Partnership

Question 1

Creation of a General Partnership (GP)

Answer 1

• A GP is created when:
  1. two or more persons,
  2. as co-workers,
  3. carry on a business for profit.
• No written agreement or formalities are required.
• A person’s subjective intent to form a partnership is not required. A partnership is presumed if there is an agreement to share profits equally.

Question 2

Partnership vs. Separate Businesses

Answer 2

To determine whether two businesses are separate entities, rather than operating as a general partnership, a court will consider whether the business:
1. operates under a separate name,
2. pays rent for a separate office,
3. has contributed any money to the other person or entity etc.

Question 3

Fiduciary Duties Owed by Partners

Answer 3

• Partners owe the fiduciary duty of care and duty of loyalty to the partnership and to other partners.
• Duty of Care: A partner must act:
  1. in good faith
  2. as a reasonably prudent person
  3. in a manner they reasonably believe is in the best interest of the partnership.
• Duty of Loyalty: A partner must put the interest of the partnership above their own interest. A partner cannot:
  1. engage in self-dealing,
  2. usurp partnership business opportunities, or
  3. compete against the partnership.

Duty of care breach: engaging in grossly negligent conduct, intentional misconduct, or a knowing violation of law

Question 4

Authority to Bind the Partnership

Answer 4

Each partner is an agent of the partnership, and a partner’s actions will bind the partnership if the partner was acting under the actual or apparent authority.

Question 5

Actual Authority

Answer 5

A partner has actual authority when the partner reasonably believes they have authority to act based on the partnership agreement or communications with other partners.

Question 6

Apparent Authority

Answer 6

A partner has apparent authority to bind the partnership for acts within the ordinary partnership business, unless the third-party knew or had notice that the partner lacked authority.

Question 7

Personal Liability of General Partners

Answer 7

• General partners are personally liable for all obligations of the partnership.
• General Partners are jointly and severally liable for partnership obligations, which means that a claimant can collect the full amount of the debt from any one of the partners.

Question 8

Formation of a Limited Liability Partnership (LLP)

Answer 8

• An LLP is a form of partnership where the partners are not personally liable for the obligations of the partnership.
• To form an LLP, a partnership must:
  1. file a Statement of Qualification with the Secretary of State,
  2. identify the name and address of the partnership, and
  3. have a partnership name ending in “LLP.”

Question 9

Personal Liability of Limited Liability Partners

Answer 9

LLP partners are not personally liable for LLP obligations.