Partnership

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Partnership
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2011-07-16 14:51:42
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NY Bar Exam
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  1. What is a partnership?
    An association of two or more competent persons to carry on as co-owners of a business for profit.
  2. What law is partnership law based on?
    The law of contract and agency.
  3. Why are contract rules applied to partnerships?
    Because partnerships are the result of agreements.
  4. Who can be a partner?
    Anyone who is capable of entering into a binding contract.
  5. Is a would-be partner who lacks capacity liable to the partnership?
    Only to the extent of his capital contribution.
  6. What formalities are required to form a partnership?
    None. The partnership agreement can be express or implied (i.e., established solely through the conduct of the parties).
  7. Must a partnership agreement be express?
    No, it can be implied (i.e., established solely through the conduct of the parties).
  8. When is writing necessary to form a partnership?
    Only if the partnership agreement cannot be performed within a year. (Violation of this gives rise to a partnership at will.)
  9. Will a partnership be void if the purpose of its existence is illegal?
    Yes.
  10. Other than capacity, what is required for a person to become a partner?
    The express or implied consent of all parties.
  11. What governs in determining the existence of a partnership?
    The express intent of the parties.
  12. If the parties' intent is not expressed, what does a court look to in order to determine the existence of a partnership?
    • Title to property (in partnership's name or individual's name);
    • Designation of the entity by the parties;
    • Amount of activitiy involved in the enterprise undertaken by the parties (the more activity, the more likely it is a partnership);
    • Sharing of gross returns;
    • Sharing of profits (prima facie evidence of partnership, unless the sharing is actually repayment of debt; payment of wages, rent, or annuity to a surviving spouse of a deceased partner; interest on a loan; or consideration for the sale of goodwill of a business); and
    • Sharing of losses (absence of an agreement to share losses is evidence that the parties did not intend to form a partnership).
  13. What is prima facie evidence of a partnership?
    Sharing profits.

    NOTE: This can be rebutted by other factors indicating that a partnership was not intended.
  14. When will a person who is not a partner be liable to third parties under partnership by estoppel?
    When he represents himself or permits another to represent him as a partner, and the third party extends credit to the partnership in reliance on the representation.
  15. When a person holds another out as a partner, does he make that person his agent to bind him to third parties?
    Yes, under partnership by estoppel. If there is a partnership, only those partners who know of or consent to this holding out will be bound.
  16. Does partnership by estoppel concern liability as between would-be partners?
    No, it rather extends to third-party dealings, i.e., liability of estopped parties to third persons.
  17. What is partnership capital?
    The property or money contributed by each partner for the purpose of carrying on the partnership's business.
  18. What is partnership property?
    Everything the partnership owns, including both capital and property subsequently acquired in partnership transactions.
  19. What is included in partnership property?
    There is no restriction as to what may be included in partnership property. In determining what comprises partnership property, the controlling factor is the parties' intent to devote the property to partnership purposes.
  20. What factors does hte court consider in determining whether parties' intended to devote property to partnership purposes, thus making it partnership property?
    • The source of the funds for the acquisition;
    • The use of the property;
    • Improvement, if any, of hte property by the partnership;
    • The relation of the property to the business;
    • Title to the property;
    • Treatment of the property in the partnership books; and
    • Payment of maintenance costs and expenses by the partnership.
  21. What is a partner's ownership interest in any specific item of partnership property?
    That of a tenant in partnership.
  22. What are the incidents of a tenancy in partnership?
    • Right of possession for partnership purposes;
    • Not assignable, mortgageable, subject to dower rights or homstead laws, attachable, or subject to any individual claims on a partner; and
    • Right of ownership vests in surviving partners after death of partner.
  23. Does a partner have any right to use partnership property other than for the benefit of the partnership?
    No.
  24. What is the partner's interest in the partnership?
    His share of the profits of surplus. This interest is (i) treated as personal property; (ii) assignable without dissolving the partnership; and (iii) attachable.
  25. Does assignment of an interest in the partnership give the assignee any rights with regard to the operation of the partnership?
    No. It merely entitles the assignee to receive profits to which the assigning partner would otherwise be entitled.
  26. Can a partner sell his partner status (i.e., assign his right to be a partner)?
    Only with unanimous consent of the other parties.
  27. What duties to partners owe to the partnerships?
    Fiduciary duties.
  28. Who do profits made in the course of the partnership belong to?
    The partnership. One partner will not be permitted to gain for himself at the expense of the partnership.
  29. How do partners share management rights?
    All partners have equal rights in the management of hte partnership business absent an agreement to the contrary.
  30. How do partners share distributions?
    Each partner shares equally in the profits and surplus remaining after all liabilities, including those to partners, are satisfied, absent an agreement to the contrary.
  31. How must partners contribute to partnership losses?
    According to their share of the profits.
  32. Is there a right to remuneration for services rendered to the partnership?
    No, absent an express or implied agreement to the contrary.

