Partnership Flashcards

Front 1

What is a sole propreitorship?

Back 1

A default form automatically established if 1 person begins a business & doesn't organized it as anything else; Requires no formalities to create
The owner is personally liable for all liabilities and can hire employees but if the share profits with them then it begins to look like a partnership
Taxable income is reported on the owner's personal tax return

Front 2

What is an equity owner?

Back 2

A person/people who make an investment in the enterprise and have no right to get it back.
They have the right to control the property and share in the rights to profits that are left-over

Front 3

What does SC use in dealing with Partnership Law?

Back 3

Uniform Partnership Act

Front 4

What is the definition of a Partnership?

Back 4

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

Front 5

What intent is required in creating a Partnership?

Back 5

The intent to do those thing that in law constitute person as partners- NOT the intent to form a partnership
Can be oral & doesn't need to be express

Front 6

What type of partnerships can NOT exist?

Back 6

A non-profit partnership (prohibited by statute)

An unincorporated association not for profit (common law)

Front 7

What is required to form a Parternship?

Back 7

There are no prescribed formalities- probably just capacity to contract & consent which may be proved from language, declarations, conduct, course of dealings, & other relevant circumstances

Front 8

Who can be a "person" under the definition of parternship?

Back 8

an individual, partnerships, corporations, and other associations

Front 9

Can an infant contract for partnership?

Back 9

Yes, but it is voidable and subject to disaffirmance or ratificiation upon the infant's maturity

Front 10

Does a partnership fall withing the Statute of Frauds?

Back 10

Formation generally does NOT fall within the SOF but some situations, such as partnerships that can't be performed within a year from the making, may be subject

Front 11

What are some advantages to Partnership formation?

Back 11

1. Ease of Creation- A partnership agreement can be either written or oral or can be implied from the words/conduct of the parties.

2. Single Taxation-Because for tax purposes the Partnership is not a separate legal entity, it is NOT taxed on its profits.
The individual partners are taxed individually for their proportionate share of the profits.
The partners share proportionately in the losses of the partnership.

3. Ownership & Management
Each partner is an Agent of the partnership, and thus, each partner has the authority to bind the partnership within the scope of its business. Each partner has equal authority in the management of the business.

Front 12

What are the elements of a Partnership?

Back 12

1. Each partner is an agent and principal w/scope of PS. Owe each other fiduciary duty- such as duty of loyalty
2. Each has apparent authority to bind w/in ordinary scope of business except 3rd Parties w/contrary knowledge/notice and Acts outside ordinary course MAY be ratified by partners usually by accepting / retaining benefits from the outside transaction.
3. Each partner manages and has statutory power of control
4. Jointly & severally liable for all PS obligations.

Front 13

Factors to consider in evaluating the existence of a Partnership:

Back 13

1. The controlling factor = intent to share the equity

2. sharing of profits is prima facie evidence and agreement to share losses increases the chances that a partnership will be found

3. joint tenancy, tenancy in common, part ownership, etc. does not in itself establish a partnership

Front 14

What constitutes Partnership property?

Back 14

All real or personal property originally brought into the partnership by contribution or purchase or subsequently bought with partnership captial

Front 15

How can Partnership property be acquired?

Back 15

In the partnership name and title so acquired can only be conveyed in the parternship name;
Can be held in the name of 1 or more partners

If title is in the names of all partners, designated as such, a transferee or motgagee of any one of the partners would tkae title to the land subject to partnership equities

Front 16

Who has the authority to bind the Partnership?

Back 16

Each partner has apparant authority to bind the partnership in the ordinary course of business except to 3P who have contrary knowledge & each partner is jointly & severally liable for all obligations of the Partnership

Front 17

What if you get a judgment against the Partnership that it can't pay?

Back 17

You can then go after the individual partners PROVIDED that they were served & appeared in Court for your suit against the partnership.

Front 18

When looking at the scope of business and the extent of authority a partner has when the actual agreement between the parties is unknown, what do you look to?

Back 18

1.) Agreement of the Partners;
2.) Course of business of the particular Partnership; OR
3.) Course of business of similar Partnerships in the locality
Default Rule: Partnership’s purpose can ONLY be changed by unanimous approval of the Partners

Front 19

What is the effect of admissions & representations of Partners?

