Partnerships

Any partnership may become an LLP upon the:

(1) Approval of the partners by vote; AND (2) Filing of a statement of qualification with the secretary of state NOTE: The filing of a statement of qualifications does NOT create a new partnership; the LLP continues to be the same entity that existed prior to the filing

Each partner has _________ in the management and conduct of the partnership

equal rights

General Partners are ___________ for ALL debts and obligations of the partnership

jointly and severally liable

Unless otherwise agreed, profits are shared equally between partners, and ________. If an agreement is only made to how losses are shared (no matter the ratio), then profits will be shared equally. Any partner who pays more than his fair share in partnership losses is entitled to receive a contribution from the other partner(s) for their proportional share of the losses.

losses will be shared in the same ratio as profits

Any personal use of partnership property requires . . .

the consent of the other parties

Limited partners are NOT personally liable for obligations of the limited partnership arising from ____________. However, limited partners are always liable for their OWN misconduct

the wrongful acts or omissions of other partners

Each partner is an agent of the partnership. Therefore, the actions of every partner that are made within the ordinary course of business to carry on the partnership's business (e.g., entering into contracts in the partnership's name), bind the partnership, UNLESS the partner taking the action:

(1) Has NO authority to act on behalf of the partnership; AND (2) The other side has knowledge or notice that the partner lacks authority

Actions taken by a partner that are _________ the ordinary course of the partnership's business do ________ bind the partnership UNLESS the other partners _________ the action with actual or apparent authority

(1) OUTSIDE (2) NOT (3) unanimously authorize

Absent an agreement to the contrary, a partner may ONLY use partnership property:

(1) On behalf of the partnership; OR (2) To carry on the business of the partnership

In determining whether a general partnership exists, it is irrelevant whether the parties intended to form a partnership. However, courts may consider the following:

(1) Sharing of Profits. A person who receives a share of the profits of a business is presumed to be a partner in the business unless the partner receives the profits as payment of debt, rent, wages, or for services rendered (2) Joint Ownership. Joint ownership of property tends to show that the parties associated as co-owners; however, it does not necessarily establish a partnership in and of itself (3) Sharing of Control. Sharing of control, capital investment, and labor tends to show that the parties associated as co-owners; however, it does not necessarily establish a partnership in and of itself

A statement of qualification MUST contain the following:

(1) The name and address of the partnership and agent for service of process; (2) A statement that the partnership elects to be an LLP; AND (3) A deferred effective date, if any

A limited partnership is formed when a written certificate of limited partnership is executed and filed with the secretary of state. A certificate of limited partnership must "substantially comply" with the following requirements, including:

(1) The signature of each general partner; (2) The name of the limited partnership; AND (3) The name, street, and mailing address of: (a) Each general partner; (b) The initial designated office; AND (c) The initial agent for service of process *NOTE. IF the parties intend to form a limited partnership, but fail to substantially comply with the above requirements, they may have instead formed another business association (e.g., a general partnership)

A general partnership is a type of partnership that has NO limited personal liability (i.e., general partners remain personally, jointly and severally liable for ALL debts of the partnership). A general partnership is formed when:

(1) Two or more persons; (2) Associate as co-owners; (3) To carry on a business for profit *No intent requirement

A general partnership, limited partnership, or LLP is liable for the wrongful acts or omission of ANY partner acting:

(1) Within the ordinary course of the partnership's business; OR (2) With the authority of ALL other partners

General partners are jointly and severally liable for ALL obligations of the partnership arising from any wrongful act or omission of any partner acting:

(1) Within the ordinary course of the partnership's business; OR (2) With the authority of ALL other partners

Judgment Enforcement Against a Partner's Personal Assets: Generally, a judgment creditor CANNOT levy execution of the judgment against a partner's personal assets for a partnership debt UNLESS:

(1) a judgment has been rendered against the partner; AND (2) the partnership assets have been exhausted or are insufficient. *Under the Uniform Partnership Act, a judgment against the partnership is NOT by itself a judgment against the individual partners. However, a judgment may be sought against the partnership and the individual partners in the same action.

