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21 Cards in this Set

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  • Back
Partnership - #1 - Formation
Sometimes exam questions will merely describe the relationship among parties involved in a business and will ask about the rights of the parties among themselves or about the liabilities of the parties for obligations of the business. In such questions you must determine whether there is a partnership; do this by considering the factors above. (i.e. title, designation, amount of activity, sharing of gross returns, sharing of profits, sharing of losses). Remember that the sharing of profits is prima facie evidence of a partnership, but it can be rebutted by other factors indicating that partnership was not intended.
Partnership - #2 - Partnership Property
It is important to remember that a partner has no right to use partnership property other than for the benefit of the partnership
Partnership - #3 - Partnership Property
All partners have an equal right to participate in the management of the partnership unless the partnership agreement provides otherwise
Partnership - #4 - Partnership Property - Distribution
Partners have whatever rights are granted in the partnership agreement as to distribution of profits. If the agreement is silent, partners share profits (and losses) equally.
Partnership - #5 - Partnership Property - Renumeration
Partners have no right to renumeration for their services to the partnership absent an agreement otherwise. EXCEPTION - A surviving partner is entitled to reasonable compensation for winding up the business of the partnership.
Partnership - #6 - Partnership Property - Indemnification
A partner has a right to be indemnified by fellow partners for expenses incurred on behalf of the partnership.
Partnership - #7 - Partnership Property - Contribution
A partner has a right to contribution from fellow partners where the partner has paid more than his share of a partnership liability.
Partnership - #8 - Partnership Property - Inspection
A partner has a right to inspect and copy the parnterhsip books.
Partnership - #9 - Partnership Property - Lawsuits
Generally, a partner has no right to sue the partnership in an action at law (an equitable accounting generally must be had)
Partnership - #10 - Apparent Authority - Exam Tip
It is very important to remember that as agents of the partnership, partners have apparent authority to bind the partnership to any contract within the scope of partnership business. If a contract is outside the scope of partnership business, the partnership generally will not be bound unless the partner has actual authority.
Partnership - #11 - Liability of Partners - Exam Tip
Examiners often test the difference in liability between an incoming partner and an outgoing partner. Remember, an outgoing partner generally remains liabile for all partnership obligations incurred while he was a partner, whereas an incoming partner generally has no liability for obligations incurred before she became a partner EXCEPT to the extent of her capital contribution
Partnership - #12 - Limited partnerships
It is important to remember that a limited partnership is a creature of statute and thus can only exist on compliance with the limited partnership statute. Watch out for exam questions that set up facts where one partner wants limited liability and the other partner tells him that he can be limited partner, but there is no filing with the department of state. Since there is no statutory compliance, a limited partnership is not created and all partners are subject to full liability.
Partnership - #12 - Limited Partnerships - Liability of partners
It is important to remember that a limited partner can lose her limited liability. Probably the most often tested ground for losing liability is taking part in control of the business. Remember, a limited partner cannot run the day-to-day affairs of the limited partnership, although a limited partner may work for the limited partnership as an employee and vote on extraordinary management matters without incurring personal liability.
Agency - #1 - Capacity
Notice the different capacity requirements: A principal must have contractual capacity but an agent need not. Thus, a minor can be an agent but not a principal.
Agency - #2 - Formalities
Remember that no consideration is required to establish an agency relationship; i.e. one may agree to serve as an agent gratuitously and be saddled with the duties of an agent.
Agency #3
For a valid agency to exist, check for the following:
1. Capacity
- Principal must have full contractual capacity.
- Agent must have at least minimal mental capacity.
2. Consent
-Of both parties
3. If contract for an interest in land for more than one year is involved.

Note: Consideration is not required.
Agency #4
The bar examiners sometimes try to play on your emotions by making it seem unfair to terminate the agent's authority at the principal's death. Answer with your head and not with your heart - death terminates an agency unless the agency is irrevocable.
Agency #5 - Apparent Authority
Be sure to remember that in an apparent authority situation, you need to discuss what transpired between the principal and the 3rd party. This differs from an actual authority situation, where you would be discussing what transpired between the principal and the agent. In discussing apparent authority, ask yourself what the principal did to indicate to the third party that the agent had authority.
Agency #6 - Liabilities of the Parties
Remember that the type of principal (disclosed, partially disclosed, or undisclosed) is relevant ony when you are considering whether the agent is liable. Do not discuss the type of principal when analyzing the principal's liability. Any type of principal will be bound as long as the agent had authority.
Agent #7 - Liability on contract
Princiapl - Bound if valid authority existed
Agent - Bound unless principal's existence and identity are disclosed (also can be liable for breach of the implied warranty of authority)
3d party - Bound to principal if valid authority existed; bound to agent if principal partially disclosed or undisclosed and agent enforces contract, but principal entitled to contract benefits
Agency #8 - Subagents
Remember that if the agency agreement is silent regarding compensation, the agent is entitled to reasonable compensation. Also remember that a pricipal generally has no duty to compensate a subagent even if the agent had authotity to hir the subagent.