Back 19

If made within the scope of their legal authority they bind the Partnership and admissions made as to matters of fact are competent evidence against the Partnership

Front 20

What is the effect of knowledge or notice to Partners?

Back 20

Notifiaction to a Partner or knowledge acquired while engaged in Partnership affaris is binding except in cases of fraud where Partner is guilty of perpetrating fraud upon the firm.

Front 21

Torts & Partnership

Back 21

Partnership IS repsonsible for torts committed by Parterns acting on Partnership business

Front 22

Parternship Liability for Breach of Trust

Back 22

Partnership IS liable for breach of trust or loss of property of 3P within the scope of his authority.

Front 23

Joint & Several Liability Amongst Partners

Back 23

Each partner is personally jointly & severally liable for the contracts, torts, and breaches of trust of the partners, to the extent of personal wealth

Front 24

Liability of Incoming Partner

Back 24

A new partner is responsible for existing debts of the Partnership but only to the extent of the partner's interest in the firm, not out of person assets.

Front 25

Suit Against Partnership & Partners

Back 25

A Partnership can sue or be sued in its own name & if a judgment exceeds the assets of the Partnership, the personal assets of a partner may be reached is such partner was joined in the lawsuit

Front 26

What limitation is placed upon a Partner wishing to sue other Partners on a matter concerning the Partnership?

Back 26

They must first obtain an accounting

Front 27

How is voting conducted?
(unless changed by agreement)

Back 27

Voting is per capita, regardless of the size of contribution

Front 28

What are the default rules for decision making?
(unless changed by agreement)

Back 28

Majority rules when voting on ordinary matters associated w/ Partnership business

Unanimous vote is required when Partner/Partners want to do acts which contravene Partnership Agreement or admit a new Partner

Front 29

What are the default rules for sharing profits/losses?
(unless changed by agreement)

Back 29

Sharing in Profits: Each Partner is entitled to an equal share of Partnership profits
Sharing in Losses: Contribution is in proportion as sharing in profits

Front 30

What are the default rules for books/records?
(unless changed by agreement)

Back 30

Each Partner has unlimited access and has a duty to notify the others a to matters material to the Partnership

Front 31

What are the default rules for Partners being compensated?
(unless changed by agreement)

Back 31

vi.) Partners are NOT compensated for working for the Partnership EXCEPT for those Partners who wind up the business who would be then entitled to remuneration

Front 32

What are the default rules for sharing profits upon dissolution?
(unless changed by agreement)

Back 32

Upon dissolution, each partner is repaid their capital contribution, dollar for dollar without interest. Surplus is then divided according to the share of profits

Front 33

When a Partnership changes the default rules in their Partnership Agreement, how much it be done?

Back 33

Need not be in writing- can be oral, written, parol

Front 34

What is a Partnership by Estoppel and what are the effects of it?

Back 34

If someone represents himself, by words or conduct, to be a Partner in an actual or apparent partnership OR consents to a representation that he is a Partner, he IS LIABLE to any third person to whom the representation is made who extends credit in good faith reliance on the representation.

Front 35

What are the 3 catagories of ownership interest of a Partner?

Back 35

1. Control (or vote)
2. "Partnership Interest"
3. Right to Use Partnership Property

Front 36

What is the nature of a Partner's Right in Specific Partnership Property?
IN GENERAL

Back 36

A Partner is a tenant in partnership with his co-partners as to each asset of the partnership.




A Partner’s interest in specific partnership property is not subject to attachment as to creditors, but IS subject to attachment on a claim against the Partnership.

Front 37

What is the nature of a Partner's Right in Specific Partnership Property?
RE: POSESSION

Back 37

Possession: Each partner has an equal right with his co-partners to possess partnership property for partnership purposes, but has no right to possess it for any other purpose without consent of the other co-partners.

Front 38

What is the nature of a Partner's Right in Specific Partnership Property?
RE: ASSIGNABILITY

Back 38

Assignability: A Partner’s right in specific partnership property is NOT assignable, except in connection with the rights of all the partners in the property.