During the winding up phase, a partner's ________ to bind the partnership is limited to actions that are necessary to wind up the partnership's affairs. However, a partner may still have _________ to bind the partnership so long as the other side does not have notice of the partnership's dissolution

(1) actual authority (2) apparent authority

IF an LLP fails to file an __________ with the appropriate state office or pay the annual required filing fee, the state may revoke the partnership's statement of qualification. A partnership whose statement of qualification was revoked may apply to the state for reinstatement within ________ after the effective date of revocation

(1) annual report (2) 2 years

A partnership opportunity is one that is

(1) closely related to the entity's existing or prospective line of business, (2) that would competitively advantage the partnership, AND (3) that the partnership has the financial ability, knowledge, and experience to pursue.

Absent an agreement to the contrary, ____________ the partnership's business, while limited partners generally have no say in such matters. Disagreements relating to ordinary matters connected with the business of the partnership are decided by a _________ of the partners

(1) general partners have equal rights to manage and control (2) majority

Absent an agreement to the contrary, a partner may transfer his interest in the __________ of the partnership (including the right to receive distributions) to a third party. Upon transfer of such interest, the transferee does NOT . . .

(1) profits and losses (2) automatically become a partner nor does the partnership terminate or dissolve

HOWEVER, a partner is NOT liable for conduct that would otherwise violate the duty of loyalty if:

(1) the partner fully discloses the information; AND (2) either (a) the Partnership Agreement is amended or (b) all partners consent to the transaction. Unless agreed otherwise, the Partnership Agreement may be amended at any time with a unanimous vote of the partners. An interested partner should abstain from voting to amend the Partnership Agreement to allow for conduct that would otherwise violate the duty of loyalty.

A transferee does NOT becomes liable for the obligations of the partnership incurred before or after the transfer, because he is not a partner. However, a transferee may become a partner if the other partners ___________. If the transferee becomes a partner, he will be liable for the obligations of the partnership incurred _________ his admittance pursuant to the normal rules of agency and partnership

(1) unanimously consent (2) AFTER

A partnership that is dissolved only continues to exist to "wind up" its business. Assets: _________ have priority over partners to the partnerships' assets. Obligations: Partnership assets are first applied to pay off obligations to creditors (creditors may include partners who made loans to the partnership) before being distributed to the partners

Creditors

A partner is an ________ of the partnership for its business purposes

agent *As an agent, the partner can commit the partnership to binding contracts with third parties

A decision as to a matter outside the ordinary course of the partnership's business requires the consent of ________

all partners

Must provide partners with access to records during _________

business hours

Uniform Partnership Act (UPA). Under the UPA, any change in partner membership automatically triggers dissolution of the partnership UNLESS there is an agreement to the contrary. Thus, absent an agreement to the contrary, every partner generally has the power to ____________. However, if the dissolution is wrongful, the remaining partners may hold the dissolving partner liable for damages

dissolve the partnership at any time by withdrawing from the partnership

General partners manage and control the day-to-day operations of the business, while limited partners generally _________. Limited partners are generally passive investors, and only have voting rights in extraordinary situations (e.g., sale of the partnership, amending the partnership, etc.).

have no say in such matters

A _______ of the partners can make a decision as to a matter in the ordinary course of the partnership's business, such as a distribution of partnership profits.

majority

A partner who wrongfully dissociates CANNOT participate in _______. Additionally, that partner is liable to the other partners and the partnership for any damages caused by his dissociation.

management or the winding up process

Under the Uniform Partnership Act, a judgment solely against an individual partner (and not the partnership) CANNOT be satisfied with _______ because an individual partner has no ownership interest in the partnership's property. However, judgment creditors MAY seize the partner's financial interest in the partnership.

partnership property

Partners owe the fiduciary duty of loyalty to the partnership and the other partners, which requires partners to _________ Under RUPA, a partner must:

(a) act in the best interests of the partnership. (1) account for any property, profit, or benefit derived by the partner from the partnership property or business (this includes the obligation to refrain from appropriating partnership opportunities or assets for personal use); (2) not have an interest adverse (conflict of interest) to the partnership (i.e. partners cannot engage in unfair transactions with the partnership); AND (3)not compete with the partnership (unless the partnership agreement allows the partner to do so). The above duties still apply after dissolution during the winding up process (except for the duty not to compete). Partners in a Limited Partnership have similar duties as partners in a General Partnership.

