Partnerships

Question 1

MEMORIZE THIS

Definition of Partnership

Answer 1

association of two or more persons to carry on as co-owners of a buisness for profit

Question 2

Proof of Partnership

Answer 2

Courts look to intent of the parties to carry on a business as coowners for profit.

• rebuttable presumption: profits (not gross returns) are shared (unless received as payment of debt, wages, compensation for services rendered etc…)
  factors not rising to Rebuttable presumption
• right to participate in control
• sharing gross returns

Question 3

Partnership by Estoppel

Answer 3

• Liability of person held out as partner (yes, but must consent to holding out, mere failure to deny does not give rise to liability).
• when person holds another out s partner - then agent of partnership but only to those partners who know/consent to it.

Question 4

Voting

Answer 4

Unless otherwise agreed all parnters have equal rights in management of business and equal votes.
* Decisions re course of business - majoirty
* Decisions re outside COB - unanimous

Question 5

Rights of Partners

Answer 5

Management - equal subject to agreement
Distributions - equal subject to agreement
Renumeration - none except winding up
Indemnificaiton - from all partners for expenses incurred on behalf of partnership
Contribution - right where P has paid more than share of liability
Inspection - partnership books
law suits - at law or in equity

Question 6

Profits and losses Sharing

Answer 6

Partners are jointely and severally liable for all obligations of the partnership

Profits - equally (subject to agreement)
Losses - same as profits (subject to agreement)

Partners owed for financial contributions but not labor for partnership

Question 7

Tort Liability

Answer 7

Yes for partner or employee acting in the ordinary course of business of Partnership or with authority of partnership

Question 8

Liability in Contract

Answer 8

All contracts entered into by a partner in the scope of the partnership business or with actual or apparent authority of the partnership

Question 9

Partnership Actual Authority

Answer 9

Unless partnership agreement or vote of the partners or statement of partnership authority.

Statement of authority- filed wiht sec of state: NOTE- real property - grants of and restrictions on partner authority to transfer partnership real property in the statemetn are binding on 3Pts if statement si also recorded in county where property is located (constructive knowledge). For not real property only granting not restricting.

Question 10

Liability of the Partners

Answer 10

jointly and severally liable for all obligations of the partnership (but first must exhaust partnership resources). Does not apply to criminal liability unless participation

Limitation of liabilty is available between partners but not to 3rd parties

Question 11

Liabilities incurred before or after Partner was in Partnership

Answer 11

Before- not personally liable they can only lose amount of their investment in partnership

Post - dissociation - liabilities incurred within two years after dissociation if : when entering transactions 3rd Pty believed DP was still P, and did not have notice of Dissociation(protection notifitying creditors directly and filing public notice - effective 90 days after filing)

Question 12

Duties

Answer 12

Duty of Loyalty
Duty of Care
Duty of Disclosure
Duty of Obedience

Question 13

Duty of Loyalty

Answer 13

Fiduciary Duty: utmost fairness:
1. account for any benefit by use of partnership
2. refrain from being on opposing side of partnership
3. refrain from competing.

Question 14

Duty of Care

Answer 14

each partner to refrain from engageing in grossly negligent or reckless conduct, intentional misconduct, or knowing violaiton of the law.

Question 15

Duty of Disclosure

Answer 15

provide complete and accurate informaiton concerning the partnership :
1. without demand - any informaiton re proper exercise of rights and duties
2. on demand: other info unless unreasonable or improper

Can be eliminated

Question 16

Duty of Obedience

Answer 16

obey all reasonable directions of the partnership and not act outside the scope of this or her authority

Question 17

Partnership Property

Answer 17

• titled property in parnership’s name or if apparent from document acting on behalf of partnership is DEEMED to be Partnership property
• Presumption where it is purchased with partnership funds
• rebuttably presumed to be a partners property where - held in name of one or more partners, instrument give no sign acting for partnership, no pship funds used.

Question 18

Partner’s Ownership interest in Partnership

Answer 18

No unilateral transfer of management rights but financial rights is permitted.

Question 19

Dissociation Event

Answer 19

1. oral/written notice of P’s express will to withdraw (auto triggers dissolution)
2. happening of agreed event
3. valid expulsion of P
4. P’s bankrupcy or appointment of a receiver for a partner
5. P’s death or incapacity to perform Pship duties (or court decision thereof)
6. termination of buisness entity that is partner

Question 20

Consequences of Dissociation

Answer 20

Partnership - either dissolve partnership –> wind up or continuation of partnership and partner is entitled to buyout

Partner - Partnership buys out interest (liquidation or going cocern value) must indemnify them against known pre-dissociation liablities as well as post - dissociations liabilities not incurred by DP’s acts. (Term breachers not entitled to payment of buyout until conclusion of term unless they can establish it will not cause undue hardship to partnership business but interst must be paid).

Question 20

Dissolution

Answer 20

• partner dissociates by express will in at-will partnership , partnership will be dissolved and business must be wound up
• if Term partnership and non express will - dissolutions and winding up only if wihtin 90 days after at least 1/2 remaining partners agree to wind up partnership

Question 21

Dissociated Partner’s Power to Bind PShip

Answer 21

PShip can be bound by act of DP undertaken within 2 years after Dissociation if 1. act would have bound partnership pre- Dissociation, and 2. other part to transaction reasonably beleived DP was still P AND did ot have notice of dissociation

Same protections avail re dissociation

Question 22

wer to

Dissolution

Answer 22

• notification by P of express will to withdraw as P
• Term P- expiration/completion of term, consent of all partners or wihtin 90 days after other event and at least half want to dissolve
• happening of event that requires dissolution/makes it unlawful for Pship to continue
• Issueance of judicial decree on application of partner (frustration of purpose, P making it not reasonably rpatical, or cannot practicably carried on in conformity with Pship agreement).
• issuance of judicial decree on application by a transferee of P’s interest after term expires or undertaking is completed in a partnership for a definite term or particular undertaking
• 90 days wihtout two partners

Question 23

Priority of Distribution

Answer 23

• creditors (outside and inside)
  *capital contributions
• profits or losses if any

Question 24

Limited Partnership

Answer 24

minimum:1 general partner and 1 limited partner must have certificate with sec of state - name of partnership (with LP or limited partnership) - names of agent for service of process and -names and addresses for each general partner must maintain partnership agreements and 3 years of tax returns in office in state of org.

Question 25

LP management

Answer 25

GP manages LP does not subject to partnership agreement Vote of all partners is necessary for certain extraordinary activities - amend agreement, convert P into LLLP, dispose of all/most property, admit new partner, compromise partner's obligation to make contribution or return and impropert distribution

Question 26

LP Distributions

Answer 26

based on contribution (money, property, or services) Contribution is not excused by death or disability and may be compromised only on consent of all partners.

Question 27

LP- Fiduciary Duties

Answer 27

General P- owes duty of care and loyalty but does not auto-violate duty of loaylty merely because the general partner's conduct furthers his own interests. Limited P- no fiduciary duties

Question 28

LLC Formation

Answer 28

File cert of org with Secretary of state: * name of LLC (inc. LLC or derivitive) * address of LLC's registered office AND * name and address of registered agent

Question 29

Management and operation

Answer 29

Operating Agreement runds the show * management by all members, each with equal rights. * marjoity vote of the members required to approve most decisions. unanimous for extraordinary decisions * authority is based on whether member managed or manager managed.

Question 30

Fiduciary Duties

Answer 30

care (business judgment rule applies) and loyalty (but excused if after disclosing all material facts members authorize or ratify specific act by member/manager) and discharge duties and exercise any rights consistently with contractual obligation of good faith and fair dealing

Question 31

Transferability

Answer 31

Management rights are not transferable unless consent of all members or as otherwise provided in operating agreement

Question 32

LLC Dissolution Events

Answer 32

1. Event or circumstance that Operating Agreement states causes disoolution 2. consent of all members passage of 90 consecutive days during which LLC has no members Judicial - unlawful, not reasonably practicle to carry on company's activities in conformity with the certificate of org and operating agreement, illegal/fradulent, controlling members acting oppressive or in manner that is directly harmful to member applying for dissolution Administrative- by secretary of state when LLC fails ot submit to fee or annual report.

Question 33

Effect of LLC Dissolution

Answer 33

Claim can be asserted to extent of LLC undistributed assts and if they have been distributed to members, a claim can be enforced against each memeber to extent of member's proportionate share of the claim or the extent of assets distributed to him whichever is less. LLC can cut short time for brinign known claims by notifying claimants and giving them deadline of not less than 120 days to file claim, shorten other to 5 yrs by publishing notice in newspaper in county where LLC's known place of business is located

Question 34

LLC right to info

Answer 34

Member managed- right to inspect and copy any record and must be auto furnished if it is material to exercise of rights and duties unless already known if not material then on demand. Manager managed - members have right to inspect and copy any record if - member seeks info for a purpose material to member's interest as a member, member makes demand describing with reasonable particularity info sought and purpose, and info sought is directly connected to purpose.

Question 35

Members actions against LLC

Answer 35

Members injured personally by LLC can bring direct action Members can also bring a derivative action unless demand would be futile. (

Question 36

Partnership: Authority

Answer 36

Each partners is an agent of the partnership for the purpose of its business. Actual authority is authority that a partner reasonably believed she has based on the communications betewen the partner and the partnership and can be granted either in the partnership agreement or by consent of the parties Apparent authority is the authority a third party would reasonably believe a partner has bason hon his being held out by the partnership as a partner. Under RUPA - the act of any partner for apparently carrying in the ordinary course of the partnership business or business of the kind bid the partnership UNLESS - partner had no authority to act for the partnership in that matter and the person with whom th partners was dealing knew or had received notification that the partner lacked authority.