Partnerships Flashcards
Georgia common law, Uniform Partnership Act (1914), and Revised Limited Uniform Partnership Act standards. (145 cards)
1
Q
What is a partnership?
A
A partnership is an association of two or more persons to carry on a for-profit business as co-owners.
2
Q
Who is a “person” under the UPA?
A
For purposes of a partnership, the UPA defines a “person” as an individual or a legal entity such as a corporation, a limited liability company (LLC), a trust, an estate, or a partnership.
- The person must have the capacity to contract.
- The persons involved in the partnership are partners.
3
Q
How do you satisfy the “intent” requirment under the UPA?
A
To form a partnership, at least two persons must intend to carry on a business for profit as co-owners, but it is not necessary that such persons have the specific intent to form a partnership.
The co-owners’ subjective intent not to form a partnership does not prevent the association from being a partnership.
4
Q
Under the UPA, what distinction does a written partnership agreement have against an oral partnership agreement?
A
Although a written agreement is not necessary to form a partnership, a partnership agreement is subject to the Statute of Frauds, which requires that contracts that cannot be performed within one year must be in writing.
5
Q
What is required on the Statement of Partnership?
A
In Georgia, a partnership may file a statement of partnership in the office of the clerk of the superior court of any county. All the partners must sign the statement, which must be witnessed and notarized.
The statement must contain:
- the name of the partnership,
- the location of the principal place of business of the partnership,
- the names and places of residence of all partners,
- the term for which the partnership is to exist,
- any limitations on the authority of any of the partners to act on behalf of the partnership,
- any special authority to act on behalf of the partnership, and
- an account of any property belonging to the partnership.
6
Q
May partners amend a Parternship Statement?
A
The statement of partnership may be amended by the partners at any time.
7
Q
What evidentary weight and role does a filed Partnership Statement provide?
A
The filing of a statement of partnership is conclusive evidence that a partnership exists.
8
Q
What type of activity illistrates a partnership?
A
Passive co-ownership of property by itself does not create a partnership. Courts will consider the amount of related activities toward a business’s end goal when determining if a partnership exists.
9
Q
What key test applies to determining whether a parternship exists?
A
The key test applied to ascertain whether a business arrangement is a partnership is whether there is a sharing of the profits from the business. If so, such an arrangement is generally presumed to be a partnership, and the persons who share in the profits are partners.
Note, however, that the sharing of gross returns rather than profits does not create such a presumption.
10
Q
What exceptions exist for the key test that determines whether a partnership exists?
A
Profits from payments recieved from:
- A debt, including installment payments;
- Wages, salary, or other compensation paid to an employee or independent contractor;
- Rent;
- Annuity or other payment to a deceased partner’s surviving spouse or representative;
- Goodwill payments stemming from the sale of a business, including installment payments; and
- Interest or other loan charges.
are not considered shared profits under the partnership profts test.
11
Q
What is the effect does joint ownership of property have on whether a partnership exists?
A
Joint ownership of property (e.g., a tenancy in common) does not by itself establish a partnership, even when the joint owners share profits made from the use of the property.
12
Q
What is a “subpartnership”?
A
A subpartnership, which is not a true partnership, refers to an agreement between a partner and a third party that the third party will share in the partner’s profits from the partnership.
13
Q
What claim to profits does a subpartner possess?
A
The third party subpartner does not become a member of the partnership and has only a contractual claim against that partner for his share of the partnership’s profits.
14
Q
What is a “joint venture”?
A
A joint venture is not a clearly defined legal entity. Frequently, courts use the term “joint venture” to describe a partnership for a specific, limited purpose.
15
Q
What body of law applies to joint ventures?
A
Courts usually apply partnership rules to a joint venture when the association has a business, rather than a personal, purpose.
16
Q
Under what legal theory may a person not a partner be treated as a partner?
A
If a partnership does not exist, then a person generally cannot be liable to a third party as a partner.
Even when a partnership does not exist, a person may sometimes be treated as a partner of a purported partnership.
There are situations in which someone who is not a partner of an established partnership may still be treated as one. The person is characterized as a purported partner or a partner by estoppel.
17
Q
Liability of a purported partnership requires what elements?
A
For liability as a purported partner to be imposed, the following elements must be established:
- There must be a representation—orally, in writing, or implied by conduct—that a person is a partner in an actual or purported partnership;
- The purported partner must make or consent to the representation;
- A third party must have reasonably relied on the representation; and
- The third party must have suffered damages as a result of that reliance.
18
Q
What is the “duty to deny” regarding purported partnerships?
