Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Bar Exam > Partnerships > Flashcards

Partnerships Flashcards

1
Q

What are the characteristics of a Partnership?

A

Partnership = association of two or more persons to carry on as co-owners a business for profit.

(1) Distinct from its owners
(2) Capable of owning property
(3) Capable of suing and being sued

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the applicable statute governing General Partnerships?

A

RUPA
Revised Uniform Partnership Act
Contains DEFAULT rules, alterable by partners

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the three key elements of a Partnership?

A

(1) Association
(2) Of two or more persons
(3) To carry on as co-owners of a business for profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Does a partnership association have to be in writing?

A

NO, not for General Partnerships, and oral partnership agreements are VERY COMMON on the bar exam.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Who counts as a “person” within the key elements of a partnership?

A

Human, corporations, LLCs, etc.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What different ways are there to show that the association is being “carried on by co-owners of a business for profit?”

A

(1) Sharing profits (raises presumption of partnership)
(2) Sharing losses (nearly conclusively a partnership)
(3) Contributions (not just co-ownership of asset though)
(4) Extensive activity
(5) Agreement regarding Responsibilities/Rights (oral or written)
(6) Adopting a business NAME

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How long does a partnership last?

A

“At will” = partner can quit any time.

Definite Term or Particular Undertaking:
early exit = wrongful; but, think about SOF, some service contracts for more than 1 year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the two types of property in a partnership?

A

(1) Capital - money/property contributed by partners
(2) Partnership Property:
- all property subsequently acquired w/ the capital
- all assets titled in the partnership’s name

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Who gets to use partnership property, and for what purpose?

A

(1) Each partner is entitled to use ALL partnership property

(2) But only for BUSINESS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

If someone owns a partnership interest, is he entitled to a salary?

A

No, unless specified in agreement.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Can new partners be admitted to the partnership?

A

Yes, by unanimous vote of the current partners.

But, the unanimity requirement can be adjusted by partnership agreement.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What if A sells his partnership interests to B? What is B entitled to? What does A have?

A

(1) B gets profits/distributions, but
(2) B is NOT a partner (this requires unanimous vote)

(1) A retains all rights/duties other than profits/distributions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What if a creditor attaches A’s partnership interests?

A

Creditor is a TRANSFEREE, not a partner.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

If the partnership does not specify, what are the rights and powers of partners?

A

Equality in Rights and Powers, including:

(1) Management
(2) Profits
(3) Distribution on liquidation (post debt and capital contributions)
(4) Access to books/information
(5) Losses are split just as profits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What if the partnership agreement stipulates unequal split of profits but is silent on losses?

A

The same unequal split of losses will be presumed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What four duties do partners owe to the partnership?

A

(1) Good Faith (honesty)
(2) Fair dealing (Commercial reasonableness)
(3) LOYALTY
(4) CARE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is incorporated in a partner’s duty of loyalty, and what is the remedy for breach?

A

Loyalty =

(1) acting in best interests of partnership
(2) no secret profits
(3) Disclose business opportunities

Remedy = hand over profits to partnership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is incorporated in a partner’s duty of care owed to the partnership?

A

Care =

(1) Avoid intentional misconduct and knowing violation of the law, AND
(2) Avoid grossly negligent or reckless conduct

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the relationship between partners?

A

A partner is BOTH agent and co-principal of the other partners.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Is the partnership entity liable for the torts of the partners?

A

Yes IF:

(1) in the ordinary course of partnership business, OR
(2) Acting with actual/apparent authority of co-partners, even if acting outside ordinary course of business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Are new members liable for the debts or torts that were incurred prior to their entrance into the partnership?

A

No.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Are partners liable for the partnership’s debts?

A

Yes.

Each partner is liable PERSONALLY, but SECONDARILY for all partnership debts.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What type of liability do partners have for the partnership’s debts?

A

Joint and Several, but

A partner that pays more than his fair share is entitled to contribution from the other partners.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What does it mean that partners are “secondarily” liable for partnership debts?

A

(1) Creditor must FIRST exhaust the partnership assets before collecting from partners individually
(2) Creditor must also name the partners in the cause of action

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What are the four steps to ending a partnership relationship?

A

(1) Dissociation
(2) Dissolution
(3) Winding Up
(4) Termination

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is “dissociation?”

A

Dissociation =

change in legal relationship of partners.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What are the events that could trigger dissociation?

A

(1) Withdrawal of any partner
(2) Death, bankruptcy, or incompetence of a partner
(3) Expulsion of a partner, by partners or by judicial decree

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

When may a partner be expelled from the partnership?

A

Direct Expulsion:

(1) Partnership agreement provides for it,
(2) Other partners vote UNANIMOUSLY, or
(3) it would be unlawful to continue doing business with the expelled partner.

