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Partnerships and LLCs Flashcards

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1
Q

Define “partnership”

A

An association of 2 or more persons to carry on as co-owners of a business for-profit

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2
Q

T/F: A partnership exists on its own, distinct from its partners.

A

True. The partnership can own property, including real property, and can sue/be sued in its own name.

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3
Q

Do you need an agreement to form a general partnership?

A

No. No formal agreement required, but you CAN have one.

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4
Q

Do you need anything in writing to form a general partnership?

A

No. No writing required.

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5
Q

Do partners need to consider themselves to be in a partnership to form a general partnership?

A

No. But if partners act like partners, they may be treated like partners by the people they do business with.

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6
Q

How can you form a general partnership?

A

You can form a general partnership by writing or by conduct. But no specific formalities or filings are required.

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7
Q

What intent is required for the formation of a general partnership?

A

The intent of the parties to carry on as co-owners of a business for profit. NOT the intent to be partners.

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8
Q

Sharing of profits between partners creates a _____________ ______________ of the existence of a partnership.

A

Sharing of profits between partners creates a REBUTTABLE PRESUMPTION of the existence of a partnership.

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9
Q

Jointly owning property, declaring themselves partners, or undertaking a venture that requires extensive activity/participation are _________ of the existence of a partnership.

A

Jointly owning property, declaring themselves partners, or undertaking a venture that requires extensive activity/participation are EVIDENCE of the existence of a partnership.

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10
Q

A partner (IS/IS NOT) a co-owner of partnership property and thus (HAS/HAS NO) transferable interest in the property of the partnership.

A

A partner IS NOT a co-owner of partnership property and thus HAS NO transferable interest in the property of the partnership.
Cannot sell or transfer the property to a 3rd party.

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11
Q

A partner’s individual creditors (HAVE/HAVE NO) interest in the partnership’s property.

A

A partner’s individual creditors HAVE NO interest in the partnership’s property.
Can’t get partnership’s property if seizing partner’s assets.

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12
Q

Each partner has a transferable interest in the partnership itself, which means the partner can transfer what?

A

The partner can transfer his right to share in the profits, losses, and distributions BUT cannot transfer his status as a partner.

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13
Q

T/F: When a partner transfers his right to share in the profits, losses, and distributions, the 3rd party that receives the right becomes a partner.

A

False: The partner cannot transfer his status as a partner. You cannot force people to become partners against their will.

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14
Q

By default, partners in a general partnership share all ordinary distributions, profits, and losses ___________.

A

By default, partners in a general partnership share all ordinary distributions, profits, and losses EQUALLY.
This can be changed in the partnership agreement.

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15
Q

If a partnership agreement for a general partnership modifies the default rule and describes how profits are to be shared among partners, but is silent as to losses, how are losses shared?

A

If the agreement describes how profits are shared but is silent as to losses, then losses are automatically shared the same way as profits.

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16
Q

By default, partners in a general partnership share ____________ in managerial responsibilities.

A

By default, partners in a general partnership share EQUALLY in managerial responsibilities.

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17
Q

In a general partnership, decisions involving matters within the ordinary course of business require a _____________ vote and extraordinary decisions require a __________ vote.

A

In a general partnership, decisions involving matters within the ordinary course of business require a MAJORITY vote and extraordinary decisions require a UNANIMOUS vote.

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18
Q

Each partner has __________ __________ to act on behalf of the partnership, including binding the partnership to __________.

A

Each partner has APPARENT AUTHORITY to act on behalf of the partnership, including binding the partnership to CONTRACTS.

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19
Q

A partnership will be bound by the act of any partner, which is in the _______ _______ of partnership business OR which is of the ___________ carried out by the partnership, UNLESS the acting partner had NO _____________ authority to act for the partnership in the particular matter (e.g., the other partner’s limited his authority, or the action required a vote by the other partners); AND the person with whom the partner was dealing ___________________ knew or had received __________ that the partner lacked authority.

