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42 Cards in this Set

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partnerships -- partnership, defined
A partnership is an association of two or more persons
1. to carry on a business as co-owners for profit, whether or not the parties intend to form a partnership, or
a. Intent to divide profits is a KEY requirement; merely sharing gross receipts is NOT enough.
2. to carry on any purpose or activity not for profit, when the parties intend to form a partnership
partnerships -- joint venture, defined
A joint venture or syndicate is a form of partnership designed for accomplishment of a single business transaction.
a. Each joint venturer is both a principal for himself and an agent for his associates.
partnerships -- legal status of a partnership?
1. Partnership is a separate legal entity unless provided otherwise.
2. A partnership has the power and authority to make enumerated Ks, derivative agreements and other agreements
3. A partnership may grant rights to any person.
partnerships -- what statutory default rules can only be modified in the partnership agreement?
i. Partnership is a legal entity separate from its partners;
ii. Property acquired by partnership is partnership property; and
iii. Partner is not a co-owner of partnership property and has no individual interest.
partnerships -- formalities for partnership formation?
1. To be a partner, an individual must have legal capacity to enter into a binding K.
2. No other specific formalities
a. Partnership may be express or implied (even solely from conduct of parties)
b. Writing is required is partnership agreement cannot be performed within one year.
3. Partnership must be for a legal purpose (if illegal, partnership is VOID).
partnerships -- what must a statement of partnership existence include?
a. MUST include: (i) name of partnership; (ii) address of registered office; (iii) name and address of registered agent.
partnerships -- what approval is required for amendments of the partnership agreement?
1. Rule: Unless otherwise provided, ALL partners MUST approve amendments.
partnerships -- approval required for adding new members to partnership?
1. Rule: Requires approval of ALL partners
partnerships -- factors to look at to determine who is a partner (or, is there a partnership at all)?
1. Rule: Receipt of a share of the profits of a business is prima-facie evidence that he is a partner.
a. Exception to this inference of partner status Profits received in payment as:
i. A debt or interest on a loan;
ii. Wages;
iii. Rent.
2. Sharing losses?
a. Rule: Absence of an agreement to share losses is evidence that parties did NOT intend to form a partnership.
3. Control
4. Contribution (money/services/skill)
5. Rights upon dissolution
partnerships -- what is partnership by estoppel?
1. Rule: When a person, by words or conduct, represents herself or permits another to hold her out as a partner, she will be liable to third persons who enter into a transaction with the actual or purported partnership
partnerships -- what is partnership property and who owns it?
1. Partnership Contribution - Cash, property or services rendered, or a PN or other obligation to contribute the same.
2. Everything that the partnership owns.
a. Rule: unless otherwise provided, property acquired by partnership is property of the partnership and not the partners individually.
b. What’s includible? No restriction unless PA provides.
i. KEY factor The partners’ intent to devote the property to partnership purpose.
ii. Factors:
1. Acquisition with partnership funds
2. Use of property
3. Improvement of property by partnership
4. Relation of property to business of the partnership
5. Title of property
6. Entry in partnership books
7. Maintenance and expenses
partnerships -- what is a partner's interest in the partnership property?
1. Rule: Unless otherwise provided, a partner is NOT a co-owner of partnership property and has no interest in specific property. Rather, a partner has only an economic interest in partnership property, which is transferable and is personal property.
partnerships -- effect of a partner's transfer of his interest in the partnership property?
a. Rule: In general, a transfer, in whole or in part, of a partner’s economic interest is permissible at any time and does not by itself cause disassociation or dissolution.
i. NOTE PA can prohibit transfers.
partnerships -- rights of transferring partner and transferee receiving partner's economic interest?
b. Rights of the Transferee? Has a right to
i. Receive distributions which the transferor otherwise would have been entitled to;
ii. Receive upon dissolution and winding up the amount to which transferor would have been entitled;
iii. See a judicial determination to wind up partnership where equitable
iv. NOTE Transferee has no liability as a partner solely as a result of the transfer.
c. Rights of Transferor?
i. Retains rights and duties of a partner other than an economic interest.
partnerships -- default statutory rules governing relations between partners?