A
A person who, without her consent, is held out by another as a partner is not under a duty to deny that representation.
Merely being named by another person in a statement of partnership is not enough to create liability as a partner. Further, failing to file or amend a statement of dissolution does not create liability as a partner.
19
Q
What is the “public holidng out” requirment of a purported partnership?
A
If the person has, in a public manner, represented or consented to being held out as a partner, then she is liable to third parties who reasonably rely even if they did not know of the representation.
It is not a defense that the purported partner was unaware that she had been held out as a partner to the specific person who relied.
20
Q
What legal theory supports the “public holding out” requirement?
A
When a person falsely represents that another is her partner, the purported partner constitutes an agent of the person making the representation. The purported partner is also an agent of any partner of an existing partnership who consents to the representation.
21
Q
Under Georgia law, is a parternship legally distinct from the partners?
A
In Georgia, a partnership is a legal entity that is distinct from its partners. Therefore, a partnership may acquire and hold title to property, as well as sue and be sued in its own name.
Nevertheless, partners are personally liable for the partnership’s obligations.
22
Q
What laws and rules govern a partnership?
A
If the partners have entered into a formal agreement, the agreement, rather than the UPA, generally governs the relations among the partners and between the partners and the partnership when there is a conflict between the agreement and the UPA.
23
Q
What legal relationship does a partner have with the partnership?
A
A partner is an agent of the partnership for its business purposes.
As an agent, the partner can bind the partnership to a contract with a third party as long as the contract apparently is in the carrying on of the business in the usual way.
The partnership is not bound on a contract only if the partner had no authority and the third party knew that he lacked authority.
24
Q
What fiduciary duties does a partner have with the partnership and the other partners?
A
- The duty of loyalty
- The duty of due care
25
Under the UPA, what generally is the duty of loyalty?
Under the duty of loyalty, a partner is required to refrain from usurping a partnership opportunity or otherwise using partnership property or business to derive a personal benefit without accounting to and obtaining the consent of the partners.
26
Under the UPA, are loans by a partner to the partnership allowed?
A partner, in addition to contributing capital to the partnership, may make a loan to the partnership.
The lending partner is treated as any other creditor of the partnership, including having the right to receive interest, subject to other applicable laws.
27
Under the UPA, what are the limitations to the duty of loyalty?
A partnership agreement **may not eliminate** the duty of loyalty.
Nevertheless, the agreement **may** identify specific types or categories of activities that **do not** violate this duty, **if** they are not *manifestly unreasonable*.
28
Under the UPA, who does the duty of loyalty apply to?
The duty of loyalty generally applies to partners, including partners involved in the winding up of the partnership.
29
Does the duty of loyalty apply to prospective partners?
The duty of loyalty applies to prospective partners during the period of partnership formation.
30
Does the duty of loyalty apply durring the dissolution of the partnership?
Upon the partnership’s dissolution, the duty does not apply **unless** the partner is engaged in winding up the partnership business.
When a partner or the representative of the last surviving partner is engaged in winding up the partnership business, this duty is generally applicable.
31
Under Georgia law, what is the duty of care owed to a partner's partners and the partnership?
Although not enumerated by the UPA, a duty of care and utmost good faith based on the fiduciary relationship of partners are recognized by Georgia.
32
Regarding partnership profits and loss, how may the partnership address profits and losses?
The partnership agreement **controls** a partner’s rights to share in the partnership’s profits and losses.
The agreement may specify a percentage for sharing profits that differs from the percentage for sharing losses; **neither** profits nor losses are required to be shared on a per capita basis.
33
If the partnership agreement is silent, how are profits and losses shared?
If there is no agreement or the agreement is silent as to the division of the profits and losses, then each partner is entitled to **an equal share** of the partnership profits and losses.
When the agreement addresses only the division of partnership profits, partnership losses are shared in the same manner.
34
What is a "partnership account"?
Each partner has a partnership account. That account consists of his contributions to the partnership and his share of the profits, reduced by any liabilities, distributions, or losses.
35
What is a partner's interest in the partnership property?
Specific partnership property is held in a tenancy in partnership; therefore, **each partner is a co-owner** of partnership property with his partners.
Each partner has **an equal right** with his partners to possess specific partnership property for partnership purposes.
36
May a partner assign his or her interest in the **partnership property**?
A partner **cannot** assign or transfer his interest in specific partnership property, voluntarily or involuntarily.
37
What is a partner's interest in the partnership?
A partner has a partnership interest, which consists of the right to share in the partnership’s profits and losses and to receive distributions.
A partner’s partnership interest is **personal property**, regardless of the nature of the partnership’s assets.
