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57 Cards in this Set
- Front
- Back
Partnership defined:
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Two or more persons carrying on a business as co-owners for profit.
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Missouri partnership law:
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Uniform Partnership Act (UPA)
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List the three elements needed in the creation of a partnership.
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1. For profit - sharing profits is prima facie evidence of partnership unless profits are shared to pay a debt or wage of employee.
2. Co owners - Joint ownership a.) joint ownership of business assets b.) exercise of management rights: purchasing, controlling costs, setting prices, hiring and firing employees. c.) Mere joint ownership a partnership - not necessarily. 3. In business - active endeavor for indefinite time. a.) Single transaction or series = joint venture. b.) Not passive ownership. eg - tenants in common of real estate. |
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A partnership by estoppel is created by what two events?
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1. A partner's representation of a partnership to a third party
and 2. The third party's reliance on that representation in dealing with the purported partner. |
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Liability of partners that did not have knowledge of the representation being made in a partnership by estoppel.
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Not liable as partners by estoppel.
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Aggregate theory
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A partnership is simply the sum of individuals - all must sue or be sued to get binding judgment on partnership; all own property.
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Entity theory
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A partnership is a separate entity like corporation - may sue and be sued and may hold property as entity. Applies in bankruptcy.
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Missouri rule on the nature of partnership entity
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Entity theory as to holding property, aggregate theory as to lawsuits. Each partner must be joined to be bound.
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Who may be partners?
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1. Must have capacity to contract
2. Business entities - in Missouri and most states, either corporations or individuals may be partners |
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Marshalling assets - list two possible results
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1. Partnership creditors have priority to partnership property.
2. Individual partner's creditors have priority as to that partner's propperty (jingle rule). |
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In bankruptcy, after the first step, business creditors and individual creditors have what kind of priority?
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Equal
This is good motivation for business creditors to file for involuntary bankruptcy |
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Primary management rule
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Each partner gets 1 vote as to ordinary partnership business, majority rules
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List the five areas where unanimous consent is required to make a valid decision
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1. Admitting a new partner
2. Altering the capital structure of the firm 3. Amending the partnership agreement 4. Any act which makes the partnership business impossible 5. Altering the essential nature of the firm's business |
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Partnership profits and losses
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1.Equal unless partnership agreement specifies otherwise
2. If profits division specified, but not losses, losses are split the same way as profits |
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Compensation for services
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A partner receives no compensation for his services to the partnership unless there is an agreement for compensation. Presumed to be motivated by partnership profits.
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List four rights of partners
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1. Management of partnership
2. Inspection of books 3. Accounting 4. Property right - Partnership interest in partnership is called tenancy in co-partnership |
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Property classification
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1. A partnership interest is not real estate; it is personal property even if the major assets of the partnership are made up of real estate.
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Possesion and management of partnership interests
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A partner has a right to joint possession and management of all partnership property
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Assignment and attachment of partnership interests
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1. A partnership interest may be assigned to a non- partner
2. A partnership interest is subject to charging orders of creditors 3. Neither assignment nor charging order is a dissolution of the firm, nor do they confer rights of a partner upon the recipient of the profits, but only the right to receive profits as distributed and return of capital on dissolution |
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Mutual agency of partners
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Each partner is the agent of the other partners and the partnership
1. they have all the duties of an agent 2. Fiduciary duty of loyalty, notification, performance, accounting, indemnity and obedience. |
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Tort liability
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Partnership is liable for torts of partner in scope and course of partnership business
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Contract liability
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Partnership is liable for the contract of a partner with authority or if apparently carrying on business in the usual way
High degree of apparent and implied authority |
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Joint liability
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A creditor must name all partners individually in a lawsuit to get judgment against any or the partnershipl release of one partner releases all partners
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Joint and severable liability
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A creditor may sur any or all partners; release of one does not realease all
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Missouri rule on joint/ joint and severable liability
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Joint and severable liability for contracts and torts, but must name all the partners for a valid lawsuit
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Incoming partner liability
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Liable for preexisting firm debts only to extent of capital contribution
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Outgoing partner liability
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Personal liability only for debts incurred while a partner (assuming proper notice of withdraw)
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No agreement as to duration?