1. Each partner is entitled to an equal share of the profits and is chargeable with a share of losses equal to share of profits.
2. All partners have equal rights in the management and conduct of business of the partnership.
3. No person shall become a member of the partnership without the consent of ALL partners.
4. Difference regarding ordinary matters relating to conduct of partnership business may be decided by majority vote of the partners
5. An act outside the ordinary course of business of a partnership requires consent of ALL partners.
6. A partner may use or possess partnership property on behalf of the partnership.
7. A partner has the power to delegate to other persons the partner’s rights and powers to manage and control the business of the partnership and such delegation shall not cause the partner to cease to be a partner nor the delegatee to become a partner.
partnerships -- scope of fiduciary duty of loyalty owed by partners to one another and the partnership?
a. An accounting for any profit or benefit derived from conduct of partnership business/winding up/use of partnership property.
b. Refrain from dealing with partnership as or on behalf of a party having an adverse interest to the partnership;
c. Refrain from competing with the partnership
partnerships -- scope of duty of care owed by partners to one another and the partnership?
a. Refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.
partnerships -- scope of duty of good faith and fair dealing owed by partners to one another and the partnership?
a. Cannot be eliminated by PA; nor can liability for breach be abrogated, though it may be minimized.
partnerships -- when can partner get access to books and records of partnership?
upon reasonable demand, for any purpose reasonably related to the partner’s interest as a partner in the partnership.
partnerships -- types of legal actions between partners?
1. By partnership -- for breach of PA or violation of duty owed to PA.
2. By partners
3. Derivative Action -- Partner may bring derivative action in Chancery in the right of a partnership to recover a judgment in the partnership’s favor.
a. P must be a partner when bringing action and at time of transaction complained of.
b. NOTE complaint must state with particularity the effort, if any, of P to secure initiation of the action by the partnership or the reason for not making the effort.
partnerships -- effect of partnership on relationship between partners and third parties?
i. Rule: Every partner is an agent of the partnership. The act of every partner for apparently carrying on in the ordinary course of the partnership’s business BINDS the partnership.
partnerships -- effect of one partner's notice of knowledge?
1. Rule: A partner’s knowledge, notice or receipt of a notification of a fact relating to the partnership is effective immediately as knowledge by, notice to or receipt of a notification of the partnership.
partnerships -- general rule for liability of partners?
1. Rule: Generally, ALL partners are jointly and severally liable for all obligations of partnership unless otherwise agreed by the claimant or provided by law.
partnerships -- exceptions to general rule of J + S liability of partners?
i. NOTE No partner is liable for any obligation entered into before he became a partner.
ii. Rule: A partner is liable for his own negligence or willful misconduct.
iii. Rule: Partners are not liable for criminal acts of another partner, even if conducted within scope of partnership, unless they participated in the commission of the crime.
partnerships -- When will a partner be dissociated from partnership?
1. Upon notice from a partner
a. Rule: A partner has the power to disassociate at any time, rightfully or wrongfully, by express will after providing notice to the partnership.
2. Happening of an event agreed to in the PA.
3. Expulsion
4. Filing a voluntary petition in bankruptcy or being adjudged bankrupt or insolvent.
5. Death, appointment of a guardian, or judicial determination partner is incapable of performing duties.
paretnerships -- when can a partner be expelled from the partnership?
a. pursuant to PA, or
b. by unanimous vote of other partners if:
i. it is unlawful to carry on business with that partner, or
ii. there has been a transfer of all or substantially all of that partner’s economic interest which has not been foreclosed
c. by court order (Chancery) because
i. partner engaged in conduct materially adverse to the partnership business; or
ii. partner willfully or persistently committed a material breach of PA or of a duty owed; or
iii. partner engaged in conduct relating to partnership business which makes it not reasonably practicable to carry on the business of the partnership with that partner
partnerships -- when is a partner's dissociation wrongful?
1. Dissociation is in breach of PA;
2. Partner withdraws before expiration of partnership for a specific term;
3. Partner is expelled by judicial determination;
4. Partner is disassociated because of financial insolvency.
partnerships -- what is effect of dissociation?