    However, a survinving partner is entitled to remuneration for services performed in winding up the partnership nusiness.
  33. Does a partnership have to indemnify every partner?
    Yes, with regard to payments made and personal liabilities reasonably incurred in the ordinary and proper course of business, or for the preservation of business or property.
  34. Where one partner has been required to pay or satisfy more than her share of a partnership debt, can she require the other partners to contribute their pro rata shares?
    Yes.
  35. Where must books and information be kept?
    At the principal place of business.
  36. Who has a right to inspect and copy the partnership books?
    Each partner.
  37. When must each partner render true and full information of all things affecting the partnership?
    On demand.
  38. Can a partner sue or be sued by his partnership in an action at law?
    No.
  39. Can one partner sue another partner on matters related to the partnership business?
    No, unless there is complex accounting required.
  40. What is an action for an accounting?
    An equitable proceeding whereby the liabilities between each partner and the partnership are converted into liabilities between the partners individually. An action lies to recover the balance due any partner. Actions for an accounting generally arise upon final settlement of partnership affairs, but may also occur in actions for wrongful exclusion or to recover secret profits, in accord with the partnership agreement, or in any other cirucmstance a court feels is just and reasonable.
  41. What separate actions are available at law?
    Segregated transactions, tort actions, actions against a negligent partner, and possibly tort actions where any employee of the partnership is a tortfeasor. A partner is not an employee and therefore is not permitted to recover under workers' compensation acts.
  42. Is every partner an agent of the partnership for the purpose of its business?
    Yes.
  43. Which acts of partners will bind the partnership and thereby bind the other partners?
    Those acts "for apparently carrying on in the usual way the business of the partnership."
  44. Can the partnership's liability for the act of a partner be in contract, tort, or or breach of trust?
    Yes, all of the above.
  45. Can a partner have actual authority to bind the partnership?
    Yes.
  46. What are sources of actual authority to bind the partnership?
    The partnership agreement, a majority vote of the partners, or a unanimous vote of the partners.
  47. Unless the agreement provides otherwise, when is unanimous consent of the partners required?
    • To authorize a submission to arbitration;
    • Assignment of partnership property for the benefit of creditors;
    • Confession of judgment;
    • Disposition of the partnership's goodwill; and, generally,
    • To engage in business other than that contemplated by the partnership agreement
  48. Can a partner have apparent authority to bind the partnership?
    Yes.
  49. Who can convey title held in the partnership name?
    Any one partner.

    However, if the partner lacked actual or apparent authority to convey title, the partnership may recover the property from the transferee unless the property has subsequently been acquired by a bona fide purchaser.
  50. When will a conveyance in a partner's name pass the equitable interest?
    If the conveyance was authorized. Otherwise, no interest passes.
  51. If title is held in the name of some (but not all) of the patners and the record does not show the partnership's interest, is conveyance by the titleholders in their own names effective?
    Yes. However, if the titleholders lacked actual or apprent authority to convey title, the partnership may recover hte property from the transferee unless the transferee or his assignee is a bona fide purchaser.
  52. When will a conveyance in the partnership name or by a fewer than all of the titleholders pass the equitable interest?
    If the conveyance was authorized. Otherwise, no interest passes.
  53. Who can convey title held in the name of all partners?
    Only a conveyance by all of the partners passes the equitable interest in the property as well as legal title.
  54. What transfer of title rules govern mortgages?
    The same as for real property.
  55. What transfer of title rules govern leases?
    Contract rules. If the lease is within the scope of the business, one partner has apparent authority to execute it for the partnership.
  56. What transfer of title rules govern personal property?
    Contract rules govern the sale and pledge of personal property.
  57. As agents of the partnership, do partners have apparent authority to bind the partnership to any contract within the scope of partnership business?
    Yes. If a contract is outside the scope of partnership business, the partnership generally will not be bound unless the partner has actual authority.
  58. What is required for effective notice?
    An oral or written communication by a third person transmitted to one or more partners (or other proper person) with the intent that the partnership be informed of the message communicated.
  59. When is "knowledge" imputed?
    When the information is or reasonably should be known by an individual partner.
  60. When will knowledge be imputed to the partnership if a partner is a participant in the transaction?
    If he acquired the information while a partner or, if acquired before becoming a partner, the information was "present to his mind" at the time he was acting for the partnership.
  61. When will knowledge be imputed to the partnership if the partner who has the information is not a participant int he transaction?
    If, under the circumstances, the partner reasonably could and hsould have communicated it to the participating partner. Fraud is an exception to this rule.
  62. Where disoslution is caused by the act, death, or bankruptcy of a partner, for how long will the acts of other persons bind the partnership as if it were not dissolved?
    Until the other partners have notice or knowledge of the act, death, or bankruptcy.
  63. Will the partnership be held liable where one partner, acting within the scope of partnership business, defrauds a third party?
    Yes.
  64. Will the partnership be held liable where one party commits a fraudulent act involving a transaction outside the scope of partnership business?
    Generally, no.
  65. Will a partnership be liable to a third party if a partner seeks to defraud the partnership as part of a transaction with a third party and that party is aware of the fraud?
    No.
  66. Is a partnership liable if a partner misapplies the money or property of a third person received by him within the scope of his apparent authority?
    Yes.
  67. Is a partnership liable if a partner misapplies the money or property of a third party received in the ordinary course of business and misapplied while in the custody of the partnership?
    Yes.
  68. What does a partner's civil liability include?
    • Contract liability, if the contract is iwthin the scope of the partnership business or expressly authorized, and
    • Tort liability for partners' and employees' torts committed within the ordinary course of partnership business.
  69. When is liability joint and several (one or more partners may be sued)?
    For torts and breaches of trust.