Front 39

What is the nature of a Partner's Right in Specific Partnership Property?
RE: ATTACHMENT/EXECUTIO

Back 39

A Partner’s interest in specific partnership property is not subject to attachment as to creditors, but IS subject to attachment on a claim against the Partnership.

Front 40

What is the nature of a Partner's Right in Specific Partnership Property?
RE: DEATH

Back 40

Upon a Partner’s death, his rights in the partnership property vest in the surviving partners

Front 41

What is the nature of a Partner's "Partnership Interest"?

Back 41

A partner's interest in partnership is his share of the profits & surpluses and is treated as personal property and may be conveyed which does not dissolve the partnership.

Front 42

What are the effects of a Partner assigning away his Partnership Interest?

Back 42

Does not make the assignee a Partner;
Does not give the assignee any right in management- merely entitled to recieve the profits the assigned Partner would have recieved
Upon dissolution the assignee is entitled only to the assinging partner's share and may require an accounting only from the date of the last accounting

Front 43

What is a Partners "right to control"?

Back 43

A Partner's vote- can NOT be conveyed

Front 44

What is dissoltution?

Back 44

The change in the relation of the partners caused by any partner ceasing to be associated in the carrying on, as distinguished from the winding up, of the business.

Front 45

What happens at dissolution?

Back 45

1.) Dissolution does NOT terminate the partnership. The partnership will continue until the winding up of the partnership affairs is complete.

Front 46

What happens in a wrongful dissolution?

Back 46

If violates the partnership agreement then it's wrongful and the partnership must cash out the dissolving partner but may set off aginst payment any injury caused by the wrongful dissolution

Front 47

What are examples of dissolution not in violation of the Parternship agreement?

Back 47

1. if a partnership at will- the withdrawal by a partner in good faith
2. if a parternship for a particular purpose- the accomplishment of the purpose
3. agreement of all partners
4. expulsion of any partner pursuant to the partnership agreement
5. any event which makes it unlawful for the business of the partnership to be carried on
6. the death of any partner
7. the bankruptcy of any partner or the partnership
8. decree of Court based on incapacity or inappropriate behavior or a partner or the inability to carry on except at a loss or other equitable reasons

Front 48

What are the general effects of dissolution of authority of a Partner?

Back 48

Default Rule: Generally revokes the authority of a Partner except as to those acts necessary to winding up the Partnership

Front 49

What are the Rights of Partners to Contribution from Co-Partners After Dissolution?

Back 49

Partners are generally entitled to contribution towards post-dissolution liability UNLESS a partner incurring liability had knowledge of the dissolution at the time

Front 50

What Powers Does a Partner have to Bind the Partnership After Dissolution?

Back 50

After dissolution a partner can bind the Partnership:
1. By any act appropriate in winding up the affairs or completing a transaction unfinished at dissolution OR
2. by any act which would bind the parternship prior to dissolution if the other party had previously given credit to the firm and had no notice or knowledge of dissolution OR if the other party had not given credit but knew of the firm and had no notice of the dissolution and it wasn't advertised

Front 51

What is the effect of dissolution on Partner's existing liability?

Back 51

If other by agreement assume the liabilities of the firm, the partner whose liabilities are assumed remains liable unless the creditor agrees to release him.

Front 52

What is the right to wind up?

Back 52

Generally, the surviving partners or pr for the last partner has the right to wind up BUT any partner may apply for winding up by the Court for good cause.

Front 53

What rights does an injured Partner have where the Partnership Agreement is rescinded for fraud?

Back 53

1. has a lien on the partnership assets for repayment of his captial and advances, subordinate only to outside firm debts;
2. is subrogated to the rights of any creditors whom he has paid; and
3. is entitled to be indemnified by the party guilty of the fraud.

Front 54

What are the rules for Distribution?

Back 54

Parternship Assets = all partnership property and all contributions necessary for payment of debts

Liabilities are paid in the following order:
1. Outside Creditors
2. Partner Creditors
(those contributing more $$ than required in the agreement)
3. Partners in respect to Capital Contributions (assuming there are no losses, you get your initial capital)
4. Partner's Profits or Surplus (remaining cash distributed according to the partner’s share)

Front 55

What are the liabilities for Persons Continuing Business?