A

A partnership will be bound by the act of any partner, which is in the ORDINARY COURSE of partnership business OR which is of the KIND carried out by the partnership, UNLESS the acting partner had NO ACTUAL authority to act for the partnership in the particular matter (e.g., the other partner’s limited his authority, or the action required a vote by the other partners); AND the person with whom the partner was dealing SUBJECTIVELY knew or had received NOTIFICATION that the partner lacked authority.
(Doesn’t matter what the 3rd party should have known - we want to protect outsiders)

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20
Q

A partnership (WILL/WILL NOT) be bound by contracts that are ______________ the scope of partnership business, UNLESS the partner had __________ _____________.

A

A partnership WILL NOT be bound by contracts that are OUTSIDE the scope of partnership business, UNLESS the partner had ACTUAL AUTHORITY.

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21
Q

In a general partnership, each individual partner is __________ ___________ for all _______________ entered into by any other partner AND for all ______________ committed by any partner or employee of the partnership, as long as the contract or tort was within the scope of partnership business.

A

In a general partnership, each individual partner is PERSONALLY LIABLE for all CONTRACTS entered into by any other partner AND for all TORTS committed by any partner or employee of the partnership, as long as the contract or tort was within the scope of partnership business.

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22
Q

In a general partnership, each partner is ____________ and ____________ __________ for all obligations of the partnership, which means that a plaintiff can sue any individual partner for the _________________ liability regardless of which partner was actually at fault.

A

In a general partnership, each partner is JOINTLY and SEVERALLY LIABLE for all obligations of the partnership, which means that a plaintiff can sue any individual partner for the ENTIRE liability regardless of which partner was actually at fault.

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23
Q

In Florida, joint and several liability still exists for _________ and _________.

A

In Florida, joint and several liability still exists for AGENTS and PARTNERS.

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24
Q

Generally, in order to collect from an individual partner, the creditor must first ______________________ the assets of the partnership.

A

Generally, in order to collect from an individual partner, the creditor must first EXHAUST the assets of the partnership.

