.
2
Q
Does a partnership involve an agency relationship?
A
Yes – there is a fiduciary relationship among all partners and between each partner and the partnership, so each partner can act as an agent for other partners or for the partnership
3
Q
Who has the capacity to be a partner?
A
Anyone who has the capacity to contract
This includes infants, though the same rules for contracts apply (i.e. they are often voidable)
4
Q
When would an infant be unable to withdraw from a partnership?
A
Insofar as a partnership is liable to a creditor(s)
Infants’ liability is limited to their contribution
5
Q
Can a corporation become a partner?
A
Only if state law permits
6
Q
Can a partnership become a partner of another partnership?
A
Yes, so long as all partners consent to it
7
Q
What does it mean to say that a partnership is a separate legal entity?
A
Property acquired by the partnership belongs to it as a whole, not to any individual partners
8
Q
What makes a partnership to be established as a separate legal entity?
A
If the partnership has the status of “employer” for workers’ compensation, then it is recognized as a separate entity
9
Q
How is a partnership usually taxed?
A
NOT as a separate entity – partners are individually taxed according to their share of profit or loss (irrespective of any transfers of property within the partnership)
10
Q
Is writing needed to establish a partnership?
A
Not necessarily – only as the Statute of Frauds requires
11
Q
What is included in the articles of a partnership?
A
- name of partnership
- names/addresses of partners
- date partnership becomes effective
- intended duration of partnership
- description of partnership activity
- procedure to admit new partners
- how to share profits, losses, and interest on capital
- rights and duties of partners
- procedure to dissolve partnership, including distribution of surplus
12
Q
What must be done if a partnership is formed under a fictitious name (i.e. a name besides an actual person)?
A
A certificate must be filed with the state’s secretary of state
Must list names and addresses of partners
13
Q
Can a partnership still exist without having filed the appropriate certificate to the secretary of state?
A
Yes – it is not strictly required for existence, but the partnership can still be fined for noncompliance
14
Q
Does the sharing of revenues establish a partnership?
A
No, it must also be established that they were not received as payment or consideration for something else
15
Q
Does joint ownership establish a partnership?
A
No, even if the co-owners share profits through the shared property
16
Q
What else does not establish a partnership?
A
Different people contributing capital to a single enterprise
Designating a business as a partnership
17
Q
What is sufficient to determine what establishes a partnership?
A
Whether the parties intend to carry on, as partners, a business for profit – intending joint responsibility in running the business and profit- and loss-sharing
18
Q
What occurs if a partner falsely presents another person as a partner, and that person then enters into agreements with a third party?
A
The fake partner can bind the actual partner into agreements with the third party – he is effectively an agent
This applies also to any other real partners who consented to the false presentation
19
Q
What is a general partnership?
A
An ordinary partnership which consists solely of general partners
20
Q
What is a limited partnership?
A
A partnership with at least one general partner and at least one limited partner
Created through the Revised Uniform Limited Partnership Act (RULPA)
21
Q
What is the difference between a general partner and a limited partner?
A
General partners share in running the business and the profits, but have unlimited liability
Limited partners contribute capital without helping to run the business, and have limited liability
22
Q
What is a silent partner?
A
A partner with unlimited liability who nonetheless takes no part in running the business
23
Q
What is an ostensible partner?
A
Someone who is not officially a partner but who, because he acts like one, could become a partner by estoppel
Also called a nominal partner
24
Q
What is a dormant partner and a secret partner?
A
Dormant = partner who has the right to run the business but remains undisclosed and inactive
Secret = partner who is involved in running the business but remains undisclosed
Both partners, upon disclosure, attain unlimited liability
25
What is a limited liability partnership (LLP)?
A partnership where the general partners themselves have limited liability
26
Given that the partnership itself has property rights in the property it acquires and owns, what are the property rights of the partners themselves?
Their property is (1) the interest in the partnership and (2) the right to participate in running the partnership
27
What generally does NOT serve to indicate that property is owned by the partnership?