Back 55

1. If some of the partners continue after dissolution, but without liquidation, creditors of the firm remain creditors of the continuing business.
2. New partners introduced into such continuing business are liable to old firm creditors only to the extent of the partnership property.

Front 56

What rights do retiring partners or the estate of a deceased parter have when the business is continued?

Back 56

May have the value of his iterest ascertained at the date of dissolution and can recieve, as an ordinary creditor, an amount equal to the value of his interest in the dissolved partnership with interest or in leiu of interest the profits for the period represented subject to the prefernece of the firm's creditors

Front 57

What is a buy/sell agreement?

Back 57

A clause frequently contained in an Partnership Agreement in the event a Partner dies.

Front 58

What does a buy/sell agreement provide for?

Back 58

1. a formula by which a purchase price for the decedent's interest, including goodwill, may be arrived at
2. an agreement between partners that the surviving partners will buy and the decedent's estate will sell for the agreed price, the decedent partner's interest
3. the terms of the purchase agreement

Front 59

What is the relevancy of the Partnership Name?

Back 59

Regarded as an asset and may therefore be sold or otherwise disposed of as any other asset

Front 60

Goodwill

Back 60

The reasonable expectation that customers or clients will in the future do business with the partnership because of prior satisfactory dealings they have had with the firm, the good reputation, location, advertising and is considered an asset of the firm and can be sold and must be accounted for by parterns wishing to continue business after the death of a partner

Front 61

What is a Limited Partnership?

Back 61

A limited partnership is a partnership formed by two or more persons, having as its members one or more general partners and one or more limited partners.

Front 62

What is a General Partner?

Back 62

A partner who assumes the management responsibilities of the partnership and full personal liability for the debts of the partnership.

Front 63

What is a Limited Partner?

Back 63

A partner who makes a contribution (cash) to the partnership and obtains an interest in the partnership’s returns, but who is NOT active in the partnership’s management and is not liable for partnership debts beyond his contribution.

Front 64

What law does SC use in dealing with Limited Partnerships?

Back 64

the Revised Uniform Limited Partnership Act

Front 65

What is so appealing about a Limited Partnership?

Back 65

Only need 1 single general partner (can be a corporation w/no assets) and can have many limited partners (can be shareholders w/limited liability or the general partner corporation, for example) and must comply with filing requirements

Front 66

What are the requirements regarding the name of a Limited Partnership?

Back 66

1.) The name of a limited partnership SHALL contain the designation “limited partnership,” or LP, or L.P.

2.) The name may NOT be deceptively similar to another corporation or limited partnership licensed or registered in S.C.

3.) The name may NOT include the name of a limited partner unless it is also the name of a general partner, or prior to the joining of the limited partner, the business had carried on with the same name as the limited partner.

4.) Names can be reserved for a 120 day period

Front 67

What requirements exist for a Registered Agent and why?

Back 67

A registered agent must be appointed for service of process including their street address.
It makes it easier to sue them.

Front 68

What are the filing requirements for formation of a LP?

Back 68

Formed by filing a certificate of limited partnership with the Secretary of State and must set forth an acceptable name, a registered agent, specify an office, include the mailing address of each general partner, and set out the latest date on which the limited partnership is to dissolve.

Front 69

What are the requirements for Partnership Records?

Back 69

Limited Partnerships MUST keep at its office the following:
1.) current list of names/addresses of each partner (alphabetical order)
2.) copy of certificate (w/ ALL amendments)
3.) copies of all tax returns for past 3 years
4.) copy of current agreement (if different from the certificate)
and copies of the agreement and amendments must be delievered to each limited partner

Front 70

What if you want to amend the L.P certificate?

Back 70

Must be filed by the General Partner (usually within 30 days) upon the occurance of various material events such as admission or withdrawal of general partners or recognition of the falsity of any statement in the certificate.

Front 71

When should the LP certificate be cancelled?

Back 71

Upon commencement of the winding up

Front 72

What if LP property is transfered?

Back 72

an affidavit of the general partner's authority must be filed in the office of the county where the index to deed for the property is located

Front 73

How are profits & losses allocated in a LP?