38
May a partner transfer his or her **partnership interest** to a third-party?
A partner has the right to transfer his partnership interest to a third party. The transfer (i.e., assignment) may include his entire interest or only part of it.
39
What effect does a transfer of partnership interest have on the partnership itself?
The transfer of a partner’s partnership interest to a third party does not trigger a dissolution of the partnership.
40
What effect does a transfer of a partnership interest have on the transferor partner?
The transferor partner retains all rights and duties of a partner in the partnership **apart from** an interest in the distribution of profits.
41
What rights does a transferee possess when the transferee recieves rights to partnership interest?
The transferee has the right to:
1. receive distributions from the partnership that the transferor partner would otherwise have been entitled to receive, including
* both distributions made by the partnership as an ongoing concern and
* those made upon dissolution of the partnership and the winding up of its business.
2. seek a judicial order for dissolution of the partnership, and
3. (in the event of dissolution) an accounting, but
* only for the period beginning from the date of the last accounting agreed to by all the partners.
42
When a partner transfer his or her partnership interest, what rights do the transforee *not* possess?
The transferee is not entitled to participate in the management or conduct of the partnership business, to access partnership records, or to demand other information from the partnership.
43
How may a partner's creditor enforce a judgment against the partner's partnership interest?
A partner’s creditor who has obtained a judgment against the partner may enforce that judgment against the partner’s partnership interest only by obtaining a judicial charging order. Among the available remedies is a court-appointed receiver of the partner’s distributions from the partnership.
44
What property is owned by the partnership?
All property acquired by a partnership, whether by contribution from a partner or by purchase or other transfer from a partner or a third party, is partnership property and belongs to the partnership, not to the individual partners.
45
What effect does intent have when considering whether property is owned by the partnership?
The intent of the partners controls in determining whether the property belongs to the partnership or to individual partners. A statutory presumption is applicable in ascertaining that intent.
46
When is property presumed to be partnership property?
In Georgia, property, whether real or personal, is presumed to be partnership property if:
1. It is included as partnership property in the partnership agreement or in a recorded statement of partnership;
2. It is acquired in the partnership name; or
3. It is purchased with partnership funds even though title or interest is acquired in the name of an individual partner or partners (although for publicly recorded property, the presumption does not apply, and a third party without actual knowledge is entitled to rely on the public record).
47
When is partnership property presumed to be separate property of a partner or partners?
Property is presumed to be the separate property of an individual partner or partners if the property is acquired in the name of the individual partner or partners without use of the partnership’s funds, **even if** the property is used for partnership purposes.
48
What is necessary to device property to a partnership?
All property that is transferred to a partnership in the partnership’s name, even without words of inheritance included in the transfer, will convey the entire estate unless the transferor includes language to the contrary.
49
Under Georgia partnership law, what factors may be used to determine ownership when the presumptions do not provide a remedy?
* The use to which the property is put,
* treatment of the property for tax purposes, and
* the source of funds used to maintain or improve the property.
50
What is required to become a new partner?
To become a partner, a person must secure the consent of all the existing partners.
51
Who possesses management rights in a partnership?
Each partner has equal rights in the management and conduct of the partnership.
52
Under the UPA, what is necessary to make ordinary partnership business decisions?
A **majority of the partners** can make a decision as to a matter in the ordinary course of the partnership’s business, such as a distribution of partnership profits.
53
What is necessary to make a special partnership business decision?
A decision as to a matter outside the ordinary course of the partnership’s business requires the consent of **all partners**.
54
What is required to amend the partnership agreement?
An amendment of the partnership agreement requires the consent of **all partners**.
55
Is a partner entitled to a "remuneration for services" under the UPA?
A partner is not entitled to remuneration for services performed for the partnership.
An exception exists when the partner renders services in winding up the partnership’s business, in which case the partner is entitled to reasonable compensation.
56
Under the UPA, may the partnership reimburse a partner?
A partner may make a loan to further the ordinary business of the partnership or to preserve the partnership’s business or property.
The partnership is required to repay the loan or reimburse the partner for advances, including interest from the date of the loan or advance.
57
Under the UPA, may the partnership indeminfy a partner?
A partner may make payments or incur personal liability in the ordinary course of conducting partnership business or in preserving the partnership’s business or property.
The partnership is **required** to indemnify the partner for such payments and liabilities.
58
May a partner use partnership property for personal purposes?
A partner may use or possess partnership property only on behalf of the partnership.
A partner who derives a personal benefit from the use or possession of partnership property is **required** to compensate the partnership for such benefit.
59
Does a partner have access to partnership records?