(1) the title is held in the partnership's name
| (2) the property was improved by partnership funds
28
What generally does serve to indicate that property is owned by the partnership?
(1) the property is used in the business
| (2) it is tied with the partnership's operations
29
How are profits and losses shared by partners?
Unless specified, profits are equally shared, even if capital is contributed unequally
And unless specified, losses are shared however the profits are
30
Can a partner's interest in the partnership be assigned to someone else?
Yes, but this assignment would consist only of the rights to profit and capital -- it would not make the assignee a partner or make the assignor a non-partner
Assignor is still liable for partnership debts
31
Can the creditor for a partner make claims upon partnership assets?
No, at most he can make claims against the partner's interest in the partnership
32
How do partners have rights to manage the partnership?
Barring an agreement to the contrary, all partners have equal rights to manage/operate the business
33
How do partners have rights to use partnership property?
Each partner has rights to use partnership property for the sake of the business
This right is not part of the partner's interest in the partnership, so it is not assignable, claimable by creditors, etc.
34
Can a partnership agreement waive the partners' duties of loyalty and care to the partnership?
No, though they can provide ways to measure those duties
35
What are some things which RUPA forbids a partnership agreement from doing?
- unreasonably restricting partners' access to records
- changing requirements for filing partnership statements
- permitting negligence by partners (i.e. reducing their duty of care unreasonably)
- removing the duty of good faith & fair dealing
- removing a partner's right to withdraw at any time
- changing the rights of partners to have the partnership dissolved
36
What happens if a partnership does not have a particular rule (or any rules) outlined in its agreement?
RUPA has default rules which apply
37
What is the default rule for how partners' votes settle matters?
A majority vote is needed to settle ordinary business affairs, but unanimity is needed to change or circumvent the agreement
38
What is the default rule regarding partnership dissolution and capital repayment?
Partners are entitled to be repaid whatever capital they contributed to the business
39
What is the default rule for partners' compensation?
Partners are not entitled to compensation besides their share of the business's profits
Exception: a surviving partner can receive compensation for what he did to wind up various partnership affairs
40
What is the default rule for a partnership's storage of information?
Books and other info should be kept at a central location agreed upon by (and accessible to) the partners
For unwritten info, a partner is entitled to receive full info from other partners (for partnership matters) upon request
41
What is the main remedy available to a partner against other partners?
Lawsuit (i.e. suit in equity) for the partnership's dissolution
42
Are lawsuits allowed to be done between a partner and his partnership?
They are, but they are usually forbidden since a conflict of interest is created -- since the suing partner still has a duty of loyalty to his partnership
43
Under what circumstances are lawsuits permitted between a partner and his partnership?
If there is no complex accounting required, and/or if the partner's relevant activity (related to the suit) is not related to the business
44
What authority does a partner have to bind his partnership to a course of action?
The same authority which an agent has for his principal -- it depends on what powers he is delegated according to the partnership agreement and subsequent decisions made by majority vote
45
If not specifically authorized, what are partners not ordinarily permitted to do on behalf of the partnership?
(1) assign partnership property in trust in order to pay off creditors
(2) anything which would make it impossible for the business to continue (e.g. disposing of goodwill)
(3) confess a judgment
(4) submit a partnership's liability or claim to be arbitrated
46
Can a partner's authority to represent the partnership be revoked?
Yes, it can be revoked by majority vote just like any other decision
47
If notice has to be given to a partnership, does it have to be given to all partners?
No, only to one partner -- this notice is then imputed to other partners
48
If one partner has knowledge about something, can another partner be held responsible for having the same knowledge?
Yes, knowledge of one partner is imputed to the rest
This does not apply to knowledge a partner gains when committing fraud, or to knowledge gained before a person becomes a partner
49
What liability do partners have in a general partnership?
