Business Law- Chapter 14

Another important note regarding general partnerships*

- Receipt of a share of business profits is prima facie evidence of a general partnership because non partners usually are not given the right to share in a business's profits - An agreement to share losses is strong evidence of a partnership - The right to participate in the management of a business is important evidence, but it is not conclusive evidence

a written agreement is called

- a general partnership agreement or articles of general partnership

Important note regarding partnerships*

- a general partnership is a VOLUNTARY association of two or more persons - all partners must agree to the participation of each co-partner - a person cannot be forced to be a partner or to accept another person as a partner

What are some disadvantages to sole proprietorships?

- access to capital is limited to personal funds plus any loans he or she can obtain - the sole p is legally responsible for the business contracts and the torts he or she or any of the employees commit in the course of employment

a general partner who is made to pay more than his or her proportionate share of ___________ may seek _________________ from the partnership and from those partners who have not paid their share of the loss

- contract liability - indemnification

What are some advantages sole proprietorship?

- forming it is easy and does not cost a lot - only one owner to make all management decisions - the sole proprietor owns all of the business and has the right to receive all of the business's profits - a sole proprietorship can be easily transferred or sold if and when the owner decides to do so

A limited partnership must have one or more ______ and one or more ____________.

- general partners - limited partners

All general partners have an equal right to _____________ of the general partnership of the business

- participate in the management * each person has 1 vote, regardless of the proportional size of his or her contribution or share in the partnership's profits * if the vote is tied, the action is defeated

What are the major forms of a business?

- sole proprietorship - general partnership - limited partnership - limited liability partnership - limited liability company - corporation

Partners who erroneously but in good faith believe they have become limited partners can escape liability as general partners by ________.

1) causing the appropriate certificate of limited partnership (or certificate of amendment) to be filed 2) withdrawing from any future equity participation in the enterprise and causing a certificate showing this withdrawal to be filed

After partnership assets have been liquidated and reduced to cash, the proceeds are distributed to satisfy claims against the partnership in this order

1) creditors (except partners who are creditors) 2) creditors- partners 3) capital contributions 4) profits

after the assets of a limited partnership have been liquidated, the proceeds must be distributed in this order: (distribution among the partners may vary, but the creditos must remain the first priority)

1) creditors of the limited partnership, including partners who are creditors (except for liabilities and distributions) 2) partners with respect to : a- unpaid distributions b- capital contributions c- the remainder of the proceeds

important note about general partnerships' names*

A general partnership can operate under the names of any one or more of the partners or under a fictitious business name. A general partnership must file a fictitious business name statement (d.b.a) - The name selected by the partnership cannot indicate that it is a corporation (e.g., it cannon include the term Inc.

important note about general partnerships*

A general partnership may be formed with little or no formality. Co-ownership of a business is essential to create a partnership. * The most important factor in determining co-ownership is whether the parties share the business's profits and management responsibility

Entrepreneur

A person who organizes, manages, and takes on the risks of a business.

limited partnerships

A type of partnership that has two types of partners: (1) general partners and (2) limited partners.

defective formation

Occurs when (1) a certificate of limited partnership is not properly filed, (2) there are defects in a certificate that is filed, or (3) some other statutory requirement for the creation of a limited partnership is not met.

limited partnership agreement (articles of limited partnership)

a document that sets forth the rights and duties of general and limited partners; the terms and conditions regarding the operation, termination, and dissolution of a partnership; and so on

certificate of limited partnership

a document that two or more persons must execute and sign and that makes a limited partnership legal and binding

action for accounting

a formal judicial proceeding in which the court is authorized to 1) review the partnership and the partners' transactions 2) award each partner his or her share of the partnership assets - an action results in a money judgement for or against partners

Uniform Partnership Act (UPA) & Revised UPA

a model act that codifies general partnership law

control rule

a rule under the RULPA that states a limited partner is liable as a general partner is his or her participation in the control of the business is substantially the same as that of a general partner, but the limited partner is liable only to persons who reasonably believed him or her to be a general partner

general partnerships (or partnership)

a voluntary association of two or more persons carrying on a business as co-owners for profit

General partners are not permitted to sue the partnership or other partners at law. Instead, they are give the right to bring an __________________ against other partners.

action for an accounting

continuation agreement

an agreement among the surviving or remaining general partners of a partnership to continue a partnership after its dissolution that expressly sets forth the events that allow for continuation of the partnership, the amount to be paid outgoing partners, and other details * when a partnership is continued, the old partnership is dissolved, and a new partnership is created

A new partner who is admitted to a general partnership is liable for the existing debts and obligations called:____________ of the partnership only to the extent of his or her capital contribution

antecedent debts

general partners (or partners)

are personally liable for the debts and obligations of the partnership

Operating under a trade name is commonly designated as _______________________

d.b.a (doing business as)

