Business Law - Chapter 36 - Partnerships

Front 1

Partnership defined:

Back 1

Two or more persons carrying on a business as co-owners for profit.

Front 2

Missouri partnership law:

Back 2

Uniform Partnership Act (UPA)

Front 3

List the three elements needed in the creation of a partnership.

Back 3

1. For profit - sharing profits is prima facie evidence of partnership unless profits are shared to pay a debt or wage of employee.

2. Co owners - Joint ownership
a.) joint ownership of business assets
b.) exercise of management rights: purchasing, controlling costs, setting prices, hiring and firing employees.

c.) Mere joint ownership a partnership - not necessarily.

3. In business - active endeavor for indefinite time.
a.) Single transaction or series = joint venture.
b.) Not passive ownership. eg - tenants in common of real estate.

Front 4

A partnership by estoppel is created by what two events?

Back 4

1. A partner's representation of a partnership to a third party

and

2. The third party's reliance on that representation in dealing with the purported partner.

Front 5

Liability of partners that did not have knowledge of the representation being made in a partnership by estoppel.

Back 5

Not liable as partners by estoppel.

Front 6

Aggregate theory

Back 6

A partnership is simply the sum of individuals - all must sue or be sued to get binding judgment on partnership; all own property.

Front 7

Entity theory

Back 7

A partnership is a separate entity like corporation - may sue and be sued and may hold property as entity. Applies in bankruptcy.

Front 8

Missouri rule on the nature of partnership entity

Back 8

Entity theory as to holding property, aggregate theory as to lawsuits. Each partner must be joined to be bound.

Front 9

Who may be partners?

Back 9

1. Must have capacity to contract

2. Business entities - in Missouri and most states, either corporations or individuals may be partners

Front 10

Marshalling assets - list two possible results

Back 10

1. Partnership creditors have priority to partnership property.

2. Individual partner's creditors have priority as to that partner's propperty (jingle rule).

Front 11

In bankruptcy, after the first step, business creditors and individual creditors have what kind of priority?

Back 11

Equal

This is good motivation for business creditors to file for involuntary bankruptcy

Front 12

Primary management rule

Back 12

Each partner gets 1 vote as to ordinary partnership business, majority rules

Front 13

List the five areas where unanimous consent is required to make a valid decision

Back 13

1. Admitting a new partner
2. Altering the capital structure of the firm
3. Amending the partnership agreement
4. Any act which makes the partnership business impossible
5. Altering the essential nature of the firm's business

Front 14

Partnership profits and losses

Back 14

1.Equal unless partnership agreement specifies otherwise

2. If profits division specified, but not losses, losses are split the same way as profits

Front 15

Compensation for services

Back 15

A partner receives no compensation for his services to the partnership unless there is an agreement for compensation. Presumed to be motivated by partnership profits.

Front 16

List four rights of partners

Back 16

1. Management of partnership
2. Inspection of books
3. Accounting
4. Property right - Partnership interest in partnership is called tenancy in co-partnership

Front 17

Property classification

Back 17

1. A partnership interest is not real estate; it is personal property even if the major assets of the partnership are made up of real estate.

Front 18

Possesion and management of partnership interests

Back 18

A partner has a right to joint possession and management of all partnership property

Front 19

Assignment and attachment of partnership interests

Back 19

1. A partnership interest may be assigned to a non- partner
2. A partnership interest is subject to charging orders of creditors
3. Neither assignment nor charging order is a dissolution of the firm, nor do they confer rights of a partner upon the recipient of the profits, but only the right to receive profits as distributed and return of capital on dissolution

Front 20

Mutual agency of partners

Back 20

Each partner is the agent of the other partners and the partnership

1. they have all the duties of an agent

2. Fiduciary duty of loyalty, notification, performance, accounting, indemnity and obedience.

Front 21

Tort liability

Back 21

Partnership is liable for torts of partner in scope and course of partnership business

Front 22

Contract liability

Back 22

Partnership is liable for the contract of a partner with authority or if apparently carrying on business in the usual way

High degree of apparent and implied authority

Front 23

Joint liability

Back 23

A creditor must name all partners individually in a lawsuit to get judgment against any or the partnershipl release of one partner releases all partners

Front 24

Joint and severable liability

Back 24

A creditor may sur any or all partners; release of one does not realease all

Front 25

Missouri rule on joint/ joint and severable liability

Back 25

Joint and severable liability for contracts and torts, but must name all the partners for a valid lawsuit

Front 26

Incoming partner liability

Back 26

Liable for preexisting firm debts only to extent of capital contribution

Front 27

Outgoing partner liability

Back 27

Personal liability only for debts incurred while a partner (assuming proper notice of withdraw)

Front 28

No agreement as to duration?