They are jointly and severally liable for all contracts, torts, and fraud chargeable to any other partner, so long as the charge relates to that partner's activity within the business
This means each partner is liable for the whole amount, though partners can also then have rights to repayment from other partners
50
Are inactive partners still liable for the partnership's activities?
Yes, all de facto partners are
51
Is a partner who joins a partnership liable for claims against the partnership which arose before his entrance?
No -- his contributed capital can be used to repay them, but he does not have normal liability for this (i.e. he has limited liability)
52
Can a partnership sue an outside party for tort if that party injures a partner?
Not ordinarily -- the partner himself must sue the outside party
53
What must occur if a partner dissociates from the partnership?
His interest must be bought out or the whole partnership must be dissolved and terminated
54
Is a partnership terminated immediately upon dissolution?
No, the business still needs to "wind up"
55
If a partnership is formed at will, can a partner dissociate under any circumstances?
For the most part -- the partner can dissociate even if it causes loss to the business, even though he must still act in good faith (e.g. he should not dissociate IN ORDER TO cause substantial loss to the business)
56
What occurs if a partner attempts to dissociate from a partnership without having rights to do so?
It still counts as a true dissociation, and the partner is entitled to his interest, but he is liable for any losses he causes
57
What are actions of a partner that could serve as evidence of his intent to dissociate?
(1) assigning his partnership interest to a third party
| 2) levying a charging order on his interest (i.e. giving it to a creditor to settle a debt
58
What automatically causes a partner to be dissociated from a partnership?
His death, bankruptcy, or incompetency -- unless the partnership agreement provides otherwise
59
Can a court order a partnership to be dissolved?
Yes
- if a partner has been declared insane or incompetent
- if a partner has persistently breached his duties
- if the partnership can only generate a loss
- whenever the court deems it equitable
60
Can a court order a partnership's dissolution due to a charging order?
Yes -- this normally involves accounting for each partner's interest, contributions, etc., and then selling the partnership assets to distribute the proceeds appropriately
61
If a partner has been dissociated from a partnership, can he still bind the partnership to contracts as an agent?
Yes, so long as the other party truly believes that he represents the partnership
This rule generally applies for two years after dissociation, with certain restrictions
62
Can a dissociated partner be held liable for partnership debts incurred before dissociation?
Yes
63
What occurs if a partnership with creditors dissolves and then re-forms as a new partnership to continue the same business?
The creditors still have claims in the newly formed partnership
Any new partners (i.e. who weren't in the older partnership) have limited liability unto the creditors
64
What occurs if a partner dies or retires but does not have his partnership interest bought out?
The partner (or his representative) can treat the partnership interest as either
(1) having accrued interest from the date of dissociation
(2) having earned its share of profits
65
What rules are contained in RUPA Article 9?
Rules governing mergers (i.e. multiple partnerships becoming one) and conversions (e.g. general --> limited partnership) for partnerships
These are not mandatory to follow but provide a "safe harbor" to assure legally safe procedures
66
Does a partnership merger result in a limited partnership or general partnership?
It depends on the merging partnerships and other details of the case
67
How does a partner(s) dissolve a partnership following another partner's dissociation?
Any partner who has not WRONGLY dissociated can file a statement of dissolution, after which all partners (who have not wrongly dissociated) can help wind up the business
90 days after filing, creditors are then notified of dissolution
68
If a partnership contract is rescinded due to fraud, what are the rights of the defrauded partners?
(1) rights to the partnership surplus, to cover the fraudster's capital investment
(2) right to assume creditors' rights for claims against the fraudster (if the creditors' claims are paid off)
(3) right to be indemnified by the fraudster
69
Is a partnership bound to a partner's actions after dissociation has occurred?
Yes, so long as the other involved party is not aware of the dissociation
70
Under what circumstances is a partnership NOT bound to a partner's post-dissociation actions?
