Partnerships

Question 1

How to prove a partnership

Answer 1

In NY, can make prima faciae showing just by showing that profits were shared.

• 5 ways to rebut:
  1) profits shared to pay off debt.
  2) profits linked to interest for loan.
  3) profit-sharing is for compensation.
  4) goodwill payments.
  5) retirement benefits.

Question 2

Partnership by estoppel

Answer 2

Can impose liability on the purported partner OR the partnership.

• Against purported partner:
  1) representation of partnership;
  2) by person of with her consent;
  3) 3p reasonably relied;
  4) 3p suffered damage from reliance.
• Against partnership:
  1) representation that purported partner is a partner;
  2) by partner of partnership with consent of all partners.
• IF only one partner without consent of others, then ONLY that partner is liable.

Question 3

Fiduciary duties of partners

Answer 3

• can be curtailed, though not abrogated, by partnership agreement.

Question 4

Partner entitlements

Answer 4

Share of profits.

NOT compensation for services.

Reimbursement for expenses in course of business.

Indemnification for actions in pursuit of partnership business.

Question 5

Rights to partnership property

Answer 5

NO right to unilaterally transfer partnership property. NO use for personal gain.

Property cannot be attached for personal judgments against partners.

• Factors to determine whether sthg is partnership property:
  1) use of property;
  2) improvements made to property;
  3) similar in character to other property of partnership;
  4) listed as an asset on partnership books;
  5) partnership pays taxes.

Question 6

Partnership consent

Answer 6

Ordinary business decision = majority.

Special decision = unanimous.

1) admitting new partner.
2) selling substantial portion of assets.
3) amending partnership agreement.

Question 7

Accounting

Answer 7

• General rule = partners NOT allowed to sue each other.
• Partners can sue for accounting ONLY IF:
  1) wrongfully excluded from business;
  2) wrongfully excluded from possession and use of property;
  3) partnership agreement explicitly permits;
  4) another partner has obtained secret profits in violation of duties.
  5) other just and reasonable circumstances.
• when partner MAY sue:
  1) tort claim of negligence;
  2) regarding transaction discrete and unrelated to partnership business, that can be handled separately.

NO worker’s comp. for partners.

Question 8

Special business matters (no apparent authority to bind partnership)

Answer 8

1) assignment of partnership property;
2) disposition of goodwill;
3) action that makes it impossible for partnership to continue operation in line of business;
4) confess a judgment on behalf of partnership;
5) submit claim or liability to arbitration.

Question 9

When to recover property transferred without authority?

Answer 9

If in partnership name, then freely recoverable.

If not in partnership’s name, then recoverable ONLY IF transferee knew it was partnership property transferred without authority.

Question 10

Knowledge gained prior to joining partnership

Answer 10

Imputed to partnership ONLY IF “present in mind” when acting as partner and knowledge was relevant.

Question 11

Knowledge of retired partners

Answer 11

Imputed to the partnership ONLY IF info is so important that a reasonable person would have told the partnership.

Question 12

Liability for torts

Answer 12

• Partnership is jointly and severally liable for partner torts, EXCEPT:
  1) fraud against partnership;
  2) outside scope of business;
  3) criminal act.

Question 13

New partner liability for prior debts

Answer 13

ONLY up to his capital contribution.

Question 14

Events causing dissolution

Answer 14

WE ME BAD:

1) At-will partnership;
2) Term expires;
3) Partners unanimously consent;
4) Good faith expulsion of a partner;
5) Individual partner goes bankrupt;
6) Activities of partnership become illegal;
7) Death of a partner.

Question 15

Court-decreed dissolution

Answer 15

BIG IPO:

1) Partner is willfully breaching duties, making it impossible to do business;
2) Partner declared incompetent by judicial proceeding;
3) Partner found guilty of conduct that prejudicially affects carrying on of partnership.
4) Partner becomes incapable of fulfilling duties.
5) Partnership can no longer make profit.
6) Any equitable grounds.

Question 16

When can non-partner petition for dissolution?

Answer 16

= purchased economic rights in partnership +

1) term of partnership is up; OR
2) partnership is at-will.

Question 17

Consequences of dissolution

Answer 17

NO more actual authority, BUT still apparent authority.

• 3p is deemed to have knowledge of dissolution if:
  1) advertised in newspaper;
  2) when notice filed with state, 3p deemed to have notice 90 days after filing.
• partnership not bound by individual partner actions if:
  1) activities had become illegal;
  2) partner in question’s bankruptcy is reason for dissolution;
  3) partner didn’t even have actual authority to wind up affairs.

Question 18

Winding up

Answer 18

• All partners have authority to wind up, EXCEPT:
  1) wrongfully disassociated partners, i.e. left without permission.
  2) partner stripped of authority.

Question 19

Order of asset distribution during winding up

Answer 19

1) Outside creditors
2) Inside creditors
3) Partners capital contributions
4) Partner profit shares.

Question 20

Registered Limited Liability Partnership (RLLP)

Answer 20

In NY, ONLY available to licensed business professionals.

MUST file certificate of registration with state containing:

1) Name + LLP
2) Principal office
3) professional field
4) designate dept. of state as agent for service of process
5) registered agent for service of process
6) specific declaration of intent to register as LLP
7) effective date of reg
8) whether partners are liable for debts of the LLP.

• Exception to limited liability: actions arising out of partner’s own tortious actions.

Question 21

Limited Partnership (LP)

Answer 21

Limited partners have no management rights.

• Must file certificate with sec. of state setting forth:
  1) name
  2) place of business
  3) designate dep. of state as registered agent for service of process
  4) other registered service agents
  5) business address of each general partner
  6) Date of dissolution
  7) any other matters.

New partners admitted ONLY on unanimous consent of ALL partners.

• Exceptions to limited liability of limited partners:
  1) liability arose out of partner’s own activities or
  2) someone acting under partner’s direct supervision.
• General partner MAY withdraw at any time upon notice, limited partner may NOT withdraw at will.
• General partner automatically withdrawn if:
  1) assigns interest.
  2) removed in accordance with partnership agreement.
  3) bankrupt or insolvent.
  4) dies or becomes incompetent.
• Profit and loss allocated based on capital contributions.

Question 22

Dissolution of LP

Answer 22

1) as specified by partnership agreement;
2) written consent of all partners;
3) withdrawal of only general partner;
4) decree of judicial dissolution.

Question 23

Distribution of LP assets during winding up

Answer 23

1) outside creditors
2) inside creditors
3) to parties entitled to distribution who have not yet received them
4) return of capital contributions.

Question 24

Joint ventures

Answer 24

= discrete business undertaking by agreement of 2+ people for profit.

NO filing requirement.

BOTH parties have unlimited liability and right to indemnification.