Back 28

Partnership at will doctrine - Terminable by partner at any time without violating agreement: like agency at will

Front 29

Partnership for term

Back 29

Still power to dissolve, but termination without cause would be breach: like agency for term

Front 30

After partnership for a term expires

Back 30

If the partnership continues, then it goes back to at will status

Front 31

List the three stages of partnership termination:

Back 31

1. Dissolution: Ends existence as going concern

2. Winding up: Liquidation - pay debts and divide assets

3. Termination: Legal existence ends for all purposes

Front 32

List the three acts of partners that result in dissolution

Back 32

1. By initial or subsequent agreement

2. By withdraw of a partner
a.) Power, but not right - partnership for a term
b.) Right - partnership at will

3. Admission of new partner without consent of others

Front 33

List the three types of dissoulution by operation of law

Back 33

1. Death of a partner
2. Bankruptcy of a partner or the partnership
3. Illegality

Front 34

List the five types of dissolution by decree

Back 34

1. Mental incompetence of a partner
2. Permenent incapacity of a partner
3. Operation only at loss
4. Improper conduct by a partner (gross neglect, failure to return partnership property)
5. Dissention

Front 35

List the three effects of dissolution

Back 35

1. Notice to partners ends actual authority

2. Notice to creditors ends apparent authority
a.) actual notice to extenders of credit
b.) publication for others

3. Dissolution b/c of a breach changes rights of parties. Non breaching partners may:
a. Sue for damages
b. Buy out breaching partner and continue the business
c. Exclude breaching partner from winding up and get payment for services

Front 36

Results of winding up

Back 36

Business has ended as a going concern

Front 37

Four powers of partners during winding up

Back 37

1. To complete transactions that were previously begun

2. To preserve assets

3. To sell assets

4. To pay debts

Front 38

Priorities for liquidation of assets to repay creditors

Back 38

1. Third party creditors
2. Loans to firm by partners
3. Return of capital to partners
4. Remainder pro rata as profits or losses

Front 39

Termination for all purposes

Back 39

Happens after winding up (after all debts paid, assets distributed. The exact dates are usually uncertain.)

Front 40

Six things to consider in a partnership agreement

Back 40

1. Sharing profits/ loses
2. Continuation on withdrawl
3. Method of purchase on withdrawl (buy-sell agreement)
4. Method to break deadlock
5. Guarantee of employment for minority manager
6. Statement for purposes

Front 41

Limited liability partnership defined

Back 41

Ordinary partnerships registering as an LLP with the secretary of state

Missouri - must register every year

Missouri - Liability protection is slightly limited

Front 42

What are the three disadvantages of a limited partnership?

Back 42

1. Limited partner's limitations: managed by general partners only

2. Taxed on undistributed profits (can remedy by distributing enough to pay tax)

3. Unlimited liability of general partners

Front 43

What are three advantages of a limited partnership

Back 43

1. Can withdraw income without double tax

2. Can take advantage of losses without sale

3. A great form of business for an entrepreneur who wants complete control

Front 44

Define limited partnership

Back 44

1. Formed under limited partnership statute

2. With one or more general partners and one or more limited partners

Front 45

What is the Missouri limited partnership law?

Back 45

RULPA - Revised Uniform Limited Partnership Act

Front 46

Requirements for the creation of a limited partnership

Back 46

1. Must provide required information for certificate of limited partnership, then file it in place specified in statute

2. Missouri - must file with secretary of states office

3. No existence as an entity for any reason if certificate not issued by state

Front 47

What if a partnership that applies for a limited partnership is doing business before they receive their certificate of being a limited partnership?

Back 47

They have personal liability as a regular partnership.

Front 48

Liability of a general partner in a LLP

Back 48

The GP is personally liabile
(unlimited liability)

Front 49

What are two ways to avoid general partner liability?

Back 49

a. Having a corporate general partner

b. Having the partnership file as a limited liability limited partnership

Front 50

Limited liability, limited partnership

Back 50

Limited partnership which registers under the LLP statute to allow the general partner to have limited liability

Front 51

Limited partner liability in an LLP

Back 51

A limited partner is liable only to the extent of investment: limited liability for business debts

Front 52

Four exceptions to limited partner's protection

Back 52

1. False statement in certificate of limited partnership - if signed by LP

2. Defective formation - can avoid by renouncing involvement

3. Involvement in management with knowledge of a third party

4. Limited partner's name in the firm name

Front 53

Five rights of limited partners

Back 53

1. Access to partnership books

2. Right to an accounting

3. Right to participation in dissolution

4. Right to assign partnership interest, but not rights as partner without agreement

5. Receipt of profits when distributions made by general partners

Front 54

Three most common causes of the dissolution of a general partnership

Back 54

1. Death of a GP
2. Bankruptcy of a GP
3. Withdraw of a GP

Front 55

Can the acts of a limited partner dissolve the partnership?

Back 55

Not generally.

Exception- An LP may petition for a decree of dissolution - only if not reasonably practical to carry on business according to the partnership agreement

Front 56

Consequences of dissolution

Back 56

1. Ends partnership as a going concern

2. Priorities much different than under UPA

Front 57

List the 4 priorities to partnership assets on dissolution

Back 57

1. Third party creditors and partner creditors

2. Partners owed unpaid profits where there was a past distribution to others

3. Return of capital contribution

4. Remainder of the partners pro rata as profits