Back 73

i.) Unless otherwise provided for in the Agreement, profits and losses are allocated on the basis of the value of the contributions made by each partner to the extent received by Partnership and not returned to Partner

ii.) Upon withdrawal, a partner may demand any distribution to which he is entitled plus the fair value of his interest in the partnership as of the date of withdrawal.

A partner who becomes entitled to recieve a distribution becomes an ordinary creditor of the Partnership.

Front 74

What is a Limited Partner's Liability?

Back 74

A limited partner is NOT liable for the debts of the partnership beyond her contribution.
Exceptions:
1.) The limited partner signs the partnership certificate knowing of a falsity in the certificate
2.) The limited partner permits her name to be used in the partnership’s name contrary to statute
3.) The limited partner is also a general partner or acts or holds themselves out to be
4.) The limited partner participates in control of the business with a creditor's actual knowledge of the limited partner's participation in the control

Front 75

What is a General Partner's Liability?

Back 75

A general partner of a limited partnership has all of the liabilities of a partner in a general partnership, and thus is personally liable for the limited partnership’s debts. Their liabilities to limited partners can be limited by agreement.

Front 76

What are "safe harbor" actions?

Back 76

Things that do NOT constitute taking part in the control of the business so limited partners don't loose their limited liability

Front 77

What are some examples of safe harbor actions?

Back 77

1. being a contractor for or an agent or employee of the partnership or general partner
2. consulting with the general partner regarding the business
3. acting as a surety
4. voting on amendments to the agreement
5. bringing a derivitive action on behalf of the partnership
6. voting on dissolution
7. the sale of assets not oridinarily in the course of business
8. the assumption of debt
9. the change in the nature of the business
10. the removal of the general partner
11. participating in the winding up of the business

Front 78

What are ostensible limited partners?

Back 78

People who may avoid unlimited personal liability and may withdraw without renouncing their current interests in the partnership upon finding that they never truly became partners- must be a filing to show withdrawal or that the limited is not a general and may be estopped to creditors who dealt with them in good faith that they were a general partner at the time of the transaction

Front 79

How is voting done?

Back 79

General Partners: may vote seperatly or with all limited partners or some limited partners as provided in the agreement
Limited Partners: vote according to the agreement

Front 80

How can a new General Partner be admitted?

Back 80

Unless otherwise provided for in the agreement, after the certificate is filed, can only be admitted with specific written consent of each partner.

Front 81

Can a partnership interest in an LP be assigned?

Back 81

Yes, absent an agreement otherwise, it can be in part or whole

Front 82

Derivative Actions in an LP

Back 82

May be brought.
Absent good reasons, LP's must demand director to bring suit when they are Defendant's in the case

Front 83

Can Partners make loans to the LP or transact business with it?

Back 83

YES subject to fraudulent conveyance laws and equitable principles

Front 84

What can cause dissolutions in a LP?

Back 84

1. death or incompetence of GP
2. withdrawal of GP
3. assingment of all of a GP's interest
4. bankruptcy or insolvency of GP
5. for non-natural GP's, dissolution or termination of the entity
6. judicial dissolution whenever it's not practicably to carry on the business in conformity with the partnership agreement

Front 85

Who may wind up a LP?

Back 85

Non-defaulting GP's or if none limited partners or a Court upon the petition of any partner

Front 86

What are Priorities in Dissolution of a LP?

Back 86

1. Creditors- including partner creditors
2. Partners & Former Partners then entitled to distributions
3. Parters- as past due returns of capital
4. Partners- respecting their interest in proportion to their share of distributions
*Limited Partners have no right to priority in the absence of an agreement

Front 87

What is a limited liability partnership?

Back 87

A General Partnership in ALL respects except for filing & fee removes joint & several liability in tort

Front 88

What is required to form a LLP?

Back 88

no formalities to be formed (can be formed by accident) but MUST be formed by filing articles with the Secretary of State (including agent and address for service of process) and payment of a filing fee

Front 89

What are the insurance requirements for a LLP?

Back 89

Must carry at least $100K of liability insurance, after deducatible

Front 90

Are parners of an LLP personally liable for torts of the Partnership?

Back 90

NO, UNLESS:
1. they committed the tort themselves
2. they participated in the tort
3. they supervised the tortfeaser