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Partnership at will doctrine - Terminable by partner at any time without violating agreement: like agency at will
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Partnership for term
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Still power to dissolve, but termination without cause would be breach: like agency for term
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After partnership for a term expires
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If the partnership continues, then it goes back to at will status
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List the three stages of partnership termination:
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1. Dissolution: Ends existence as going concern
2. Winding up: Liquidation - pay debts and divide assets 3. Termination: Legal existence ends for all purposes |
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List the three acts of partners that result in dissolution
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1. By initial or subsequent agreement
2. By withdraw of a partner a.) Power, but not right - partnership for a term b.) Right - partnership at will 3. Admission of new partner without consent of others |
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List the three types of dissoulution by operation of law
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1. Death of a partner
2. Bankruptcy of a partner or the partnership 3. Illegality |
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List the five types of dissolution by decree
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1. Mental incompetence of a partner
2. Permenent incapacity of a partner 3. Operation only at loss 4. Improper conduct by a partner (gross neglect, failure to return partnership property) 5. Dissention |
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List the three effects of dissolution
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1. Notice to partners ends actual authority
2. Notice to creditors ends apparent authority a.) actual notice to extenders of credit b.) publication for others 3. Dissolution b/c of a breach changes rights of parties. Non breaching partners may: a. Sue for damages b. Buy out breaching partner and continue the business c. Exclude breaching partner from winding up and get payment for services |
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Results of winding up
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Business has ended as a going concern
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Four powers of partners during winding up
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1. To complete transactions that were previously begun
2. To preserve assets 3. To sell assets 4. To pay debts |
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Priorities for liquidation of assets to repay creditors
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1. Third party creditors
2. Loans to firm by partners 3. Return of capital to partners 4. Remainder pro rata as profits or losses |
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Termination for all purposes
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Happens after winding up (after all debts paid, assets distributed. The exact dates are usually uncertain.)
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Six things to consider in a partnership agreement
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1. Sharing profits/ loses
2. Continuation on withdrawl 3. Method of purchase on withdrawl (buy-sell agreement) 4. Method to break deadlock 5. Guarantee of employment for minority manager 6. Statement for purposes |
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Limited liability partnership defined
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Ordinary partnerships registering as an LLP with the secretary of state
Missouri - must register every year Missouri - Liability protection is slightly limited |
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What are the three disadvantages of a limited partnership?
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1. Limited partner's limitations: managed by general partners only
2. Taxed on undistributed profits (can remedy by distributing enough to pay tax) 3. Unlimited liability of general partners |
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What are three advantages of a limited partnership
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1. Can withdraw income without double tax
2. Can take advantage of losses without sale 3. A great form of business for an entrepreneur who wants complete control |
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Define limited partnership
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1. Formed under limited partnership statute
2. With one or more general partners and one or more limited partners |
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What is the Missouri limited partnership law?
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RULPA - Revised Uniform Limited Partnership Act
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Requirements for the creation of a limited partnership
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1. Must provide required information for certificate of limited partnership, then file it in place specified in statute
2. Missouri - must file with secretary of states office 3. No existence as an entity for any reason if certificate not issued by state |
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What if a partnership that applies for a limited partnership is doing business before they receive their certificate of being a limited partnership?
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They have personal liability as a regular partnership.
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Liability of a general partner in a LLP
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The GP is personally liabile
(unlimited liability) |
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What are two ways to avoid general partner liability?
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a. Having a corporate general partner
b. Having the partnership file as a limited liability limited partnership |
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Limited liability, limited partnership
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Limited partnership which registers under the LLP statute to allow the general partner to have limited liability
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Limited partner liability in an LLP
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A limited partner is liable only to the extent of investment: limited liability for business debts
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Four exceptions to limited partner's protection
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1. False statement in certificate of limited partnership - if signed by LP
2. Defective formation - can avoid by renouncing involvement 3. Involvement in management with knowledge of a third party 4. Limited partner's name in the firm name |
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Five rights of limited partners
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1. Access to partnership books
2. Right to an accounting 3. Right to participation in dissolution 4. Right to assign partnership interest, but not rights as partner without agreement 5. Receipt of profits when distributions made by general partners |
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Three most common causes of the dissolution of a general partnership
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1. Death of a GP
2. Bankruptcy of a GP 3. Withdraw of a GP |
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Can the acts of a limited partner dissolve the partnership?
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Not generally.
Exception- An LP may petition for a decree of dissolution - only if not reasonably practical to carry on business according to the partnership agreement |
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Consequences of dissolution
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1. Ends partnership as a going concern
2. Priorities much different than under UPA |
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List the 4 priorities to partnership assets on dissolution
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1. Third party creditors and partner creditors
2. Partners owed unpaid profits where there was a past distribution to others 3. Return of capital contribution 4. Remainder of the partners pro rata as profits |