Under the RUPA, a partner is only in breach of the duty of care when he engages in:

(a) grossly negligent or reckless conduct; (b) intentional misconduct; OR (c) a knowing violation of law.

A partner may dissociate (withdraw) from the partnership at any time by providing notice to the other partners. However, a dissociation will be deemed wrongful if:

(a) it is in breach of an express provision of the partnership agreement; OR (b) if the partnership is for a de nite term or particular undertaking, AND the partner (i) withdraws, (ii) is expelled by judicial determination, or (iii) is dissociated by becoming a debtor in bankruptcy.

Under the Uniform Partnership Act (UPA), partners shall render, on demand by any partner, the true and full information of all things a effecting the partnership. Under the Revised Uniform Partnership Act (RUPA), a partner shall disclose without demand full information concerning the partnership's business and a airs (if access to such information would be reasonably required for other partners to properly exercise their rights and duties). This duty is encompassed within a partner's obligation of good faith and fair dealing. If a partner breaches this duty, he may be held personally liable to the partnership for any losses suffered as a result.

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Dissolution of a partnership does NOT immediately terminate the partnership. Rather, the partnership enters a ________ phase, which continues until the winding up of the partnership's affairs is completed (i.e., dissolution triggers the wind up and termination of the partnership)

"winding up"

Dissolution of a partnership does NOT immediately terminate the partnership. Rather, the partnership enters a _________ phase, which continues until the winding up of the partnership's affairs is completed

"winding up"

Each partner owes a fiduciary duty of loyalty to the partnership and other partners, which requires that each partner:

(1) Act in good faith and fairly toward the other partners; (2) Account for any property, profit, or benefit derived by the partner from the partnership business or property; AND (3) REFRAIN from: (a) Competing with the partnership within the scope of the business (even during dissolution); AND (b) Usurping a business opportunity that properly belongs to the partnership

Dissolution Causes. There are three main causes of dissolution:

(1) Actions taken by the partners (e.g., disassociation, partners agree to certain causes for dissolution, etc.); (2) Operation of law (e.g., it becomes illegal to continue the business of the partnership); OR (3) Court order (e.g., a court may grant a judicial dissolution if it is no longer reasonably practicable to continue operation of the partnership business)

Term Partnerships. A term partnership is a partnership that exists for a specified duration of time or until a specified event occurs. Under RUPA, a term partnership may be dissolved before its term expires if:

(1) At least half of the partner's express their will to wind up the business within 90 days after a partner's disassociation by death, declaring bankruptcy, becoming incapacitated, or wrongful disassociation; OR (2) ALL of the partners agree to amend the partnership agreement by expressly agreeing to dissolve the partnership

Revised Uniform Partnership Act (RUPA). RUPA provides a basis for continuing the partnership despite a partner's withdrawal from the partnership where the remaining partners may buy out the withdrawn partner's interest instead of winding up the partnership business. Under RUPA, absent an agreement to the contrary, the "disassociation" (occurs when a partner ceases his association with carrying on the partnership business) of a partner does NOT automatically trigger dissolution UNLESS either of the following exceptions apply:

(1) At-Will Partnership. Any member of an at-will partnership can disassociate at any time automatically triggering dissolution and liquidation (2) Will of the Parties. A partnership will automatically dissolve upon the occurrence of an event the partners specified would cause dissolution in the partnership agreement (e.g., a partnership created for a specific term or undertaking)

A limited liability partnership (LLP), limits a partner's potential liability for professional malpractice (e.g., medical malpractice, legal malpractice, etc.) that is committed by another partner. A partner in a LLP remains liable for professional malpractice if he:

(1) Committed the malpractice himself or was directly involved in the activity that resulted in the malpractice; OR (2) Supervised or directed the person who committed the malpractice

Limited partners are personally liable for the debts of the limited partnership ___________. However, limited partners are always liable for their OWN misconduct

ONLY to the extent of their investment in the limited partnership

If a partner breaches the duty of loyalty, he may be held _______ for damages (the duty of loyalty may be eliminated in the partnership agreement if reasonable)

personally liable

A limited partnership consists of one or more general partners and one or more limited partners. General partners remain personally, jointly and severally liable for ALL debts of the limited partnership, while limited partners are personally liable for debts ONLY . . .

to the extent of their investment in the limited partnership