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25
Name the 3 situations where a creditor of a partnership can sue a partner without having to first exhaust the partnership assets.
1. The partnership is in bankruptcy; 2. The individual partner consents; or 3. The individual partner was the primary tortfeasor who caused the claim.
26
All partners in a general partnership share liabilities and losses __________. If a particular partner pays more than his share of the partnership’s liabilities, he can seek ____________ from the other partners for their ______ _________ shares.
All partners in a general partnership share liabilities and losses EQUALLY. If a particular partner pays more than his share of the partnership’s liabilities, he can seek INDEMNIFICATION from the other partners for their PRO RATA shares.
27
Partners (WILL/WILL NOT) be criminally liable for the crimes of other partners, even if the crimes were within the scope of partnership business, UNLESS the other partners participated as ________ or _________.
Partners WILL NOT be criminally liable for the crimes of other partners, even if the crimes were within the scope of partnership business, UNLESS the other partners participated as PRINCIPALS or ACCESSORIES
28
To become a partner is an existing partnership, you need the consent of _______ partners. This consent can be __________ or __________.
To become a partner is an existing partnership, you need the consent of ALL partners. This consent can be EXPRESS or IMPLIED.
29
Anyone who is __________ of entering into a __________ ______________ may be a partner.
Anyone who is CAPABLE of entering into a BINDING CONTRACT may be a partner.
30
If a purported partner lacks _________ (e.g. is a minor or incompetent person), the partnership with that person is _________ _________. The partnership will continue to exist and can engage in partnership activities, unless a partner takes action to _________ it. However, the purported partner does not have _______ _________ for partnership obligations. Their liability is capped to the extent of their __________ ________________.
If a purported partner lacks CAPACITY (e.g. is a minor or incompetent person), the partnership with that person is NOT VOID. The partnership will continue to exist and can engage in partnership activities, unless a partner takes action to DISSOLVE it. However, the purported partner does not have FULL LIABILITY for partnership obligations. Their liability is capped to the extent of their CAPITAL CONTRIBUTIONS.
31
_________ refers to the situation where a partner leaves a partnership. This can be _________ or may be caused by numerous circumstances, like wrongful conduct or bankruptcy.
DISSOCATION refers to the situation where a partner leaves a partnership. This can be VOLUNTARY or may be caused by numerous circumstances, like wrongful conduct or bankruptcy.
32
Dissociation of a partner (DOES/DOES NOT) automatically cause the partnership to dissolve (unless there were only 2 partners).
Dissociation of a partner DOES NOT automatically cause the partnership to dissolve (unless there were only 2 partners).
33
Problems with dissociation can arise if a third-party has no __________ of the dissociation, and _____________ ___________ the person is still a partner.
Problems with dissociation can arise if a third-party has no NOTICE of the dissociation, and REASONABLY BELIEVES the person is still a partner.
34
A dissociated partner’s acts can still bind the partnership for up to _____ ____ after dissociation.
The dissociated partner’s acts can still bind the partnership for up to ONE YEAR after dissociation.
35
The dissociated partner may be liable for ______________ incurred by the partnership for up to ____ _______ after dissociation.
The dissociated partner may be liable for OBLIGATIONS incurred by the partnership for up to ONE YEAR after dissociation.
36
When a partner is dissociating, the outgoing partner or the partnership can cut the liability period to _____ days (instead of 1 year) by filing a ______ of ___________. All third-parties are deemed to have notice of the dissociation ____ days after such filing.
When a partner is dissociating, the outgoing partner or the partnership can cut the liability period to 90 days (instead of 1 year) by filing a NOTICE of DISSOCIATION. All third-parties are deemed to have notice of the dissociation 90 days after such filing.
37
________ refers to the termination of a partnership.
DISSOLUTION refers to the termination of a partnership.
38
Once dissolution occurs, the partnership continues to exist for a period of time to “____ ____” its business activities.
Once dissolution occurs, the partnership continues to exist for a period of time to “WIND UP” its business activities.
39
A partnership will be bound by a partner’s post-dissolution act if the act is ___________ for winding up the partnership (e.g., settling claims, selling assets, collecting debts, etc.).
A partnership will be bound by a partner’s act after dissolution if the act is APPROPRIATE for winding up the partnership (e.g., settling claims, selling assets, collecting debts, etc.).
40
A partnership will be bound by a partner’s post-dissolution acts with a third party, if that third party did not have ________________ of the dissolution. However, the partner that makes this action will be liable for any _______ caused to the partnership from the liability (as long as the partner _____ of the dissolution).
A partnership will be bound by a partner’s post-dissolution acts with a third party, if that third party did not have NOTICE of the dissolution. However, the partner that makes this action will be liable for any DAMAGE caused to the partnership from the liability (as long as the partner KNEW of the dissolution).
41
If a partner files a _________ of __________with the Department of State, third parties are deemed to have ________ _________ days after the statement is filed.