A partnership must provide its partners and their agents (including attorneys) with access to all its records, including its financial records, and permit them not only to inspect but also to copy such records.
Additionally, each partner must, to the extent reasonable under the circumstances, give accurate and complete information on all things relating to the partnership to a partner or his legal representative.
60
Can a partner generally bring a lawsuit against his or her partnership?
In general, a partner cannot bring a legal action against the partnership or individual partners, or be sued by the partnership or individual partners, on matters related to the partnership business.
To resolve a partnership dispute, therefore, ordinarily, an **accounting** will be necessary.
61
When can a partner seek accounting of partnership business?
A partner may seek an accounting as to the partnership business under the following circumstances:
* He is wrongfully excluded by the other partners from the partnership business or possession of its property;
* The right to seek an accounting is allowable under the partnership agreement;
* A partner has derived a personal benefit from a partnership transaction or from use of partnership property without the consent of the other partners; or
* For any other just reason.
In addition, the partnership agreement may provide for other remedies or methods of dispute resolution, such as arbitration.
62
May a partner transfer partnership real property held under the partnership's name?
A partner has the authority to transfer partnership property held in the partnership’s name by executing an instrument of transfer (e.g., a deed) in the partnership’s name. This authority can be limited or eliminated by a provision in a statement of partnership.
63
What occurs if a partner transfers partnership real property held in the partnership's name ultra vires?
If a partner without authority transfers partnership property held in the partnership’s name, then the partnership may recover the property from the initial transferee or from a subsequent grantee **unless** the subsequent grantee is a holder for value and without knowledge of the partner’s lack of authority.
64
May a partner transfer partnership real property held under a partner's or several partners' name?
If partnership property is held in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, then the partners who hold title may convey such title in their own names.
65
What occurs if a partner transfers partnership real property held in a partner's or several partners' name ultra vires?
If the **partners** acted without authority, then the partnership may recover the property from the transferee or a subsequent grantee, unless the transferee or subsequent grantee is a holder for value and without knowledge of the lack of authority.
66
What property interest is transfered when a partner transfers partnership property held in a partner's name?
If partnership property is held in the name of one or more or all the partners, or in the name of a third person in trust for the partnership, then a partner’s transfer of the partnership property in the partnership’s name or in his own name (without all other partners who hold title) passes **only** the equitable interest of the partnership in the property.
However, if the partner **lacked authority**, then the equitable interest does not pass to the intended transferee.
67
What is necessary to transfer property held in the names of all of the partners?
When partnership property is held in the names of all the partners, a conveyance executed by all the partners transfers all their rights in the partnership property.
68
What is the partnership knowledge and notice requirement regarding transfer of property?
A partner’s knowledge or notice of a fact relating to the partnership is imputed immediately to the partnership, except when a fraud on the partnership is committed by or with the consent of the partner.
69
What liablity does the partnership carry for a partner's tortious conduct?
A partnership is liable for a partner’s tortious acts, including fraud, committed in the ordinary course of the partnership’s business or with actual or apparent partnership authority.
When the partner enjoys immunity from liability for such acts, the partnership is not entitled to assert that immunity.
70
What liablity does a partner have regarding partnership liabilities?
In Georgia, a partner is jointly and severally liable for all debts, obligations, and liabilities of the partnership.
71
What liablity does incoming partners possess?
A person admitted as a partner into an existing partnership is liable for partnership obligations arising before her admission, **but** the liability may be satisfied only out of partnership property (capital contribution, profits, etc.).
72
What liablity does a partner have upon dissolution of the partnership?
Dissolution of the partnership does **not** discharge the existing liability of any partner.
Nevertheless, a partner **may** be discharged by agreement with the creditor and the person(s) continuing the business.
73
May a partnership be convicted of a crime?
A partnership **may** be convicted of a crime for which the penalty is a fine levied on partnership assets.
Mere membership in a partnership is **not** sufficient to make a partner criminally liable for the acts of another partner.
74
What is necessary to convert a partnership to a limited partnership?
Unless the partnership agreement specifies otherwise, the conversion must be approved by all the partners.
Once the conversion is approved, the partnership must file a certificate of conversion with the secretary of state.
The conversion takes effect upon the filing of the certificate of conversion unless the certificate itself specifies a later date.
75
What liability does a former general partner carry after a partnership converts to a limited partnership?
A general partner who becomes a limited partner because of a conversion remains personally liable for any obligation incurred by the partnership before the conversion.
76
Outside the obvious, what effect does converting a partnership to a limited partnership have on the partnership?
A conversion of a partnership to a limited partnership does **not** affect the resulting limited partnership as an entity.