Judicial Expulsion @ Partners’ Request:

(1) If partner harmed the partnership through willful or repeated breach of duty
(2) If it is no longer reasonably practicable to do business with that partner (ex: stopped showing up)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Does the sale or transfer of a partnership interest cause dissociation?

A

No. Transferee gets rights to distributions and Transferor continues on as a partner.

BUT, partners can unanimously expel the transferee.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What counts as a wrongful dissociation?

A

A partner quitting prior to a definite term or a particular undertaking outlined in the partnership agreement.

31
Q

What are the consequences of dissociation on the dissociated partner?

A

(1) Dissociated partner loses management rights
(2) Dissociated Partner is no longer an agent
(3) Dissociated partner still liable for pre-dissociation obligations unless the obligations were altered by creditor
(4) Dissociated partner liable for obgliations for TWO YEARS if 3rd party reasonably believed person was still a partner, unless:
- (a) dissociated partner files notice w/ Secretary of State, valid 90 days post-filing

32
Q

If other partners continue business after one partner has dissociated, what rights does the dissociated partner have?

A

(1) Entitled to payment of fair value of interests
(2) entitled to indemnification against all current and future KNOWN liability, except those caused by the dissociated partner

33
Q

How does dissolution occur for “at will” partnerships?

A

(1) Withdrawal results in dissolution UNLESS:
- (a) all partners (including dissociated partner) agree to waive dissolution and continue business
(2) All other dissociating events (besides withdrawal) do NOT trigger dissolution IF:
- (a) all REMAINING partners agree to continue

34
Q

How is a definite term partnership dissolved?

A

(1) IF death, bankruptcy, or wrongful dissociation:
- (a) Majority may elect dissolution, otherwise partnership continues
(2) At the expiration of the term or completion of undertaking:
- (a) automatic dissolution
(3) Partners may also unanimously agree to end the partnership

35
Q

When can a Court order dissolution of the partnership?

A

Court can order dissolution IF:

(1) Economic purpose of the partnership is likely to be unreasonably frustrated, OR
(2) It is no longer reasonably practicable to carry on business
(3) Fairness requires liquidation so a creditor can get to partner’s interest (if partners have avoided distributions to avoid creditors)

36
Q

What is “winding up?”

A

Process of finishing up all remaining business before termination.

37
Q

Who can do the process “winding up,” and do they get anything for their work?

A

Any partner other than a wrongfully dissolving partner may wind up.

He is entitled to renumeration for services (the one time a partner is automatically entitled to payment for services.)

38
Q

Upon termination, what is the process for distributing assets?

A

(1) Debts, including debts to partners, must be paid.
(2) Capital must be returned to contributing partners
- (a) if assets are insufficient to give back capital, partners must contribute funds to pay
(3) Leftover profits are then distributed equally to partners (absent agreement otherwise)

39
Q

How is a Limited Liability Partnership (LLP) formed?

A

(1) File STATEMENT OF QUALIFICATION w/ Secretary o State
(2) Pay fees to Secretary of State
(3) Have “LLP” in name

40
Q

What if an LLP fails to file a statement of qualification with the secretary of state?

A

It is not, in fact, an LLP. It remains a general partnership.

41
Q

What are the filing requirements of an LLP?

A

(1) Formation filing - Statement of Qualifications
(2) Annual reports, including:
- (a) name
- (b) address
- (c) list of agents

42
Q

What liability do LLP partners have?

A

(1) LLP partners liable for OWN TORTS, and torts committed under their NEGLIGENT SUPERVISION
(2) Not personally liable for partnership debts under contracts, UNLESS:
Partnership veil is pierced for some reason

43
Q

What is the applicable governing statute for Limited Partnerships?

A

RULPA
Revised Uniform Limited Partnership Act
Sets forth DEFAULT rules; alterable by agreement

44
Q

What are the two classes of partners in a Limited Partnership, and what are their respective rights/duties?

A

(1) General Partners
- (a) Manage the partnership
- (b) personally liable for partnership debts
- (c) actual and apparent authority to bind the partnership

(2) Limited Partners
-(a) not personally liable for partnership debts, unless:
Partnership veil is pierced

45
Q

What if a “limited partner” in an LLP starts managing the partnership?

A

Traditional Rule:
Likely to lose “limited” status and open himself up to personal liability for partnership’s debts.

Modern Trend:
This is okay w/o losing “limited” status.

46
Q

How is a Limited Partnership formed?

A

(1) Filing CERTIFICATE OF LIMITED PARTNERSHIP w/ Secretary of State
(2) Pay fees
(3) Must have “LP” in name

47
Q

What if a Limited Partnership fails to file a Certificate of Limited Partnership with the Secretary of State?

A

It is not, in fact, an LP. It remains a General Partnership.

48
Q

Can a limited partner’s name be included in the name of a Limited Partnership?

A

Traditional Rule:
No, this would be misleading

Modern Trend:
Sure.