Creating a sole proprietorship is _______

easy - there are no formalities - and no federal or state government is required

If a general partnership is dissolved each general partner is personally liable for debts and obligations pf the partnership that ____________________

exist at the time of dissolution

Most states require all businesses that operate under a trade name to file a ______________ with the appropriate government agency

fictitious business name statement ( or certificate of trade name)

the creation of a limited partnership is ______

formal and requires public disclosure

flow through taxation

general partnerships do not pay federal income taxes - instead the income and losses of a partnership flow onto and have to be reported on the individual partners' personal income tax returns

The ________________________ is personally liable for debts and obligations incurred by general partnership after becoming a partner

incoming partner

What four criteria must a business must meet in order to be considered a general partnership according to the UPA?

it must be 1) an association or two or more persons 2) carrying on a business 3) as co-owners 4) for profit

As a legal entity, a general partnership must act through its agents :

its partners and employees

under the UPA, general partners have _______________ for torts and breaches of trust

joint and several liability - this is so even if a partner did not participate in the commission of the act - this type of liability permits a third party to sue one or more of the general partners separately - this means that a third party who sues to recover on a partnership contract or debt must name all the general partners in the lawsuit - if the third party's suit does not name all the general partners, the judgement cannot be collected against any of the partners or the partnership assets - releasing any party from the suit releases them all

limited partners have ___________ liability for the debts and obligations of the limited partnership.

limited liability - are only liable for the debts and obligations of the limited partnership up to their capital contributions, and they are not personally liable for the debts and obligations of the limited partnership

The UPA's definition of person who may be a general partners includes:

natural persons, partnerships (including limited partnerships), corporations, and other associations.

Do limited partners have the right to manage affairs of the limited partnership? (they have no right to bind the partnership to contracts or other obligations

no, as a trade- off for limited liability

sole proprietor

only one owner of the business

The agreement to form a general partnership may be ________

oral, written, or implied from the conduct of the parties - no formalities are needed

the dissolution of a general partnership does not, discharge the liability of an __________________ for existing partnership debts and obligations

outgoing partner

limited partners

partners in a limited partnership who invest capital but do not participate in management and are not personally liable for partnership debts beyond their capital contributions

general partners of a limited partnership

partners in a limited partnership who invest capital, manage the business, and are personally liable for partnership debts

a partnership with no fixed term

partnership at will

a partnership with a fixed duration or until a particular undertaking is accomplished is called a

partnership for a term - dissolves automatically on the expiration of time or the accomplishment of the objective

A sole proprietorship is not a separate legal entity, so it does not _____________________________

pay taxes at the business level - Instead, the earnings and losses from a sole proprietorship are reported on each sole proprietor's personal income tax filing - reported on a Schedule C

partners of a general partnership have _________ for the contracts and torts of the partnership

personal liability

a general partner is a co-owner with the others partners of the specific partnership property as a _______________

tenant in partnership

important note regarding management of a limited partnership

the RULPA permits a limited partner to engage in the management of the partnership's affairs without his or her limited liability if the limited partner has been formally hired by the partnership to be an executive of the partnership

dissolution of a general partnership

the change in the relationship of partners in a partnership caused by any party ceasing to be associated in the carrying on of he business

personal guarantee

the creditor may require a limited partner to personally guarantee the repayment of a loan in order to extend credit to the limited partnership - if the limited partnership defaults on the loan, the creditor may enforce the personal guarantee and recover from the limited partner who personally guaranteed the repayment of the loan

unlimited personal liability

the personal liability of a sole proprietor for all the debts and obligations of a sole proprietorship - therefore creditors may recover claims against the business from the sole proprietor's personal assets like car, home, bank accounts

winding up

the process of liquidating (sale) a partnership's assets and distributing the proceeds to satisfy claims against the partnership

sole proprietorship

the simplest form of business organization - no separate legal entity - most common form of business organization in te US

the partnership and partners who are made to pay ______________

tort liability may seek indemnification from the partner who committed the wrongful act - a release of one partner does not discharge the liability of other partners

A sole proprietorship can operate under the name of the sole proprietor or a _________ __________.

trade name

right to share in profits

unless otherwise agreed, the UPA mandates that a general partner has the right to an equal share in the partnership's profits and losses - is to be considered to be the right to share in the earning from the investment of capital

the general partners of a limited partnership have _________ liability for the debts and obligations of the limited partnerships. Thus, general partners have unlimited personal liability for the debts and obligations of the limited partnership.

unlimited liability

general partners have ____________ for the debts and obligations of the partnership

unlimited personal liability

the _________________ of the partnership follows its dissolution

winding up

Do general partners have the right to manage affairs of the limited partnership?

yes

ULPA

Uniform Limited Partnership Act, contains a uniform set of provisions for the formation, operations and dissolution of limited partnerships.

important note regarding general partnerships and rights to share in profits*

Where a partnership agreements provides for the sharing of profits but is silent as to how losses are to be shared, losses are shared in the same proportion as profits. The reverse is not true, however. If a partnership agreement provides for the sharing of losses but is silent as to how profits are to be shared, profits are shared equally.

certificate of cancellation

a document filed with the secretary of state upon the dissolution of a limited partnerships