Chapter 14: Small Business, General Partnerships and limited partnerships

tenant in partnership

a co-owner with the other partners of the specific partnership property

No inference of the existence of a general partnership is drawn if profits are received in payment of

(1) a debt owed to a creditor in installments or otherwise; (2) wages owed to an employee; (3) rent owed to a landlord; (4) an annuity owed to a widow, widower, or representative of a deceased partner; (5) interest owed on a loan; or (6) consideration for the sale of goodwill of a business [UPA Section 7]

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 or (2) withdrawing from any future equity participation in the enterprise and causing a certificate showing this withdrawal to be filed. The limited partner remains liable to any third party who transacts business with the enterprise before either certificate is filed if the third person believed in good faith that the partner was a general partner at the time of the transaction [RULPA Section 304].

distribution of assets of a limited partnership

1. Creditors of the limited partnership, including partners who are creditors (except for liabilities for distributions) 2. Partners with respect to: a. Unpaid distributions b. Capital contributions c. The remainder of the proceeds

formation of a general partnership

1. an association of two or more persons 2. carrying on a business 3. as co-owners 4. for profit

National Conference of Commissioners on Uniform State Laws (NCCUSL)

1916; a group of lawyers, judges, and legal scholars, promulgated the Uniform Limited Partnership Act (ULPA)

Revised Uniform Limited Partnership Act (RULPA)

A 1976 revision of the ULPA that provides a more modern comprehensive law for the formation, operation, and dissolution of limited partnerships.

d.b.a.

A designation for a business that is operating under a trade name; it means "doing business as."

certificate of cancellation

A document filed with the secretary of state upon the dissolution of a limited partnership

fictitious business name statement

A document filed with the state that designates a trade name of a business, the name and address of the applicant, and the address of the business

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 must contain the following information: • Name of the limited partnership. • General character of the business. • Address of the principal place of business and name and address of the agent to receive service of legal process. • Name and business address of each general and limited partner. • Latest date on which the limited partnership is to dissolve. • Amount of cash, property, or services (and description of property or services) contributed by each partner and any contributions of cash, property, or services promised to be made in the future. • Any other matters that the general partners determine should be included.

Schedule C (Profit or Loss from Business)

A federal income tax form that is attached to a sole proprietors federal personal income tax form that shows the income or loss from his or her sole proprietorship

sole proprietorship

A form of business in which the owner is actually the business; the business is not a separate legal entity

Action for an accounting

A formal judicial proceeding in which the court is authorized to (1) review the partnership and the partners' transactions and (2) award each partner his or her share of the partnership assets.

action for an accounting

A formal judicial proceeding in which the court is authorized to (1) review the partnership and the partners' transactions and (2) award each partner his or her share of the partnership assets

unlimited personal liability of a general partner

A general partner's personal liability for the debts and obligations of the general partnership

Uniform Partnership Act (UPA)

A model act that codifies partnership law. Most states have adopted the UPA in whole or in part

Antecedent debt

A new partner who is admitted to a general partnership is liable for the existing debts and obligations (antecedent debts) of the partnership only to the extent of his or her capital contribution.

General Partnership (ordinary partnership)

An association of two or more persons to carry on as co-owners of a business for profit [UPA Section 6(1)].

personal guarantee

the promise to pay issued by an individual

partnership for a term

A partnership with a fixed duration

partnership at will

A partnership with no fixed duration

Entrepreneur

A person who forms and operates a new business either by him- or herself or with others

Wrongful Dissolution (Partnership)

A situation in which a partner withdraws from a partnership without having the right to do so at that time.

right to participate in management

A situation in which, unless otherwise agreed, each partner has a right to participate in the management of a partnership and has an equal vote on partnership matters

limited partnership

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

general partnership agreement (articles of general partnership) (articles of partnership)

A written agreement that partners sign to form a general partnership

Form 1040 U.S. Individual Income Tax Return

For federal income tax purposes, a sole proprietor must prepare a personal income tax Form 1040 U.S. Individual Income Tax Return and report the income or loss from the sole proprietorship on his or her personal income tax form.

unlimited liability of general partners of a limited partnership

General partners are personally liable for the debts and obligations of a limited partnership.

defective formation

Incorrect creation of a limited partnership that 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

joint liability

Liability of partners for contracts and debts of the partnership. A plaintiff must name the partnership and all of the partners as defendants in a lawsuit.

limited liability of limited partners of a limited partnership

Limited partners are liable only for the debts and obligations of a limited partnership up to their capital contribution; they are not personally liable for the debts and obligations of a limited partnership

ownership interest

Number of Shares Owned divided by Number of Shares Outstanding

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.

general partners of a general partnership

Persons liable for the debts and obligations of a general partnership

Dissolution of General Partnership

The change in the relationship of partners in a partnership caused by any partner ceasing to be associated in the carrying on of the business.

Distribution of Assets On Dissolution

The debts are satisfied in the following order [UPA Section 40(b)]: 1. Creditors (except partners who are creditors) 2. Creditor-partners 3. Capital contributions 4. Profits

sole proprietor

The owner of a sole proprietorship

right of survivorship

Upon the death of a joint tenant or tenant by the entirety the interest does not pass to the tenant's heirs but to the other join tenant(s). A rule providing that, on the death of a general partner, the deceased partner's right in specific partnership property vests in the remaining partner or partners; the value of the deceased general partner's interest in the partnership passes to his or her beneficiaries or heirs

unlimited personal liability of a sole proprietor

The personal liability of a sole proprietor for all the debts and obligations of a sole proprietorship

winding up

The process of liquidating a partnership's assets and distributing the proceeds to satisfy claims against the partnership.

joint and several liability

Tort liability of partners together and individually. A plaintiff can sue one or more partners separately. If successful, the plaintiff can recover the entire amount of the judgment from any or all of the defendant-partners who have been found liable.

control rule

Under the RULPA, a limited partner is liable as a general partner if 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 [RULPA Section 303(a)]

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.

contract liability

Unlimited personal liability for contracts of partnership

Continuation agreement

an agreement among the surviving or remaining general partners of a partnership to continue a partnership after its dissolution

Incoming Partners

are personally liable for debts and obligations incurred by the general partnership after becoming a partner.

dissolution of a limited partnership

change in the relationship of partners caused by any general partner ceasing to be associated in the carrying on of the business

Uniform Limited Partnership Act (ULPA)

created in 1916 by the National Conference of Commissioners on Uniform State Laws, contains a uniform set of provisions for the formation, operation, and dissolution of limited partnerships; most states originally enacted this law

Distribution of Assets On Dissolution

expressly sets forth the events that allow for continuation of the partnership, the amount to be paid outgoing partners, and other details.

A written agreement is called

general partnership agreement, or articles of general partnership, or articles of partnership

Flow-through taxation

the income and losses of partnership flow onto and have to be reported on the individual partners' personal income tax returns

antecedent debts

the liability of an incoming partner for antecedent debts of the partnership is limited to her capital contribution