Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key


Play button


Play button




Click to flip

90 Cards in this Set

  • Front
  • Back
What is a sole propreitorship?
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
What is an equity owner?
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
What does SC use in dealing with Partnership Law?
Uniform Partnership Act
What is the definition of a Partnership?
An association of 2 or more persons to carry on as co-owners a business for profit
What intent is required in creating a Partnership?
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
What type of partnerships can NOT exist?
A non-profit partnership (prohibited by statute)

An unincorporated association not for profit (common law)
What is required to form a Parternship?
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
Who can be a "person" under the definition of parternship?
an individual, partnerships, corporations, and other associations
Can an infant contract for partnership?
Yes, but it is voidable and subject to disaffirmance or ratificiation upon the infant's maturity
Does a partnership fall withing the Statute of Frauds?
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
What are some advantages to Partnership formation?
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.
What are the elements of a Partnership?
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.
Factors to consider in evaluating the existence of a Partnership:
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
What constitutes Partnership property?
All real or personal property originally brought into the partnership by contribution or purchase or subsequently bought with partnership captial
How can Partnership property be acquired?
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
Who has the authority to bind the Partnership?
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
What if you get a judgment against the Partnership that it can't pay?
You can then go after the individual partners PROVIDED that they were served & appeared in Court for your suit against the partnership.
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?
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
What is the effect of admissions & representations of Partners?
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
What is the effect of knowledge or notice to Partners?
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.
Torts & Partnership
Partnership IS repsonsible for torts committed by Parterns acting on Partnership business
Parternship Liability for Breach of Trust
Partnership IS liable for breach of trust or loss of property of 3P within the scope of his authority.
Joint & Several Liability Amongst Partners
Each partner is personally jointly & severally liable for the contracts, torts, and breaches of trust of the partners, to the extent of personal wealth
Liability of Incoming Partner
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.
Suit Against Partnership & Partners
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
What limitation is placed upon a Partner wishing to sue other Partners on a matter concerning the Partnership?
They must first obtain an accounting
How is voting conducted?
(unless changed by agreement)
Voting is per capita, regardless of the size of contribution
What are the default rules for decision making?
(unless changed by agreement)
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
What are the default rules for sharing profits/losses?
(unless changed by agreement)
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
What are the default rules for books/records?
(unless changed by agreement)
Each Partner has unlimited access and has a duty to notify the others a to matters material to the Partnership
What are the default rules for Partners being compensated?
(unless changed by agreement)
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
What are the default rules for sharing profits upon dissolution?
(unless changed by agreement)
Upon dissolution, each partner is repaid their capital contribution, dollar for dollar without interest. Surplus is then divided according to the share of profits
When a Partnership changes the default rules in their Partnership Agreement, how much it be done?
Need not be in writing- can be oral, written, parol
What is a Partnership by Estoppel and what are the effects of it?
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.
What are the 3 catagories of ownership interest of a Partner?
1. Control (or vote)
2. "Partnership Interest"
3. Right to Use Partnership Property
What is the nature of a Partner's Right in Specific Partnership Property?
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.
What is the nature of a Partner's Right in Specific Partnership Property?
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.
What is the nature of a Partner's Right in Specific Partnership Property?
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.
What is the nature of a Partner's Right in Specific Partnership Property?
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.
What is the nature of a Partner's Right in Specific Partnership Property?
Upon a Partner’s death, his rights in the partnership property vest in the surviving partners
What is the nature of a Partner's "Partnership Interest"?
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.
What are the effects of a Partner assigning away his Partnership Interest?
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
What is a Partners "right to control"?
A Partner's vote- can NOT be conveyed
What is dissoltution?
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.
What happens at dissolution?
1.) Dissolution does NOT terminate the partnership. The partnership will continue until the winding up of the partnership affairs is complete.
What happens in a wrongful dissolution?
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
What are examples of dissolution not in violation of the Parternship agreement?
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
What are the general effects of dissolution of authority of a Partner?
Default Rule: Generally revokes the authority of a Partner except as to those acts necessary to winding up the Partnership
What are the Rights of Partners to Contribution from Co-Partners After Dissolution?
Partners are generally entitled to contribution towards post-dissolution liability UNLESS a partner incurring liability had knowledge of the dissolution at the time
What Powers Does a Partner have to Bind the Partnership After Dissolution?
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
What is the effect of dissolution on Partner's existing liability?
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.
What is the right to wind up?
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.
What rights does an injured Partner have where the Partnership Agreement is rescinded for fraud?
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.
What are the rules for Distribution?
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)
What are the liabilities for Persons Continuing Business?
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.
What rights do retiring partners or the estate of a deceased parter have when the business is continued?
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
What is a buy/sell agreement?
A clause frequently contained in an Partnership Agreement in the event a Partner dies.
What does a buy/sell agreement provide for?
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
What is the relevancy of the Partnership Name?
Regarded as an asset and may therefore be sold or otherwise disposed of as any other asset
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
What is a Limited Partnership?
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.
What is a General Partner?
A partner who assumes the management responsibilities of the partnership and full personal liability for the debts of the partnership.
What is a Limited Partner?
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.
What law does SC use in dealing with Limited Partnerships?
the Revised Uniform Limited Partnership Act
What is so appealing about a Limited Partnership?
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
What are the requirements regarding the name of a Limited Partnership?
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
What requirements exist for a Registered Agent and why?
A registered agent must be appointed for service of process including their street address.
It makes it easier to sue them.
What are the filing requirements for formation of a LP?
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.
What are the requirements for Partnership Records?
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
What if you want to amend the L.P certificate?
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.
When should the LP certificate be cancelled?
Upon commencement of the winding up
What if LP property is transfered?
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
How are profits & losses allocated in a LP?
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.
What is a Limited Partner's Liability?
A limited partner is NOT liable for the debts of the partnership beyond her contribution.
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
What is a General Partner's Liability?
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.
What are "safe harbor" actions?
Things that do NOT constitute taking part in the control of the business so limited partners don't loose their limited liability
What are some examples of safe harbor actions?
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
What are ostensible limited partners?
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
How is voting done?
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
How can a new General Partner be admitted?
Unless otherwise provided for in the agreement, after the certificate is filed, can only be admitted with specific written consent of each partner.
Can a partnership interest in an LP be assigned?
Yes, absent an agreement otherwise, it can be in part or whole
Derivative Actions in an LP
May be brought.
Absent good reasons, LP's must demand director to bring suit when they are Defendant's in the case
Can Partners make loans to the LP or transact business with it?
YES subject to fraudulent conveyance laws and equitable principles
What can cause dissolutions in a LP?
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
Who may wind up a LP?
Non-defaulting GP's or if none limited partners or a Court upon the petition of any partner
What are Priorities in Dissolution of a LP?
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
What is a limited liability partnership?
A General Partnership in ALL respects except for filing & fee removes joint & several liability in tort
What is required to form a LLP?
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
What are the insurance requirements for a LLP?
Must carry at least $100K of liability insurance, after deducatible
Are parners of an LLP personally liable for torts of the Partnership?
1. they committed the tort themselves
2. they participated in the tort
3. they supervised the tortfeaser