If a partner files a STATEMENT of DISSOLUTION with the Department of State, third parties are deemed to have NOTICE 90 days after the statement is filed.
42
At any time after the dissolution of a partnership and before ______ ____ is completed, the partners can change their minds and decide to ________________ the partnership business. This requires a ______ vote. If this happens, the dissolution is __________ _________, as if it never occurred. Any third parties who ________________ on the _________, or entered into ___________related to winding up are not affected by this decision to continue the partnership.
At any time after the dissolution of a partnership and before WINDING UP is completed, the partners can change their minds and decide to CONTINUE the partnership business. This requires a UNANIMOUS vote. If this happens, the dissolution is RETROACTIVELY NULLIFIED, as if it never occurred. Any third parties who RELIED on the DISSOLUTION, or entered into TRANSACTIONS related to winding up are not affected by this decision to continue the partnership.
43
In what order are assets distributed upon dissolution of a general partnership? (Chicago Police Department)
1. Creditors (including partners who are creditors) 2. Repayment of Partner Contributions 3. Distribution of remaining assets to partners Chicago Police Department
44
In dissolution, if one partner is forced to pay more than his share of the partnership’s debts, he may seek _____________________ from the other partners.
In dissolution, if one partner is forced to pay more than his share of the partnership’s debts, he may seek CONTRIBUTION from the other partners.
45
Generally, partners are not entitled to any _______________ or __________ for their partnership activities during the life of the partnership, other than their share of profits. This can be modified in the ___________ __________. One exception is for activities associated with __________ _______ the business after dissolution.
Generally, partners are not entitled to any COMPENSATION or SALARY for their partnership activities during the life of the partnership, other than their share of profits. This can be modified in the PARTNERSHIP AGREEMENT. One exception is for activities associated with WINDING UP the business after dissolution.
46
Partners are entitled to _________ for activities that they undertake to help wind up the business and settle its affairs.
Partners are entitled to COMPENSATION for activities that they undertake to help wind up the business and settle its affairs.
47
Define Limited Partnership.
A limited partnership is an arrangement that allows people to become involved with a partnership without exposing themselves to liability for the acts of other partners or the partnership.
48
To form a limited partnership, there must be at least one _________ partner and one __________ partner.
To form a limited partnership, there must be at least one GENERAL partner and one LIMITED partner.
49
In a limited partnership, the general partners have the _________ rights, obligations, and liabilities as they would have if this was a general partnership.
In a limited partnership, the general partners have the SAME rights, obligations, and liabilities as they would have if this was a general partnership.
50
In a limited partnership, the limited partners (ARE/ARE NOT) personally liable for the actions of the general partners or the partnership.
In a limited partnership, the limited partners ARE NOT personally liable for the actions of the general partners or the partnership.
51
Limited partnerships must be formed in strict accordance with the _________ requirements. If you fail to satisfy the requirements, you are left with a __________ partnership, and the “limited partners” have _______ liability.
Limited partnerships must be formed in strict accordance with the STATUTORY requirements. If you fail to satisfy the requirements, you are left with a GENERAL partnership, and the “limited partners” have TOTAL liability.
52
To form a limited partnership, the partners must file a ________________ of limited partnership with the secretary of state.
To form a limited partnership, the partners must file a CERTIFICATE of limited partnership with the secretary of state.
53
The certificate of limited partnership must state the ______ of the partnership, the name and address of each _______________ partner , and the name and address of the _______ for _________ of ______.
The certificate of limited partnership must state the NAME of the partnership, the name and address of each GENERAL partner , and the name and address of the AGENT for SERVICE of PROCESS.
54
The certificate of limited partnership must be signed by the __________ partners only.
The certificate of limited partnership must be signed by the GENERAL partners only.
55
T/F: Limited Partners need to sign and be identified in the certificate of limited partnership.
False. Limited Partners do not need to sign, or be identified in the filing.
56
In addition to filing a certificate of limited partnership, the partners of an limited partnership must also execute a what?
In addition to filing a certificate of limited partnership, the partners of an LP must also execute a WRITTEN PARTNERSHIP AGREEMENT
57
What designations/words must the name of a limited partnership include?
The partnership name must contain the words “limited partnership”, “limited”, “L.P.”, “LP”, or “Ltd.” This puts third parties on notice that some of the partners may be insulated from liability.
58
T/F: The name of the partnership cannot include the names of general partners and limited partners (or personal names at all).
False. The name of the partnership may include the names of general partners and limited partners (or no personal names at all).
59
The name of a limited partnership must be ____________________ from the name of any other entity on file with the secretary of state.
The name of a limited partnership must be DISTINGUISHABLE from the name of any other entity on file with the secretary of state.
60
