Chapter 30 Formation and Internal Relations of General Partnerships

CPA: A partnership agreement must be in writing if

the partnership's purpose cannot be completed within one year of formation

Sole Proprietorship

a business owned and managed by a single individual

Corporation

a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law.

A person who is entitled to receive a share of the profits of a partnership is prima facie a partner unless the payment is of

a debt to a creditor, rent to a landlord, wages to an employee

Legal Aggregate

a group of individuals not having a legal existence separate from that of its members; the Revised Act considers a partnership a legal aggregate for a few purposes

Limited Liability Limited Partnership

a limited partnership in which the liability of the general partners has been limited to the same extent as in an LLP

Joint Venture

an agreement between two or more companies to share a business project

Characteristics of the legal entity theory of partnerships

assets of the firm are treated as those of the business, every partner is considered an agent of the partnership, partnership creditors have the prior right to partnership assets

No person may become the member of a partnership without the consent of

at least one partner, two or more partners, a majority of the partners

Partnership

A business in which two or more persons combine their assets and skills

Limited Liability Company

A business organization in which the business (not the owner) is liable for the company's debts

Formal Account

A complete review of all financial transactions of a partnership. Under the RUPA, a partner may directly sue the partnership or other partners, with or without requesting an accounting, in order to enforce the partner's right. The RUPA does not authorize partners to file deviate lawsuits on behalf of a partnership.

What are the main provisions that should be included in a partnership agreement

A partnership agreement should include the following: (1) names of each partner and partnership name, (2) nature of business, (3) length of time partnership is to last, (4) capital contribution of each partner, (5) how profits and losses are to be shared, (6) who is to have what authority, (7) how the partners are to be paid, (8) special restrictions on partners, if any, (9) withdrawal rights of partners, and (10) distribution upon termination

CPA: What is necessary to create an express partnership

Agreement to share ownership of the partnership, intention to conduct a business for profit, intention to create a relationship recognized as a partnership

CPA: In a general partnership, the authorization of all partners is required for an individual partner to bind the partnership in a business transaction to

sell goodwill

What are the principal duties of a partner

All partners within a partnership have a fiduciary duty to one another and to the partnership. They must operate in a loyal, fair manner demonstrating good faith in all partnership business. In addition, they have a duty of obedience, to follow the partnership agreement and other business decisions, and the duty of care.

Arthur breaches his fiduciary duty to the Main Street Partnership by usurping a partnership opportunity. As a result of his reach of this duty, the partnership suffered a loss of $10,000 and Arthur made a secret profit of $20,000

Arthur must pay the firm the $20,000 secret profit and the $10,000 loss

Distinguish between the legal entity theory and the legal aggregate theory

At common law, a partnership was regarded as a legal aggregate; that is, a group of individuals having no legal existence apart from its members. However, under the RUPA partnerships may be treated as a legal entity-that is as an organization having a legal existence separate from that of its members. The assets of the firm and title to real estate are but two ways the RUPA treats partnerships as a legal entity. Other ways the RUPA recognizes the legal entity theory are the fiduciary duty of partners to the partnership and the partners' roles as agents of the partnership. The UPA on the other hand, ascribes more to the legal aggregate theory. For example, the UPA holds that a partnership cannot be sued or sue in the firm name unless authorized by statute to do so

Business trust

Business organization governed by group of trustees, who operate trust for beneficiaries

Which business organization is unaffected by the death, bankruptcy or withdrawal of an owner

Corporation

A partner may engage in one or more competing businesses

False

A partner may not ordinarily inspect the books of the partnership unless a majority of partners permit such inspection

False

A partner may withdraw his capital contribution without consent of all the partners

False

A partner who fails to use ordinary care and skill in discharging assigned duties will be personally liable to the partners for any resulting loss

False

A partner who performs a disproportionate share of the partnership duties is entitled to a salary in addition to a share of the profits

False

A partner's right to participate in the management of the partnership depends upon the size of that partner's capital contribution

False

The RUPA provides that amounts owing to partners for capital contributions are to be paid first upon dissolution of a partnership

False

The corporate form of business organization has an advantage over both the sole proprietorship and the general partnership in ease of formation

False

Unless otherwise agreed, a partner is entitled to interest on a capital contribution

False

Unless otherwise agreed, partners bear losses equally even if profits are shared unequally

False

When a partner sells his interest in the partnership, the buyer becomes a new partner

False

A legal duty imposed upon partners in their relationship with one another

Fiduciary duty

Legal Entity

a business organization that is recognized by the law as having a separate legal existence

delectus personae

Latin for "choice of persons", imparting the right of one partner to approve or choose other partners

Limited Liability Partnership

Limits the liability of one partner for the negligence of another

What are the principal rights of a partner

Partners are provided, by law, with various rights because of their status as partners. They have rights in the partnership itself. Additionally, they have a right to share in distributions, a right to participate in management, a right to choose associates, and a right of enforcement

Able and Baker are engaged in continuous transactions of buying and selling real estate over a period of time and are carrying on a business of trading in real estate. What are they?

Partnership

The fiduciary duty imposed upon partners requires what

That a partner not make a secret profit in connection with partnership business

What are the factors considered by a court in determining whether a partnership exists

The court will look for three components to determine whether a partnership exists. Specifically, the court will determine whether there exists: (a) an association of two or more persons who agree to become partners, (b) a business with an intention to acquire profits and a continuous series of commercial activities, and (c) co-ownership and a sharing of profits and the right to manage and control the business

A limited partner is liable for the partnership debt only to the extent of her capital contribution

True

A partner who wrongfully withdraws from the partnership is liable to the remaining partners for damages resulting from the breach of the partnership agreement

True

A partner's transferable interest does not include his or her entire partnership interest. It only includes the partner's share of the partnership profits, losses and distributions upon liquidation

True

A partnership is an association of two or more persons to carry on as co-owners of a business for profit

True

A person may be a partner even though he has no authority to conduct the ordinary activities of the business

True

Any one partner may be held liable for the entire indebtedness of the partnership.

True

Every partner owes a duty of good faith, fairness and loyalty to the other partners

True

Partners may agree that losses will be shared differently than profits are shared.

True

The corporate form of business organization has an advantage over both the sole proprietorship and the general partnership in external liability for business debts

True

Tenancy in Partnership

form of co-ownership by which the partners hold partnership property

CPA: Blake, a partner in QVM, a general partnership, wishes to withdraw from the partnership and sell her interest to Nolan. All of the other partners in QVM have agreed to admit Nolan as a partner and to hold him harmless for the past, present and future liabilities of QVM. As a result of Blake's withdrawal and Nolan's admission to the partnership, Nolan

has the right to participate in QVM's management

Under the RUPA, a partnership may be formed by 2 or more

individuals, partnerships, corporations

Limited Partnership

partnership in which only one partner is required to be a general partner

General Partnership

partnership in which partners share equally in both responsibility and liability

Accounting

planning, recording, analyzing, and interpreting financial information

A partner has which rights

right to share in profits, right to return of capital upon demand, right to return of advances before nonpartner creditors are paid