(1) if the partnership was dissolved because it would have been illegal to continue -- unless the partner's act is in winding up affairs
(2) if the partner has no authority or is bankrupt
71
What is one way a dissociating partner can be discharged from his liabilities to the partnership?
Only if there is an agreement (express or implied) establishing the discharge
Must involve the dissociating partner, the creditor(s), and the partners/partnership continuing business
72
What is a second way a dissociating partner can be discharged from his liabilities to the partnership?
If a new partner agrees to assume his debts
Creditors must agree to the replacement
73
If a partner dies, is his own property still subject to the partnership's creditors?
Yes, though his personal creditors have a higher-priority claim for his property
74
When distributing a dissolved partnership's assets, what is the order of liabilities which are satisfied?
(1) liabilities to creditors (including partners who are creditors)
(2) liabilities to partners besides for capital or profit
(3) liabilities to partners for capital and profit
75
To what extent are partners liable to pay off liabilities?
Each partner is liable for all of it, but if one pays more than his share (i.e. according to how they share losses), he can collect from the other partners
76
How do partnership creditors' claims compare with individual partners' creditors' claims?
Creditors whom the partnership (as an entity) owes a debt have a higher claim upon partnership property, but individual creditors have a higher claim upon partners' individual property
Exception: if the partnership is bankrupt, then both creditors share the available property pro rata
77
If an individual partner becomes bankrupt or insolvent, how are creditors' claims ranked?
Personal creditors have the highest claim, then partnership creditors (i.e. creditors to whom the partnership owes a debt), then individual partners who made advances for the partnership
78
In a limited partnership, can a general partner also be a limited partner?
Yes, a general partner can also have a limited partnership interest with its rights and duties
79
How do the rights of a limited partner compare to those of a general partner?
He has the same rights except that he is not entitled to manage the partnership
This includes rights to inspect books, request info, and demand a dissolution
80
Can a limited partnership have a limited partner's last name in its name?
Yes, but only if he is clearly designated as a limited partner
81
Under what circumstances can a limited partner receive compensation or share in profits?
If, after such payment, partnership assets still exceed liabilities to creditors
82
Can a limited partner's interest in the partnership be assigned to someone else?
Yes, but assigning his rights requires a substitute partner who must be approved unanimously by the other partners
83
What is different about dissolution for a limited partnership than for a general partnership?
If a limited partner dies or assigns his interest, the partnership is not thereby dissolved
84
How does the formation of a limited partnership differ from that of a general partnership?
A limited partnership must be formed in accord with strict statutory requirements, while a general partnership has more leeway
85
With whom must a limited partnership filing certificate be filed?
The secretary of state
A copy needs to be filed with the company's county court
86
Does RUPA govern limited partnerships at all?
RULPA primarily does, but RUPA governs limited partnerships wherever RULPA does not address a particular issue
87
How does the default profit and loss allocation for limited partnerships differ from general partnerships?
Limited partnerships' profit and loss are, by default, allocated according to capital contributions
Remember that general partnerships, by default, allocate profit and loss equally
88
What must be included on a limited partnership's certificate?
- partnership's name
- address of partnership's registered office & business address of agent for service of process
- name and business address for general partners
- mailing address
- latest date for partnership to dissolve
The names of limited partners are not required so that new investors can join without altering the certificate.
89
What is service of process?
The procedure by which a company is informed of a lawsuit, the court giving a legal document asserting its jurisdiction over the parties involved
That is, a summons explaining the plaintiff's grievance and desired remedy
90
What are different ways in which limited partners can provide services (even management) while remaining limited partners?
(1) be a contractor, agent, or employee for the partnership or for a general partner
(2) provide consulting
(3) be a surety
(4) vote
91
What is the order in which a limited partnership's assets are distributed?
(1) debts to creditors (including any partners who are creditors)
(2) unpaid distributions and returns of capital to previous partners
(3) profits and returns of capital to current partners
92
What are unpaid distributions?
Distributions of assets to which a partner has a right when he leaves the partnership