Name the three ways a limited partnership can add new general or limited partners.
1. As provided in the partnership agreement, 2. As the result of a conversion or merger, OR 3. With the express consent of ALL partners.
61
In a limited partnership, all general partners are _______ and _________ liable for all obligations of the limited partnership and other partners. They are treated the ____________________ as a partner in a general partnership.
In a limited partnership, all general partners are JOINTLY and SEVERALLY liable for all obligations of the limited partnership and other partners. They are treated the SAME as a partner in a general partnership.
62
In a limited partnership, limited partners are not __________ liable for obligations of the limited partnership or the other partners, even if the limited partner participates in __________ and _________ of the limited partnership. The only things that limited partners are liable for are their _______ ____________ and their own ___________.
In a limited partnership, limited partners are not PERSONALLY liable for obligations of the limited partnership or the other partners, even if the limited partner participates in MANAGEMENT and CONTROL of the limited partnership. The only things that limited partners are liable for are their CAPITAL CONTRIBUTIONS and their own ACTIONS.
63
By default, in a limited partnership, the partners share profits in _______________ to the value of the partners’ __________, regardless of whether you are a general partner or a limited partner. This _______ be modified by agreement.
By default, in a limited partnership, the partners share profits in PROPORTION to the value of the partners’ CONTRIBUTION, regardless of whether you are a general partner or a limited partner. This CAN be modified by agreement.
64
In a limited partnership, most ____________decisions are made by the _______ partners only. But certain ____________ decisions also require the participation of limited partners
In a limited partnership, most OPERATIONAL decisions are made by the GENERAL partners only. But certain MAJOR decisions also require the participation of limited partners
65
``` Limited partners (MAY/MAY NOT) have management responsibilities under the partnership agreement. Participation in management (DOES/DOES NOT) expose the limited partner to liability for partnership actions. ```
Limited partners MAY have management responsibilities under the partnership agreement. Participation in management DOES NOT expose the limited partner to liability for partnership actions.
66
In what order are assets distributed upon dissolution of a limited partnership? (Chicago Police Department Pro)
1. Creditors (including partner creditors) 2. Repayment of Partner contributions 3. Distribution of remaining assets Pro Rata by contribution amount
67
If the limited partnership’s assets are insufficient to satisfy all creditor obligations, the _________ ___________ at the time that the obligation was ________ must ___________ to satisfy the obligation.
If the limited partnership’s assets are insufficient to satisfy all creditor obligations, the GENERAL PARTNERS at the time that the obligation was INCURRED must CONTRIBUTE to satisfy the obligation.
68
In a ________ action, a partner can sue the limited partnership or another partner. The partner must plead and prove an ________ or ____________ injury to ______________ (as opposed to the partnership itself).
In a DIRECT action, a partner can sue the limited partnership or another partner. The partner must plead and prove an ACTUAL or THREATENED injury to HERSELF (as opposed to the partnership itself).
69
In a _________ action, a partner can maintain the action to enforce a right of the limited partnership. To bring such an action, the partner must make a demand on the ______________ partners to bring an action and the partners do not do so within a _____________ time, OR show the making of such a demand would be _________________.
In a DERIVATIVE action, a partner can maintain the action to enforce a right of the limited partnership. To bring such an action, the partner must make a demand on the GENERAL partners to bring an action and the partners do not do so within a REASONABLE time, OR show the making of such a demand would be FUTILE.
70
In a limited liability partnership, ________ partners are protected from liability, including liability for _________________ actions and the acts of other individual _______________.
In a limited liability partnership, ALL partners are protected from liability, including liability for PARTNERSHIP actions and the acts of other individual PARTNERS.
71
What is required to elect limited liability status?
A FILING
72
When a “_________ ___________” elects limited liability status, or when a new entity forms with limited liability for all partners, it becomes a limited liability partnership (LLP).
When a “GENERAL PARTNERSHIP” elects limited liability status, or when a new entity forms with limited liability for all partners, it becomes a limited liability partnership (LLP).
73
When a “__________ __________” that already exists elects limited liability status, it becomes a limited liability limited partnership (LLLP).
When a “LIMITED PARTNERSHIP” that already exists elects limited liability status, it becomes a limited liability limited partnership (LLLP).
74
The main distinction between a LLP and an LLLP is in how they are ___________
The main distinction between a LLP and an LLLP is in how they are STARTED
75
What words/designations must the name of a limited liability partnership contain (LLP)?
``` Registered Limited Liability Partnership Limited Liability Partnership R.L.L.P. RLLP L.L.P. LLP ```
76
What words/designations must the name of a limited liability limited partnership contain (LLLP)?
Limited Liability Limited Partnership L.L.L.P. LLLP
77
In a LLP or LLLP, a partner is not ___________ liable for the obligations of the partnership or the other partners, whether arising in contract, tort, or otherwise. The liability _________________ be established directly, indirectly, or by way of contribution. BUT, partners remain liable for their own ___________ _________.
In a LLP or LLLP, a partner is not PERSONALLY liable for the obligations of the partnership or the other partners, whether arising in contract, tort, or otherwise. The liability CANNOT be established directly, indirectly, or by way of contribution. BUT, partners remain liable for their own WRONGFUL ACTS.
78
What are the partners in a general partnership called?
Partners
79
What are the partners in a limited partnership called?
General partners and limited partners
80
What are the partners in a limited liability partnership called?
Partners
81
What are the partners in a limited liability limited partnership called?
General partners and limited partners
82
What is a foreign partnership?
A partnership from another state or country - outside of Florida
83
Can a foreign partnership transact business in Florida?
A foreign partnership (from another state or country) cannot transact business in Florida, unless they register with the secretary of state.
84
What are the consequences of a foreign partnership conducting business in Florida without registering?
If a foreign partnership conducts business without registering, its contracts remain valid. It cannot sue in Florida court, but it can defend itself if sued. The partnership can cure this by registering and potentially paying fines.
85
What is the main governing document for an LLC called?
Articles of Organization
86
What does LLC stand for?
Limited Liability Company
87
In addition to the Articles of Organization, an LLC will also typically have another governing document. What is it called?
Operating Agreement
88
An LLC is comprised of ______________
An LLC is comprised of MEMBERS
89
In an LLC, members share profits and losses _____________ based on contribution to the entity.
In an LLC, members share profits and losses PRO-RATA based on contribution to the entity.
90
In an LLC, members and managers are generally ______ ____________ liable for obligations of the LLC (subject to some exceptions for their own wrongful conduct).
In an LLC, members and managers are generally NOT PERSONALLY liable for obligations of the LLC (subject to some exceptions for their own wrongful conduct).
91
In an LLC, members ________ transfer their interests in profits and losses, but _________ transfer their right to control the entity.
In an LLC, members MAY transfer their interests in profits and losses, but CANNOT transfer their right to control the entity.
92
T/F: An LLC is required to have managers.
False. LLCs are not required to have managers.
93
By default, LLCs (DO/DO NOT) have managers—only members.
By default, LLCs DO NOT have managers—only members.
94
In what documents can the LLC provide for the existence of managers? What happens if the LLC chooses to have managers?
The articles of organization or the operating agreement may provide for the existence of managers, which changes the way the LLC is managed.
95
If the LLC has no managers, it is called a ________-________ LLC.
If the LLC has no managers, it is called a MEMBER-MANAGED LLC.
96
In a member-managed LLC, decisions are made by a _____-____-________ of the members.
In a member-managed LLC, decisions are made by a MAJORITY-IN-INTEREST of the members. Note, this is by majority of ownership stake, not by majority of individuals. A single member with a 51% interest has control.
97
If the LLC has managers, it is called a _________-________ LLC, which means that the power to __________ the entity is vested in the managers.
If the LLC has managers, it is called a MANAGER-MANAGED LLC, which means that the power to CONTROL the entity is vested in the managers.
98
T/F: Managers are not “officers.”
True. Managers are not “officers.” The LLC can also have officers like a CEO, President, Treasurer, etc. Managers are their own unique classification that exist in LLCs only.
99
In a manager-managed LLC, decisions are made by a _________ _____________ of the managers.
In a manager-managed LLC, decisions are made by a MAJORITY VOTE of the managers.
100
In a manager-managed LLC, the members (DO/DO NOT) have the right to exercise direct control over the LLC. They assert their rights by ___________ the ___________.
In a manager-managed LLC, the members DO NOT have the right to exercise direct control over the LLC. They assert their rights by APPOINTING the MANAGERS.
101
How are the managers of an LLC chosen or removed?
Managers are chosen or removed by the consent of a majority-in-interest of the members.
102
In a member-managed LLC, when will the actions of a member bind the LLC?
The actions of any member, in the ordinary course of business, will bind the LLC, unless (1) the LLC expressly limited the member’s authority and (2) the third-party was aware of such limitation.
103
In a manager-managed LLC, when will the actions of a manager bind the LLC? When will the action of a member bind a manager-managed LLC?
The actions of any manager, in the ordinary course of business, will bind the LLC, unless (1) the LLC expressly limited the manager’s authority and (2) the third-party was aware of such limitation. However, the members have no authority to bind the LLC to agreements. Members are not agents of a manager-managed LLC.
104
Under what 5 circumstances will the members/managers of an LLC be personally liable?
1. A violation of a criminal law, or 2. A transaction where member or manager derived an improper personal benefit, or 3. An improper distribution, or 4. In a situation where the LLC or member is plaintiff in a lawsuit, a failure to act that constituted a conscious disregard of the best interest of the LLC, or 5. In a situation where the LLC is involved in a lawsuit but is not the plaintiff, an act committed with recklessness, bad faith, malicious purpose, or in a manner exhibiting wanton and willful disregard of human rights, safety, or property.

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