Property owned by the partnership before the conversion remains vested in the resulting limited partnership.
Legal proceedings by or against the pre-conversion partnership can continue as if the conversion had not occurred.
77
What is necessary to convert a limited partnership into a partnership?
In Georgia, a limited partnership exists until the cancellation of its certificate of limited partnership.
Once the certificate is canceled, the business may continue as a partnership.
78
What liabilities does a former limited partner possess after converting a limited partnership into a partnership?
A limited partner who becomes a general partner because of a conversion remains liable only as a limited partner for any obligation incurred by the limited partnership before the conversion and as a general partner for any obligation of the partnership incurred after the conversion.
79
What is required to merge a partnership into another entity?
The surviving entity must file a certificate of merger with the secretary of state. The certificate must set forth:
1. the name and state of domicile of each entity participating in the merger,
2. that an agreement of merger has been approved by each of the entities,
3. the name and state of domicile of the surviving limited partnership, LLC, or corporation, and
4. the effective date of the merger, if at a later time than the date on which the certificate of merger is filed.
80
When is a merger of a partnership into another entity effective?
The merger is effective upon the filing of the certificate of merger, **unless** a later date is specified. However, the later date **may not** be more than 90 days after the filing of the certificate.
81
What is the non-obvious effects of a partnership merger into another entity?
When a merger becomes effective, all parties to the merger other than the surviving entity **cease to exist**.
All property and obligations of the entities that are parties to the merger become the property and obligations of the surviving entity.
All claims existing and proceedings pending against the merged limited partnership may **either** continue as if the merger had not occurred, or the surviving entity may be substituted in its place.
82
How is a partnership terminated?
Termination of a partnership is a two-step process: **dissolution and winding up**.
The happening of an event triggers dissolution, the first step in the termination of a partnership. Next, the partnership must wind up its business, which is a process that entails liquidating the assets, paying off creditors, and distributing any remaining funds to the partners.
The partnership **is not terminated** until the partnership business is wound up.
83
What events can cause dissolution of a partnership?
* Dissolution of a partnership at will
* Dissolution of a partnership for a term or undertaking
* Dissolution by judicial decree
84
How does a partnership at will dissolve?
It is dissolved when a partner chooses to withdraw from the partnership by giving notice of her withdrawal.
85
What is a "partnership at will"?
A partnership at will is an open-ended partnership that does not have a fixed termination based on a period of time or a particular undertaking.
86
How does a "partnership for a term" or "partnership for an undertaking" dissolve?
A partnership for a definite term or a particular undertaking is dissolved when:
* The term expires or the undertaking is completed;
* All partners agree to dissolve the partnership;
* A partner is expelled from the business in accordance with a power allowable under a partnership agreement;
* A partner dies, unless there is a written agreement between the partners expressly providing otherwise;
* An event occurs that makes it unlawful for the business of the partnership to continue or for the members to carry on the business in a partnership;
* A court decrees the dissolution; or
* Other circumstances provided for in the partnership agreement cause dissolution to occur.
87
May a partnership for a term or a partnership for an undertaking continue after the term is completed or the undertaking has finished?
When the partners continue the business without any settlement or liquidation after the term expires or the undertaking is completed, there is a **presumption** that they have agreed to continue the business.
The partnership is then **transformed** into a **partnership at will**, and the rights and duties of the partners remain the same as they were.
Title to any property vested in the former partnership automatically becomes vested in the partnership continuing the business.
88
What judicial determination is necessary for a dissolution by judicial decree?
Any partnership is dissolved when a judicial determination is made that:
* A partner has committed willful or persistent breaches of the partnership agreement;
* A partner’s conduct is such that it is no longer reasonably practicable to carry on the partnership business with that partner;
* A partner has been guilty of such conduct as tends to prejudicially affect the business;
* A partner is found to be mentally incapacitated or otherwise incompetent;
* A partner is incapable of performing the partnership agreement; or
* Circumstances are such that dissolution would be equitable.
89
Under the UPA, what is "winding up"?
A partnership that has dissolved continues only to wind up its business. Except so far as necessary to wind up or complete prior unfinished transactions, the partners have no authority to act for the partnership.
90
Who may "wind up" a partnership?
Any partner who has not wrongfully dissolved the partnership **or** the legal representative of the last surviving partner may participate in winding up the partnership’s business.
91
When is judicial supervision appropriate?
Any partner or her legal representative or transferee may seek judicial supervision of the winding up by showing cause.
92
What are the consequences of a partner's post-dissolutions acts on the partnership?