49
Q

What are the economic rights of partners in an LP?

A

Profit/Loss allocation distributed:

IN PROPORTION TO THE RELATIVE VALUES OF MEMBERS’ CONTRIBUTIONS TO LP

50
Q

What fiduciary duties do General Partners owe to a Limited Partnership?

A

Same as General Partnerships:

(1) Good Faith
(2) Fair Dealing
(3) Loyalty
(4) Care

51
Q

What fiduciary duties do limited partners owe to a Limited Partnership?

A

(1) Good Faith
(2) Fair Dealing

NO DUTY OF LOYALTY/CARE; Limited Partners may outright compete w/ the Limited Partnership if they want to

52
Q

If a General Partner is in breach of a duty owed to a Limited Partnership, is there anything that a limited partner can do?

A

Yes, bring a derivative action IF:
(1) necessary demands have been made first

Recovery is for the benefit of the LP

53
Q

What if a General Partner dissocates from an “at will” Limited Partnership?

A

Withdrawing partner is entitled to receive fair value of his interest

54
Q

What is the result of a General Partner withdrawing from a Limited Partnership?

A

Will cause dissolution of the partnership, UNLESS:

(1) More than one general partner AND agreement calls for continuation, OR
(2) All other partners (general and limited) vote to continue

55
Q

May a limited partner dissociate from a Limited Partnership?

A

Dissociation by a Limited Partner id wrongful in any kind of LP, but it is not void.

The dissociation effectively downgrades the limited partner to a transferee w/ economic rights only

56
Q

What are the characteristics of a Limited Liability Limited Partnership (LLLP)?

A

Basically the same as LP, except general partners are not personally liable for the partnership’s obligations

57
Q

What are the owners of an LLC called?

A

“Members”

58
Q

How is an LLC formed?

A

(1) Certificate of Formation filed w/ Secretary of State
(2) Pay fees
(3) “LLC” must be in name

59
Q

What filing requirements does an LLC have?

A

Must file annual reports w/ Secretary of State

60
Q

What is an “Operating Agreement” or “LLC Agreement?”

A

It contains internal operational rules of the LLC.

61
Q

In what general ways is an LLC more like a corporation, and what ways is it like a partnership?

A

Liability: more like corporation
Membership: more like a partnership

62
Q

Are LLC members liable for the LLC’s obligations?

A

LLC member is not liable for LLC’s obligations, except for torts which they are personally involved.

Piercing the veil may also occur though.

63
Q

How are new members of an LLC admitted?

A

Unanimous vote by current members.

64
Q

Can an LLC member sell his interests in the LLC?

A

Yes, but like a partnership interest this only transfers the rights of PROFITS. The transferee is not an actual member of the LLC.

65
Q

How is an LLC managed?

A

Default Rule: Member-managed
Each member can participate and is an agent.

Alternative: Manager-managed
Designated managers (member or not) are agents of the business;  Managers must be named in the Certificate of Formation
66
Q

What are the functions of voting in an LLC?

A

Split: Two Rules

(1) Equal voting power for each member, OR
(2) Proportion of ownership voting power

NOTE: in manager-managed LLC, nonmanaging members’ right to vote can be restricted to only major events

67
Q

How are profits/losses allocated in an LLC?

A

Default Rule:

Allocated based on relative values of members’ contributions to the LLC

68
Q

What are the fiduciary duties of LLC members?

A

Managing Members:

  • Same 4 duties as General Partners
  • Protected by Business Judgment Rule, generally

Non-Managing Members:
Good faith and Fair dealing ONLY

69
Q

What is the Business Judgment Rule?

A

A rebuttable presumption that business managers act in conformity with their duties.

70
Q

If a managing member of an LLC is breaching a fiduciary duty, is there anything that a non-managing member can do?

A

Yes, file a derivative action:

  • must make demand on Manager first
  • recovery is for the benefit of the LLC
71
Q

What are the results of an LLC member dissociating?

A

(1) LLC does NOT automatically dissolve
(2) In some states, withdrawing at any time is wrongful
(3) Minority Rule: dissociated member not entitled to value of interests unless the LLC dissolves

72
Q

If a member dissociates from an LLC, does he have any continuing liability?

A

Some states:

2 year period where dissociating member can still be liable based on 3rd party reliance

73
Q

What are the four ways an LLC can dissolve?

A

(1) Stated term expires
(2) Stated undertaking has been achieved
(3) Court order to dissolve
- (a) no longer practicable, or
- (b) purpose has been frustrated
(4) Agreement by members:
- (a) % specificed in agreement, or, if silent
- (b) majority or 2/3, or unanimous, depending on state

74
Q

Upon dissolution, how are LLC assets distributed?

A

(1) Same as partners (debt, capital, profits), but

(2) Members’ liabilities to 3rd parties are limited to their contributions to the LLC

Bar Exam (26 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions