Power and liability of partners

Question 1

What is the general rule for sharing of profits and losses in a general partnership?

Answer 1

All partners share profits and losses equally, regardless of the amount each partner has contributed

Question 2

Does a partner have a right to demand distributions?

Answer 2

No

Question 3

What is required for decisions to be made in the ordinary course of business for a general partnership?

Answer 3

A majority vote of all partners

Question 4

What is required for decisions that are not in the ordinary course of business for a general partnership?

Answer 4

Unanimous consent

Question 5

What rights can a partner in a general partnership transfer?

Answer 5

Only her economic rights (unless the partnership agreement provides otherwise)

Question 6

Can a partner in a general partnership transfer her governance rights?

Answer 6

No

Question 7

When may a partner in a general partnership use or possess partnership property?

Answer 7

Only when it is on behalf of the partnership

Question 8

What will a court use to determine whether property is partnership property or property owned by individual partners?

Answer 8

(1) Name on the title
(2) Assets used to purchase the property

Question 9

What is the Right to Information in a general partnership?

Answer 9

The right to be informed about partnership business

Question 10

What is the Right to Remuneration?

Answer 10

An exception to the general rule that partners are not entitled to compensation for services rendered to the partnership. Partners are entitled to compensation for services rendered when provided during the winding up period

Question 11

What is the right to reimbursement and indemnification?

Answer 11

A partner is entitled to reimbursement for payments made, and to indemnification for liabilities incurred, in the ordinary course of partnership business

Question 12

When does a partner in a general partnership have the authority to bind the partnership?

Answer 12

When it is in the ordinary course of business and the partner does not know that he lacks authority

Question 13

When can a partner in a general partnership bind the partnership in acts outside the ordinary course of business?

Answer 13

When the partner has the appropriate authority

Question 14

Do partners in a general partnership have the right to transfer partnership property?

Answer 14

Yes, but it is subject to any grant or statement of authority

Question 15

What is the relationship between a partner and the partnership referred to as?

Answer 15

An agency relationship

Question 16

When may improperly transferred partnership property be re-obtained?

Answer 16

So long as the property has not been transferred by the original transferee to a subsequent holder without notice

Question 17

What is a general partner’s liability to third parties?

Answer 17

Jointly and severally liable for all obligations of the partnership

Question 18

What is a newly admitted partner’s liability to third parties?

Answer 18

A newly admitted partner is not liable for obligations incurred prior to the partner’s admission, but the partner’s contributions to the partnership may be used to satisfy prior obligations

Question 19

What is a dissociated partner’s liability?

Answer 19

Liable for obligations incurred prior to dissociation, unless the obligation was materially changed without the dissociated partner’s consent

Question 20

What is the liability of a purported partner?

Answer 20

Same liability as a general partner if:
(1) A third party reasonably relied upon the purported partner’s representation when transacting
(2) The purported partner committed an affirmative act representing himself as a partner

Question 21

Can judgements against a partnership be enforced against individual partners?

Answer 21

No

Question 22

What is a charging order?

Answer 22

The ability of a creditor who has a judgment against an individual partner to enforce the judgment against the partner’s partnership interest by obtaining a lien against the interest

Question 23

How may a person become a limited partner?

Answer 23

Under the partnership agreement or with the consent of all partners

Question 24

How are profits and losses distributed in a limited partnership?

Answer 24

Based on each partner’s contributions. No contribution=no distribution

Question 25

What is a contribution?

Answer 25

Services, property, or some other benefit

Question 26

When is an LP prohibited from making a distribution?

Answer 26

(1) It is unable to pay its debts as they come due (2) The LP is insolvent at the time of the proposed distribution

Question 27

When is unanimous consent required of all partners in an LP?

Answer 27

(1) Amend the LP agreement (2) Amend the certificate of limited partnership to add or delete a statement that the LP is an LP (3) Dispose of all or substantially all of the LP's property (except in the usual course of business) (4) Alter a partner's obligation to make a contribution to the LP (5) Admit a new limited or general partner to the LP

Question 28

What is a general partner in an LP's right to information?

Answer 28

Same as a general partnership?

Question 29

What is a limited partner in an LP's right to information?

Answer 29

Broad rights to inspect and copy any LP information required to be maintained and may, upon reasonable demand, attain from the LP any information related to the limited partner's interest as well as the overall LP's financial condition

Question 30

What duties do general partners owe to the LP?

Answer 30

(1) duty of loyalty (2) duty of care

Question 31

To what extent is a limited partner liable for an LP's obligations?

Answer 31

Only to the extent of its capital contributions

Question 32

Under the ULPA, is a limited partner personally liable if they engage in management and control of the LP?

Answer 32

No. Only personally liable if the limited partner deals with a third party who believes the limited partner is a general partner

Question 33

Does a limited partner owe the LP any duties?

Answer 33

No, unless the LP agreement provides otherwise

Question 34

When may a limited partner file suit to enforce a right of the LP?

Answer 34

Only after making a demand upon the general partners, unless doing so would be futile

Question 35

Is a partner of a limited liability partnership personally liable for debts of the LLP?

Answer 35

No, but they may be directly liable for obligations they incur

Question 36

What is the duty of loyalty?

Answer 36

Partner must not do any of the following: (1) Appropriate partnership opportunities or otherwise improperly benefit from the partnership business (2) Use or possess the partnership property improperly (3) Engage in self-dealing or deals in which the partner has a conflict of interest (4) Compete with the partnership

Question 37

The personal use of partnership property violates which fiduciary duty?

Answer 37

Duty of loyalty

Question 38

What is the duty of care?

Answer 38

Partner must refrain from engaging in: (1) grossly negligent conduct (2) reckless conduct (3) willful misconduct (4) intentional misconduct (5) knowingly violation of the law while conducting partnership business