After dissolution, the partnership is bound by a partner’s act that is appropriate for winding up the partnership’s affairs or completing transactions unfinished at dissolution.
The partnership is bound by any act undertaken by a partner that **would have bound** the partnership before dissolution **if** the other party does not have notice of the dissolution.
Each partner is liable to the other partners for her share of partnership liability incurred by such post-dissolution acts, **but** a partner who knowingly undertakes an act inappropriate for winding up the partnership business is **liable to the partnership** for any damage caused to the partnership for such an act.
93
When winding up, what is the priority for distributing partnership assets?
Partnership assets are first applied to discharge partnership obligations to creditors, including partners who are creditors of the partnership, before being distributed to the partners.
94
What occurs to settle a partner's partner's account?
Each partner’s account, which reflects not only that partner’s contributions to the partnership, but also the partner’s share of the partnership’s pre-dissolution profits and losses, **must be adjusted** to reflect the profits and losses that result from the liquidation of the partnership assets.
After these adjustments, any partners with a **negative** account balance **must contribute** to the partnership the amount necessary to bring the account balance to zero. Then the partnership must make a final liquidating distribution to any partner with a **positive** account balance.
95
What is a Limited Liability Partnership (LLP)?
A limited liability partnership (LLP) is a partnership in which a partner’s personal liability for obligations of the partnership is eliminated.
96
What is required to form a LLP?
In Georgia, an LLP is formed by filing an LLP election with the office of the clerk of the superior court in any county in which the partnership has an office. The LLP election must include:
1. the name of the partnership,
2. the business, profession, or other activity in which the partnership engages,
3. a statement that the partnership elects to be an LLP, and
4. a statement that the election has been duly authorized.
A partnership becomes an LLP at the time the election is filed, unless a later date is specified in the election.
97
What authorization is necessary to form a LLP?
The transformation of a partnership into an LLP must be approved by the majority of the partners **or** by one or more partners authorized to execute an election, unless otherwise specified in an agreement between the partners.
98
What restrictions are placed on a LLPs name?
The name of an LLP must contain the words “Limited Liability Partnership” or “Ltd. Liability Partnership” or the abbreviations “L.L.P.” or “LLP.”
99
What is a "Limited Liability Limited Partnership" (LLLP)?
A limited partnership may become a limited liability limited partnership (LLLP) if it includes in its certificate of limited partnership a statement that it is a limited liability partnership.
100
What is necessary to form a LLLP?
An amendment to become a limited liability limited partnership by an existing limited partnership generally must be approved by all the partners.
101
What are the limits on LLLP names?
The name of the partnership must contain the words “Limited Liability Limited Partnership,” the abbreviation “L.L.L.P.,” or the designation “LLLP.”
102
What is the legal conseqences of forming an LLLP?
If a limited partnership elects to become an LLLP, all partners (general and limited) are protected from personal liability for an obligation of the partnership.
103
What are the liablities of partners in a LLP?
A limited partner in an LLP is not personally liable for an obligation of an LLP, regardless of the type of obligation (e.g., tort, contract). However, a limited partner is personally liable for his own personal misconduct (e.g., negligence, malpractice).
104
What are the liablities of the partnership under a LLP?
An obligation of an LLP is solely an obligation of the partnership, notwithstanding a contrary provision in the partnership agreement that existed before the vote to transform from a partnership to an LLP.
The LLP’s assets may be reached to satisfy an LLP obligation.
105
How is LLP status terminated?
An LLP continues to be an LLP until a cancellation of LLP election is:
1. executed by a majority of the partners or by one or more partners authorized to execute a cancellation (unless otherwise specified in a partnership agreement) and
2. filed in the office of the clerk of the superior court of each county in which the LLP recorded an LLP election.
106
What is a Limited Partnership (LP)?
A limited partnership is a partnership formed by two or more persons that has at least one general partner and at least one limited partner.
107
What is required to form a limited partnership?
To form a limited partnership, a partnership must file a certificate of limited partnership with the secretary of state.
The certificate must contain:
1. the limited partnership’s name,
2. its in-state address,
3. the name and address of its in-state agent for service of process, and
4. the name and business address of each general partner. All the general partners must sign the certificate.
108
When does a LP certificate become effective?
The limited partnership comes into existence upon the filing of the certificate unless the certificate specifies a later date, which cannot be more than 90days from the date of filing.
109
What is the effect of failing to file a certificate of limited partnership?
If a certificate of limited partnership is **not** filed, then the limited partnership is **not** formed.
