Partnership

What are the default rules on a partner's share of profits and losses?

1. Absent an agreement, PROFITS SHARED EQUALLY 2. Absent an agreement, LOSSES SHARED LIKE PROFITS

What is the rule of limited liquidity in an LLC?

A full membership interest may not be transferred without consent of a majority of the membership interest or as provided in the operating agreement.

How can there be a formation of a registered limited liability partnership?

A general or a limited partnership engaged in professional services must file a certificate of registration with the Department of State of New York.

When does dissolution occur in a partnership?

A general partnership dissolves upon any material change in the partnership including death or dissociation of any single general partner.

What is the definition of a general partnership?

A general partnership is an association of two or more persons who are carrying on as co-owners of a business for profit. Sharing of Profits is the Key Factor. Therefore the contribution of money or services in return for a share of profits is prima facie evidence of a partnership.

What is the definition of a limited liability company?

A hybrid between a corporation and a partnership in which the owners who are called members have the same rights and limited liabilities as shareholders in a corporation plus the benefits of partnership tax status. The LLC gives the best of both worlds.

How can a limited partnership be formed?

A limited partnership must file with the state a limited partnership certificate that includes the names of all general partners.

What is a limited partnership?

A partnership with at least one general partner and at least one limited partner.

What is the default rule for management in a partnership?

Absent an agreement, each partner is entitled to EQUAL control (vote).

What is the default rule for salary in a partnership?

Absent an agreement, partners get NO SALARY.

What are the liabilities of general partners to third parties?

Agency principles apply: 1. Partners are agents of the partnership for apparently carrying on usual partnership business. 2. Therefore, the general partnership is liable for each partner's torts in the scope of partnership business and for each partner's authorized contracts.

Paula convinced her friend Peter to start a sailing school and agreed to lend Peter money to purchase a boat for that purpose. At a party, Paula told a wealthy friend: "My partner Peter and I are starting a sailing school and we need a boat." The wealthy friend offered to sell Paula and Peter a boat and agreed to allow Peter to take it for a test ride the next day. Later that night, however, Peter and Paula fight and decide to drop the sailing school idea. The next day, Peter takes the boat for a ride and tortiously destroys the boat. May the wealthy friend sue Paula for the loss of the boat?

As a rule, general partners are liable for all partnership obligations including co-partner's torts. In this case, Paula and Peter never formed a partnership because their's was a lending arrangement not based on sharing profits. Nonetheless, under estoppel, Paula will be liable because she did represent to that tort victim that she is a partner of Peter's and therefore will be liable as if she were.

What is the dissociating (withdrawing) partner's liability for subsequent debts?

Dissociating partners are liable on future debts until actual notice of their dissociation is given to all known creditors and publication notice is given to all potential creditors.

Each General Partner is Personally Liable for All Debts of the Partnership and for?

Each co-partner's torts.

What is the rule for priority of distribution in a winding up process?

Each level of priority must be fully satisfied before beginning the next level.

What is the rule for distribution in a winding up procedure?

Each partner must be repaid his or her loans and capital contributions, plus that partner's share of any profits, or minus that partner's share of any losses

Partner A puts up all of the money. Partner B does all of the work. Partner C gives the partnership its fine name. Partner D does nothing. How are profits shared absent an agreement on profits?

Equally

What is the order of priority in a winding up phase?

First, outside creditors must be paid all non-partner third party trade creditors must be fully satisfied first. Second, inside creditors must be paid. These are partners who have loaned money to the partnership and have become creditors thereby. Third, capital contributions by partners must be paid. or losses. The partnership is liable to its own partners for the full repayment of their capital contributions. Fourth, Profits and surplus, if any Are shared equally absent an agreement.

A and B dissolve the AyeBee Partnership. In winding up, they liquidate the partnership assets and have a total of $1 million to distribute. How should that amount be distributed if (1) the partnership owes $600,000 to trade creditors; (2) Partner A loaned the partnership $100,000; and (3) Partner B made capital contributions of $200,000?

First, the partnership must repay outside trade creditors their 600,000. Secondly, the partnership must repay partner A for its loan of 100,000 dollars as well. Third, the partnership is now liable to Partner B to repay its 200,000 capital contribution. Fourth, the remaining 100,000 dollar profit amount is then shared among partners A and B equally without an agreement and therefore, each gets their equal 50,000 dollar share.

If an agreement is silent on profits and losses in a partnership?

First, without an agreement on profits, they are shared equally. Secondly, without an agreement on losses, they are shared just like profits which would be equally as well.

What are the rights and liabilities between general partners?

General Partners are Fiduciaries of Each Other and the Partnership. Therefore, general partners owe to each other and the partnership the duty of loyalty, which means that general partners may never engage in self-dealing; may never usurp partnership opportunities; and may never make a secret profit at the partnership's expense.

