Business Law Chapter 3

____ of the states have enacted limited liability partnership (LLP) statutes.

Almost all

A written agreement that sets forth each partner's right and obligations with respect to the partnership.

Articles of partnership

In the context of partnerships, an express agreement made at the time of partnership formation for one or more of the partners to buy out the other or others should the situation warrant, and thus provide for the smooth dissolution of the partnership.

Buy-sell agreement

In partnership law, an order granted by a court to a judgment creditor that entitles the creditor to attach the partner's interest in the partnership to satisfy the partner's obligation.

Charging order

The formal disbanding of a partnership. In can take place by (1) acts of the partners; (2) the death of a partner; (3) the expiration of a time period stated in a partnership agreement; or (4) judicial decree.

Dissolution

After dissolution, the partnership immediately ceases to continue.

False

All states provide that when more than one partner is an LLP is negligent, each partner is jointly and severally liable for the entire result.

False

Although each partner must continue to exercise good faith, partners no longer have fiduciary duties to one another during the winding up process and the distribution of assets.

False

If a third party knows that a partner had no authority to commit the partnership, the partner's actions with the third party still bind the partnership and its partners.

False

In all cases, joint ownership of property creates a partnership.

False

The formation of both a traditional partnership and a limited partnership requires a public and formal proceeding that must follow statutory requirements.

False (only LP)

LLPs must be formed and operated in compliance with federal law.

False (state law)

A tax return submitted by a partnership that only reports the income earned by the business.

Information return

What is the major advantage of an LLP?

It limits the personal liability of the partners to only their own wrongful acts.

In partnership law, a doctrine under which a plaintiff may due, and collect a judgment from, one or more the partners separately (severally, or individually) or all the partners together (jointly).

Joint and several liability

What type of liability occurs when a third party has the option of suing all the partners together or one or more of the partners separately?

Joint and several liability

Shared liability. In partnership law, partners incur joint liability for partnership obligations and debts.

Joint liability

In the distribution of assets of a limited partnership, which group has the first priority?

Outside creditors and partner creditors

An agreement, express or implied, between two or more persons to carry on a business for profit.

Partnership

A judicially created partnership that may, at the court's discretion, be imposed for purposes of fairness. The court can prevent those who present themselves as partners (but who are not) from escaping liability if a third person relies on an alleged partnership in good faith and is harmed as a result.

Partnership by estoppel

Any entity that does not have its income taxed at the level of that entity; examples are partnerships, S corporations, and limited liability companies.

Pass-through entity

What governs the operations of a partnership when there is not express partnership agreement?

The Uniform Partnership Act

What happens if a limited partner in a limited partnership participated in management?

The limited partner becomes just as liable as a general partner to any creditor

What happens when, after winding up, the partnership's liabilities are greater than its assets?

The partners bear the losses in the same proportion in which they shared the profits.

How is the buyout price of a dissociated partner calculated?

The price is based on the amount that would have been distributed to the partner if the partnership had been wound up on the date of dissociation.

A limited liability limited partnership (LLLP) differs from a limited partnership in that a general partner in an LLLP has the same liability as a limited partner in a limited partnership.

True

After a partner's dissociation, his or her interest in the partnership must be purchased.

True

Any even that makes it unlawful for the partnership to continue its business will result in dissolution.

True

Each partner must exercise good faith during the dissolution of a partnership.

True

If a partner withdraws prematurely from a partnership for a term, that partner has breached the partnership agreement and may be liable for any resulting losses.

True

If the partnership agreement does not indicate how profits will be shared, the Uniform Partnership Act provides that profits will be shared equally.

True

Partners can agree ahead of time on how the assets will be valued and divided if the partnership dissolves, using, for example, buy-sell agreements.

True

The limited liability partnership (LLP) is a hybrid form of business designed mostly for professionals who normally do business as partners in a partnership.

True

The sharing of both profits and losses creates a legal inference that a partnership exists.

True

The second of two stages involved in the termination of a partnership. Once the firm is dissolved, it continues to exist legally until the process of winding up all business affairs (collecting and distributing the firm's assets) is complete.

Winding up

Generally speaking, a limited partnership will be dissolved if:

a court issues the appropriate decree

A Partnership Probably Does Not Exist if Shared Profits Were Received as Payment of Any of the Following: a. A debt by _____ or interest on a loan. b. Wages of an employee or for the ____ of an independent contractor. c. ____ to a landlord. d. A(n) ____ to a surviving spouse or representative of a deceased partner. e. A(n) ____ of the goodwill of a business or property.

a. installments b. services c. rent d. annuity e. sale

Three Essential Elements to Determine Whether a Partnership Exists: a. A(n) ____ of profits or losses. b. A joint ____ of the business. c. A(n) ____ right to be involved in the management of the business.

a. sharing b. ownership c. equal

Events That Cause Dissociation: a. By the partner's ____ giving notice of an "express will to withdraw." b. By the occurrence of a(n) ____ specified in the partnership agreement. c. By a(n) ____ vote of the other partners under certain circumstances. d. By order of a court or arbitrator if the partner has engaged in ____ conduct that affects the partnership business. e. By the partner's declaring bankruptcy, assigning his or her interest in the partnership for the benefit of creditors, or becoming physically or mentally ____, or by the partner's death.

a. voluntarily b. event c. unanimous d. wrongful e. incapacitated

Under common law, a partnership was treated only as ____.

an aggregate of individuals

All but one of the following is included in partnership winding-up activities: a. collection the partnership assets b. preserving the partnership assets c. signing new contracts for the partnership d. paying debts. e. accounting to each partner for the value of his or her interest

c. signing new contracts for the partnership

What fiduciary duties does a partner owe the partnership?

care and loyalty

If one partner in a partnership declares bankruptcy, in most states, the bankruptcy will:

cause the bankrupt partner's dissociation from the partnership

Dissolution of a partnership generally can be brought about by all of the following except: a. acts of the partners b. operation of law c. judicial decree d. the insistence of a competitor

d. the insistence of a competitor

When one partner's relationship with a partnership comes to and end but the partnership continues to do business, it is known as ____.

dissociation

Generally, a partner obtains compensation from the partnership by

distribution of profits according to the partner's share in the business

One basic difference between partnership and agency law is that:

each partner has an ownership interest in the firm

In order to form a valid limited partnership (LP), the partnership must:

file a certificated of limited partnership

In a limited partnership, the liability of a limited partners is:

limited to the capital contribution

A partnership's assets are distributed accounting to what priorities?

payments of debts, including those owed to partner and nonpartner creditors, then return of capital contributions and distribution of profits to partners.

The two categories of enterprises for which an limited liability partnership (LLP) is especially attractive are:

professional services and family businesses.

The bankruptcy, retirement, death or mental incompetence of a general partner will cause the dissociation of that partner and the dissolution of the limited partnership ____

unless the other members agree to continue the firm

When a partnership agreement does not specify how long it till last, it will end:

whenever either partner wants to end it