If a person makes a contribution to a purported limited partnership erroneously believing that she has become a limited partner but later **knows** either
* no certificate of limited partnership had been filed or
* the certificate inaccurately referred to the contributor as a general partner,
then she is **liable** as a general partner to a third party who transacts business with the purported limited partnership believing in good faith that the person was a general partner.
110
What type of business can be limited partnership?
A limited partnership generally may carry on any business that a partnership without limited partners may carry on.
111
What is required for a person to become a limited partner?
A person may become a limited partner upon the formation of the limited partnership. Thereafter, a person may be admitted as a limited partner by acquiring her interest directly from the partnership **only** upon the written consent of all partners, unless the partnership agreement provides otherwise.
An assignee of a partnership interest—either a general or a limited partner’s interest—may become a limited partner if the partnership agreement permits **or** all partners consent.
112
What voting rights do limited partners possess?
A limited partner has the right to vote only to the extent allowed under the partnership agreement.
The partnership agreement may provide all or certain limited partners with the right to vote on all or specified partnership matters.
113
What record access rights do limited partners possess?
A limited partner has the right to inspect and copy records of the limited partnership. In addition, a limited partner has the right to demand information regarding the business and financial condition of the partnership and other pertinent information about partnership affairs from the general partners.
Nevertheless, a limited partner’s inspection right is **conditioned** on having a proper purpose and is subject to reasonable restrictions agreed upon by the partners.
114
What is a "proper purpose" for a limited partner to request records?
A "proper purpose" means the record request must be reasonably related to the limited partner’s interest as a limited partner.
115
116
What business transactions may a limited partner engage with the limited partnership?
A limited partner may lend money to and transact other business with the limited partnership. In such transactions, the limited partner has the same rights and obligations as a person who is not a partner.
117
Generally, what liabilities does a limited partner hold regarding the limited partnership?
A limited partner is not personally liable for the obligations of a limited partnership and does not become liable by participating in the management or control of the business.
118
What exceptions exist to the general rule regarding limited partners in a limited partnership?
Even though a limited partner may participate in the control of the business without incurring liability, he may be liable to a creditor who was misled into believing he was a general partner on estoppel or fraud grounds.
119
How may a limited partner withdraw from a limited partnership?
A limited partner may withdraw from a limited partnership at the time or upon the occurrence of events specified in writing in the partnership agreement.
120
How are general partners admitted into a limited partnership?
A person may become a general partner upon the formation of the limited partnership. Thereafter, a person may be admitted as a general partner upon the written consent of all partners, unless the partnership agreement provides otherwise.
An assignee of a general partner’s partnership interest may become a limited partner, **but not a general partner**, if the partnership agreement permits it or all other partners consent.
121
What rights and powers do general partners possess in a limited partnership?
Except as provided in the partnership agreement, a general partner has the rights and powers of a partner in a partnership without limited partners and is subject to the same restrictions as such a partner.
122
May a general partner contribute to and have rights to limited partnership distributions?
A general partner may contribute to the limited partnership, share in its losses and profits, and receive distributions from it.
123
May a general party transact business with the limited partnership?
A general partner may lend money to and transact other business with the limited partnership. In such transactions, the general partner has the same rights and obligations as a person who is not a partner.
124
What liability does a general partner hold in a limited partnership?
A general partner is personally liable to third parties for the obligations of the limited partnership. Except as provided in the partnership agreement, a general partner also has liabilities to the partnership and the other partners.
125
How may a general partner withdraw from a limited partnership?
At any time, a general partner may withdraw from a limited partnership by giving 90 days’ written notice to the other partners, or such other notice as is provided for in the partnership agreement.
When the withdrawal violates the partnership agreement, the general partner may be liable to the limited partnership for any damages from her breach of the agreement.
126
Outside withdrawl, what other events can terminate a general partner's status in a limited partnership?
A person ceases to be a general partner of a limited partnership upon the occurrence of one or more of the following events:
* Assignment of her partnership interest, unless the partnership agreement provides otherwise;
* Removal as a general partner in accordance with the partnership agreement;
* Financial difficulties, such as bankruptcy and insolvency;
* Death or adjudicated incompetency of the partner; or
* Termination of the business entity that is a partner.
127
What forms of contribution are permitted under RULPA?
Unless provided otherwise in the partnership agreement, a general or limited partner may contribute cash, property, or services. A partner may also contribute a promise to pay cash (e.g., a promissory note), to provide property, or to perform services.
128
When is a partner liable to contribute to a limited partnership?
Except as provided in the partnership agreement, a partner is obligated to the limited partnership with respect to any written, enforceable promise of a future contribution.
When a partner is unable to perform services because of death or disability, the partner or her estate **must** pay to the partnership the cash value of such services.