1. NO right to participate in management;
2. NO duty of loyalty regarding competition;
3. Duty of loyalty and care continue ONLY with respect to matters/events before dissociation unless partner participates in winding up.
partnerships -- dissociated partner's buyout right?
a. Rule: Partnership shall purchase dissociated partner’s interest in partnership.
i. Buyout price = FMV of interest as of date of dissociation.
1. NOTE Dissociated partner may bring action against partnership to determine buyout price.
partnerships -- dissociated partner's ability to bind partnership?
a. For one year after dissociation, partnership is bound if 3d party:
i. Reasonably believed dissociated partner was a partner and reasonably relied on this belief;
ii. Has no notice of dissociation;
iii. Is not deemed to have notice or knowledge of the dissociation.
partnerships -- what events cause dissolution and winding up?
1. Rule: A partnership is dissolved and MUST be wound up when:
a. Partner expresses will to withdraw;
b. Term or undertaking expires
c. Chancery court determines no longer reasonably practicable to carry on partnership business
partnerships -- extent of partner liability in a registered limited liability partnership?
iii. Limited Liability Full Shield
1. Obligations of LLP’s are solely those of the partnership; a partner is not personally liable.
partnerships -- limited partnership, defined
i. Defined: A limited partnership is a partnership formed by two or more persons under the laws of the state of DE and having one or more general partners and one or more limited partners and includes a registered limited liability limited partnership.
partnerships -- limited partnership formation requirements?
1. Partnership Agreement -- may be oral, written, or implied. ALL partners are bound whether or not they execute.
2. File a Certificate of Limited Partnership with Sec. of State
3. Signed (the Certificate of LP) by all GPs.
partnerships -- what must be included in a certificate of limited partnership?
a. MUST include: name of LP (name must designate LP status); address of registered office; name and address of registered agent; name and business, residence or mailing address of each GP.
partnerships -- exceptions to general rule of non-liability of limited partners?
a. Where limited partner is also a general partner
b. Where limited partner participates in the management and control of the business, BUT only to the extent a 3d party doing business with the limited partnership reasonably believes, based upon the limited partner’s conduct, that he or she is a general partner.
partnership -- when are limited partnerships unable to make distributions?
2. Distributions are NOT permitted if, after giving effect to the distribution, the liabilities of the LP would exceed the FMV of the LP assets.
a. NOTE A limited partner receiving a distribution under such circumstances and knowing that such a distribution constitutes a violation is liable to the LP in the amount of the distribution for up to 3 years after date of the distribution.
partnerships -- withdrawal of a limited partner permitted when?
1. Rule: Unless otherwise provided, a limited partner may NOT withdraw prior to dissolution and winding up.
a. NOTE PA may prohibit withdrawal.
partnerships -- removal of general partners by limited partners?
1. DRULPA is silent.
a. As a result, if LP seeks to remove a GP, he or she must rely on contractual language entitling them to do so.
i. DE courts rely on: (1) compliance with express K provisions; (2) implied covenant of good faith and fair dealing; and General Assembly’s intent that removal provisions be subject of contractual rather than legislative mandate.
partnerships -- events causing dissolution of a limited partnership?
1. Time or event specified in PA
2. Written consent of all GPs
3. Withdrawal and there is one or no GP remaining
a. Unless (1) PA permits biz to be carried on by a single GP; or (2) within 90 days of last GPs withdrawal, majority of remaining partners agree to continue biz and appoint one or more additional GPs.
4. Judicial dissolution (not reasonably practicable to carry on biz).
partnerships -- who winds up a limited partnership in order of preference?
a. A general partner who has not wrongfully dissolved;
b. A limited partner;
c. Person approved by more than 50% in interest of the limited partner.
partnerships -- who gets paid and in what order upon dissolution of a limited partnership?
a. Creditors (including partners who are creditors)
b. Partners in satisfaction of interim distributions or distributions upon withdrawal
c. Partners for return of contribution
d. Partners according to their proportional share in distributions.