ACC 241 Chapter 30: Partnerships

How does the court decide if a partnership exists?

1. Sharing of profits and losses. 2. A joint ownership of the business. 3. An equal right to be involved in the management of the business.

What is partnership at will?

Partnership can be dissolved at will, but exists by default until partners want to dissolve it

What is the advantage of an LLP?

A LLP allows a partnership to continue as a pass-through entity for tax purposes, but limits the personal liability of the partners.

How does a buy-sell agreement work?

A buyout agreement lets one partner buy out the other. It states who buys what under what circumstances and price. If no buy-sell agreement was made, UPA rules say that a withdrawing partner receives the same amount through buyout that he would receive if the business were winding up.

How does indemnification work in a partnership?

A partner who commits a tort can be required to indemnify (reimburse) the partnership for any damages it pays. Indemnification will typically be granted unless the tort was committed in the ordinary course of a partnership's business.

How do management rights in a general partnership work?

All partners have equal rights in managing the partnership. Unless partners agree otherwise, each has one vote regardless of his proportional interest in the firm. For ordinary decisions, majority rules. For the following 9 situations: 1. To alter the nature of the business 2. Change capital structure 3. Amend terms of partnership 4. Admit a new partner. 5. Engage in a completely new business. 6. Assign partnership property to a trust 7. Dispose of goodwill 8. Submit partnership claims to arbitration. 9. Undertake any act that would make further conduct of the business impossible

What does dissolution mean?

Dissolution is the termination of a partnership and means that the partnership must begin collecting, liquidating, and distributing the partnership's assets. They cannot create new obligations on behalf of the partnership.

What is a FLLP?

Family Limited Liability Partnership usually organized by farmers who want to transfer land between members of the family

What is a limited liability limited partnership?

General partners in an LLLP have the same liability as limited partners in a LP.

Describe the authority of partners

If a partner acts within the scope of her or his authority as he interacts with third parties, an agency relationship exists and the partnership is bound to the third party contract. The partnership is not liable if the third parties know that the partner has no such authority

What is partnership by Estoppel?

If a third party relies of a false representation that a nonpartner was part of a partnership, a court may conclude that a partnership by estoppel exists. When a partnership by estoppel is deemed to exist, the nonpartner is regarded as an agent whose acts are binding on the partnership.

What are the liability benefits of an LLP? How does the liability of the LLP vary from state to state? How does liability work with more than one negligent partner?

If one partner is sued, the other partners are not personally liable. If an LLP does business in more than one state, the state generally applies the law of the state in which the LLP was formed. Some states provide for proportionate liability, or separate determinations of the negligence of the partners.

Can a partner pursue his/her own interest without violating their fiduciary duty?

If they fully disclose their interest to the other parties then they can vote in their own interest

What does the organization of limited partnership look like?

In an LP, there is at least one general partner and one or more limited partners. General partners manage and have full responsibility for the business and its debts. Limited partners do not manage the business and are not personally liable except for their investment.

How does liability work in a partnership? Joint liability, Joint and several, partners admitted, liability of a dissociated partner

Joint liability means that a third party must sue all partners as a group. Joint and several liability means that a third party has the option of suing all the partners together or separately. Partners who are admitted to a partnership are not personally liable for any partnership obligations incurred before the person became a partner. For two years after a partner dissociates from a partnership, the partnership may be bound by the acts of the dissociated partner. Also, the partner may be liable for partnership obligations for two years after disociation.

What must be done to file a Partnership, LP, LLC, corp?

Name of LP Character of business Address and registered agent Name and address of each general and limited partner Date of dissolution Capital contributions of each partner Filed with Secretary of State, valid when filed Domestic state's laws govern the limited partnership Must file a certificate of registration in foreign states

What is included in a partner's duty of loyalty?

No self-dealing (only if full disclosure and consent by other partners) No usurping partnership opportunities (unless knowingly rejected by the partnership) No competing with the partnership (without permission) No secret profits (from the partnership business) Must keep confidential partnership information confidential (trade secrets, customer lists, etc.) Duty to account No misuse of partnership property (i.e., not for personal use) If Duty of Loyalty is breached, the breaching partner must disgorge any profits to the partnership, and is liable for any damages.

When a partnership terminates, what is the order the money is given out?

Non-partner creditors (Personal liability of the partners if the partnership is unable to satisfy the debts) Partner creditors Capital contributions Profits After distribution, the partnership no longer exists

What are the similarities and differences between an agency relationship and a partnership?

Partners are bound by fiduciary ties just like agents. Partnerships are different because the partners commit funds, assetss, labor, and sills to the business with the understanding that profits and losses will be shared. Thus, each partner has an ownership interest in the firm.

Who has claim to the money when a partnership is dissolved?

Profits from the partnership must be paid 1. to pay debts including partnership and individual. 2. to return capital contributions and profits to partners. If the partnerships liabilities are greater than assets, the partners bear the losses in the same way they shared profits.

How do property rights of a partnership work?

Property acquired by a partnership is the property of the partnership and not of the partners individually. A partner is not a co-owner of the property and has no right to sell, mortgage, or transfer it to another. This means partnership property cannot be used to satisfy the personal debt of an individual partner. That partner's creditor can petition the court to get that partners share of interest in the partnership.

What is the definition of partnership?

The UPA defines a partnership as "an association of two or more persons to carry on as co-owners a business for profit."

What are the exceptions to the profit sharing rule?

The law says that a partnership exists if funds are shared. However, the exceptions are if the profits are shared to 1. repay a debt. 2. wage of an employee/service of an IC 3. Rent to a landlord. 4. an annuity to a surviing spouse 5. A sale of the goodwill of a business or property

Is a partnership an entity or an aggregate?

Under the UPA, most states treat partnerships as an entity for most purposes. Partnerships can be sued, collect judgements, and have all accounting performed in the name of the partnership entity. For tax purposes, a partnership is a pass-through entity (taxes are passed through for individual owners to pay taxes on) and not a taxpaying entity. The partnership is responsible to file an information return with the IRS.