129
May the limited partnership reduce or eliminate a partner's obligation to contribute?
A partner’s obligation to make a contribution to the capital of the partnership may be reduced or eliminated by the consent of all the partners.
130
When is a partner liable to LP creditors due to failing to contribute?
With respect to a partnership creditor, the partner is liable for this obligation when the creditor acts in reliance on it.
Nevertheless, the creditor **cannot** hold the partner liable on the obligation, even if the creditor has acted in reliance on it, if all the partners agree to eliminate the obligation.
131
How are LP profits and lossess distributed?
The partners may choose to allocate profits and losses on **any** basis, as long as such allocation is provided in writing in the partnership agreement.
In the absence of such a written agreement, both profits and losses are allocated among the partners **based on each partner’s partnership contributions**, provided such contributions have **not** been returned to the partner.
132
When are LP distributions allocated?
The partners may choose to make distributions on any basis, provided such basis is in writing.
133
How are LP distributions allocated?
Without a written agreement, distributions are allocated among the partners based on each partner’s partnership contributions, provided such contributions have not been returned to the partner.
134
May a partner assign his or her LP partnership interest?
In general, a partnership interest in a limited partnership is personal property that can be assigned in whole or in part.
135
What rights do an assignee to a LP partnership interest retain?
The assignee generally has rights only to receive the distribution and other financial interests to which the assignor partner would otherwise be entitled.
136
What rights do an assignor in a LP partnership interest retain?
Upon assignment, the assignor partner continues to be a partner and to have the power to exercise any rights or powers of a partner. Such provisions can be modified in the partnership agreement.
137
What is required to convert an assignee interest to a limited partner interest?
An assignee of a limited partnership interest, including a general partnership interest, may become a limited partner if the partnership agreement permits it or if all other partners consent.
An assignee **is liable** for the assignor’s obligations to make contributions known to the assignee at the time he became a limited partner, but the assignor **is not released** from those obligations.
138
What events may cause a limited parntership to dissolve?
The following events cause a limited partnership to be dissolved:
* The occurrence of an event specified in the partnership agreement;
* The written consent of all partners;
* The withdrawal of a general partner, unless there is at least one other general partner to carry on the partnership business, and the partnership agreement permits the business to be carried on by the remaining general partner(s), or, within 90 days, all partners agree in writing to carry on the business and appoint any necessary general partners; or
* A decree of judicial dissolution based on a determination that it is not reasonably practical to carry on the business in conformity with the partnership agreement, or a general partner has been guilty of such misconduct as tends to prejudicially affect the carrying on of the business.
139
How possess the task of winding up a LP?
Unless the partnership agreement provides otherwise, the task of winding up the limited partnership’s affairs falls to the general partners who have not withdrawn from the limited partnership.
When there are no such general partners, the limited partners may wind up the partnership’s affairs.
Alternatively, a partner, her legal representative, or an assignee may petition a court to wind up the limited partnership’s affairs if one or more general partners who have not withdrawn have engaged in wrongful conduct, or upon other cause shown.
140
What is the priority of distribution of LP assests upon winding up a LP?
Upon winding up, the partnership’s assets are distributed, in order, to the following entities:
1. Partnership creditors, including partners who are creditors; then
2. Partners **and** former partners who are entitled to distributions that have accrued but not been paid; then
3. Partners for the return of their contributions; and then
4. Partners in the proportions in which they share distributions.
141
What derivative actions do limited partner's possess in a LP?
A limited partner has the right to bring a derivative action on behalf of the limited partnership.
This right does **not** limit any right the limited partner might have under the partnership agreement or otherwise, such as the right to an accounting.
142
When a limited partner brings a derivative action, what is the demand on the general partner?
A limited partner may bring an action if the general partners have refused to do so or if an attempt to cause the general partners to bring such an action is likely to fail.
143
In the derivative action complaint, what must the limited partner provide?
In the complaint, the limited partner is required to detail her effort to prompt the general partners to act or to explain the reasons for not making the effort.
144
Regarding a LP derivative action, who is the proper plainitff?
Except to the extent provided by the partnership agreement, the limited partner **must** be a partner at the time of bringing the action **as well as** at the time of the wrongful transaction, **or** she must have become a partner by operation of law or pursuant to the terms of the partnership agreement from a person who was a partner at the time of the transaction.
145
What recovery is permited in a LP derrivative action initiated by a limited partner?
If the action is successful, then the limited partner may receive an award for her reasonable expenses, including attorney’s fees.
The limited partnership is entitled to the remainder of the judgment proceeds.