What are the five issue areas in partnership?

I. General Partnership Formation II. Liabilities of General Partners to Third Parties III. Rights and Liabilities Between General Partners IV. General Partnership Dissolution V. Alternative Unincorporated Business Organizations

What is the Incoming partner's liability for pre-existing debts?

Incoming partners are generally not liable for prior debts but any money paid into the partnership by an incoming partner can be used by the partnership to satisfy those prior debts.

What are the partners' rights in share of management?

It is an asset owned only by the partnership itself and therefore, it may not be transferred by individual partners to third parties.

What is the definition of winding up in a partnership?

It is the period between dissolution and termination in which the remaining partners liquidate the partnership's assets to satisfy the partnership's creditors.

What is the rule of liability and control of limited partners in limited partnerships?

Limited partners have limited liability and therefore are not liable for the limited partnership's obligations but in this state, as limited partners, they may not manage the business without giving up their limited liability status.

What are the formation requirements for an LLC?

Must file the articles of organization with the state and must publish a summary of those articles in at least two newspapers for six weeks in a row. You may adopt an operating agreement.

What are the liabilities of partners in registered limited liability partnerships?

No partner is liable for the debts and obligations of this partnership.

What are the formalities required for a general partnership formation?

None, no formalities to becoming a general partnership. No filing, no writing.

What is the rule for general partnership liability by estoppel?

One who represents to a third party that a general partnership exists will be liable as if a general partnership exists.

What is the exception to the default rule on salary in a partnership?

Partners do receive compensation for helping to wind up the business.

What are the partner's rights in share of profits?

Personal property owned by individual partners and therefore may be transferred by individual partners to third parties.

The Real End of the Partnership is Called?

Termination

What is an action for accounting in a partnership?

The action for accounting may recover losses that are caused by the breach and also the partnership may disgorge profits made by the breaching partner as well.

What is the rule of limited life in an LLC?

The company will dissolve upon majority vote of the membership interest or as provided in the operating agreement. Therefore, LLCs = limited liability plus limited liquidity plus limited life and plus limited tax.

What is the rule for control in an LLC?

The owners may control but they also delegate their control to a team of managers. This is just like a board of directors.

What is the partnership's liability for old business in a winding up procedure?

The partnership and therefore its individual general partners retain liability on all transactions entered into to wind up old business by satisfying creditors who existed when winding up began.

What is the partnership's liability for new business in a winding up procedure?

The partnership and therefore its individual general partners retain liability on brand new transactions during winding up until actual notice of dissolution is given to all known creditors and until publication notice is given to all potential creditors.

A, B and C agree to contribute money and share profits 60-30-10. How do they vote?

The question here is about control, not money. Without an agreement on control, control is equal which means one partner, one vote and majority vote governs ordinary affairs but unanimous consent is required for fundamental matters.

What are the partners' Rights in specific partnership assets?

These are land, leases, or equipment which are owned only by the partnership itself and therefore may not be transferred by individual partners without partnership authority.

What is the rule of liability and control of general partners in limited partnerships?

They are still general and are therefore still liable but they still have control and the right to manage the business

In order to determine whether the fact pattern involves property owned by the partnership or personal property owned by an individual partner, the test is?

Whose money was used to buy the property. Therefore, if partnership money was used to buy the property, it becomes partnership property. If personal money was used to buy the property, it becomes personal property.

If agreement in a partnership states that "losses are shared 60/40" but is silent on profits. Profits shared?

Without an agreement on profits, they are shared equally.

A and B are partners. A works 96 hours a week. B sleeps all day. Does A get any salary?

Without an agreement, no salary.

If an agreement in a partnership states that "profits are shared 60/40" but is silent on losses. Losses shared?

Without an agreement, they are shared just like profits which is 60/40

John buys a car in John's own name with John's money which John uses in partnership business. John dies. Does John's spouse Yoko get the car or is it a specific asset of the partnership?

Because John bought the car with his own money, it becomes John's own car and therefore, he may leave that car to Yoko through inheritance.

A and B dissolve the AyeBee Partnership. In winding up, they liquidate the partnership assets and have a total of $700,000 to distribute. How should that amount be distributed if (1) the partnership owes $600,000 to trade creditors; (2) Partner A loaned the partnership $100,000; and (3) Partner B made capital contributions of $200,000?

First, the partnership still owes outside trade creditors the 600,000. Secondly, the partnership still owes partner 100,000. Third, the partnership is still liable to Partner B for his 200,000 capital amount. This is a loss or liability. Fourth, the partnership now owes Partner B the full repayment of its capital and therefore, Partners A and B must share equally in that loss amount and so each now, must pay in a brand new 100,000 dollar amount as its equal share of that loss.