Partnership Flashcards

Front 1

What is a partnership?

Back 1

General partnership is an association of two or more persons who are carrying on as CO-OWNERS of a business for PROFIT.

**Profit is key because it will be a close case

Front 2

Why is sharing of profits important in a partnership?

Back 2

The contribution of money or services in return for a share of the profits if any is prima facie evidence of a general partnership

Front 3

What are the liabilities of partners to third parties?

Back 3

Agency Principles Apply.
1. Partners are agents of the partnership for carrying on usual partnership business.
2. Partnership is bound by TORTS committed by partners in scope of partnership business.
3. Partnership is bound by CONTRACTS entered by partners with AUTHORITY.

Front 4

What are the rules for the liability of incoming partners to the partnership debts?

Back 4

As a rule, incoming partners are not liable personally for prior debts.

**EXCEPT, any money paid into the partnership by the incoming partner may be used by the partnership to satisfy those debts.

Front 5

What are the rules for the liability of outgoing partners to the partnership debts?

Back 5

Outgoing partners retain liability even on future debts UNTIL notice of their withdrawal has been given to all KNOWN and even POTENTIAL creditors

**BUT liability TERMINATES upon the death of outgoing partners

Front 6

What is general partnership liablity by estoppel?

Back 6

One who represents to a third-party that a partnership exists will be liable as if a partnership exists – representers are liable as if general partners

Front 7

What is a limited partnership?

Back 7

A partnership with at least one general partner and at least one limited partner (must have 2 different types)

Formation: Must file a LIMITED PARTNERSHIP CERTIFICATE that includes the names of all general partners – must be filed in NY’s dept of state

Front 8

What are the liability and control issues involved in a limited partnership?

Back 8

General Partners – they’re liable personally for all partnership obligations, BUT they also have the right to MANAGE the business

Limited Partners – they have limited liability (not liable for partnership’s obligations) BUT they may not generally manage this limited partnership business.

Front 9

What is a registered limited liability partnership?

Back 9

Formation: must register with the dept of state by filing a CERTIFICATE OF REGISTRATION that includes the PROFESSION that you are practicing – this is for professional services like attorneys and accountants.

Liabilities: in RLLP, no partner will be liable for the debts and obligations of the business

**partners are always liable for their own personal wrongdoing – MALPRACTICE

Front 10

What are the characteristics of a limited liability company?

Back 10

Partnership Characteristics (must have two of three):
1. Members control, but may delegate to managers
2. Limited Liquidity – member interests are not freely transferable;
3. Limited life – events of dissolution.

**LLC: 1) limited liability 2) limited liquidity, 3) limited life, 4) limited tax.

Front 11

What duties do partners owe to the partnership and their partners?

Back 11

Partners are FIDUCIARIES of each other and the partnership.
1. Duty of Loyalty – Partners may never:
- Engage in self dealing (benefit to themselves and detriment of partnership)
- Usurp partnership opportunities
- Make a secret profit.

**Action for Accounting
1. Only form of action that can be brought by a partnership against one of its breaching partners
1. Partnership can recover losses caused by breach and may disgorge profits made by evil, breaching partner

Front 12

What are a partner's rights in specific partnership assets?

Back 12

1. Land, leases or equipment OWNED ONLY by the partnership as partnership assets.
2. No individual partner may transfer those assets without partnership authority (these are not personal assets)

Front 13

What are a partner's rights in profits and surplus?

Back 13

1. Partner’s share of profits and surplus IS personal property owned by each individual partner.
2. Individual partners may transfer their share of profits and surplus at their will.

Front 14

What are a partner's rights in his share of management?

Back 14

1. Share in management is an asset owned only by the PARTNERSHIP itself.
2. No individual partner may transfer their share of management to a 3rd party – can’t sell your right to vote.

Front 15

How do you resolve the conflict between partnership assets and personal property?

Back 15

1. Ask “whose money was used to buy the property?”

2. If partnership’s money was used, the property belongs to the partnership

3. If partner’s personal funds used, it becomes personal property.

Front 16

What is a partner's share in management, salary, and profits and losses?

Back 16

Management – ABSENT AN AGREEMENT, each partner is entitled to EQUAL CONTROL – one partner, one vote.

Salary – ABSENT AN AGREEMENT, partners get NO SALARY.
- Exception: partners do receive compensation for helping to wind up the partnership’s business.

Partner’s share of PROFITS and LOSSES
1. Absent an agreement, PROFITS SHARED EQUALLY.
2. Absent an agreement, LOSSES SHARED LIKE PROFITS.

Front 17

What is dissolution?

Back 17

Any material change in the partnership caused by the death or withdrawal of any single general partner causes an automatic dissolution of the partnership

Front 18

What is termination?

Back 18

Real end of the partnership

Front 19

What is winding up?

Back 19

The period between dissolution and termination in which the remaining partners liquidate the partnership’s assets to satisfy the partnership’s creditors

Front 20

What are the partnerships liabilities for winding up the business?

Back 20

1. Old business – RULE: partnership, and therefore its individual general partners, retain liability on all transactions entered into to wind up old business with existing creditors.

2. New businss – RULE: partnership, and therefore its individual general partners, retain liability even on brand new business transactions UNTIL notice of dissolution is given to all KNOWN and POTENTIAL creditors.

Front 21

What is the order of priority of distibution when winding up a partnership?

Back 21

Each level of priority must be fully satisfied before beginning the next level in this order:

1. First ALL creditors must be paid – there are two separate types:
- All outside, non-partner trade creditors AND
- All inside partners who have made LOANS to the partnership and are therefore creditors of the partnership

2. Second, capital contributions by partners must be paid – partnership still owes full payment to its own partners the money they paid in as capital contributions.

3. Profits and surplus, if any – shared equally, in the absence of an agreement stating otherwise