    Liability is joint (all partners must be sued) for all other partnership obligations.
  70. Who is personally and individually liable for the entire amount of partnership obligations?
    Each partner.
  71. If a partner pays the whole of a partnership obligation, is he entitled to indemnification from the partnership?
    Yes. If the partnership is unable to indemnify, he may require the other partners to contribute their pro rata share personally and individually.
  72. Is an incoming partner liable for prior partnership obligations?
    Only to the extent of his capital contribution.
  73. Does a retiring partner remain liable for partnership obligations arising while he was a partner?
    Yes, unless there has been payment, release, or novation.
  74. When is a retiring partner liable for acts done after retirement?
    Until he has given notice of his withdrawal.
  75. Are partners criminally liable for the crimes of other partners committed within the scope of the partnership business?
    No, unless the other partners participated in the commission of the crime either as principals or accessories.
  76. What is a partnership dissolution?
    A change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business.
  77. How many dissolution occur?
    • By act of the partners;
    • Operation of law; or
    • Decree of equity court.
  78. How can dissolution occur by act of the partners?
    • Pursuant to the partnership agreement;
    • By mutual assent of all partners;
    • By the proper explulsion of a partner; or
    • By the express will of any one partner.
  79. How can dissolution occur by operation of law?
    In the event the partnership business becomes illegal, a partner dies, or there is a bankruptcy of a partner or the partnership.
  80. In which cases can a partnership be dissolved by decree of an equity court on request of a partner?
    • Breach of the partnership agreement so that it is not reasonably practicable to carry on the business with the breaching partner;
    • Unprofitability;
    • Misconduct of a partner that prejudicially affects the carrying on of the business;
    • Incompetence of a partner;
    • Incapacity of a partner; or
    • Other circumstances that render a dissolution equitable.
  81. What is required to terminate the apparent authority of partners to bind the partnership after dissolution?
    Proper notice, including (i) personal notice to those who are creditors at the time of the dissolution and to those who have extended creditor to the partnership in the past; and (ii) publication notice for other third parties dealing with the partnership or those who knew of the partnership.
  82. Does failure to give notice of dissolution bind partners personally to third partners who, while unaware of hte dissolution, extended credit to the partnership?
    Yes.

    Invisible partners (those so inactive in partnership affairs that partnership credit was not based on the partner's credit) may escape this liability; their liabiltiy will be limited to partnership assets.
  83. Does dissolution terminate the authority of any partner to act as an agent for either the partnership or any other partner?
    Yes, absent an agreement to the contrary.
  84. What authority does a partner have after dissolution?
    The authority to wind up the partnership's affairs.
  85. What does winding up the partnership's affairs include?
    Only transactions designed to terminate business, i.e., only "old business," not "new business."
  86. What constitutes "old business" and is permissible during winding up?
    • Assigning claims;
    • Selling partnership assets;
    • Performing contracts made prior to dissolution;
    • Collecting debts due to compromising cliams;
    • Paying off creditors; and
    • Distributing the remainder of the business.
  87. What constitutes "new business" for which the partner will be individually liable if carried out during winding up?
    • Extending time on a debt;
    • Entering into new contracts; and
    • Increasing any obligation of the partnership, even by one cent--except necessary contracts.
  88. Who cannot wind up the affairs of the partnership?
    A partner who wrongfully dissolves the partnership.
  89. What happens to partnership assets upon dissolution?
    They are reduced to cash.
  90. In what order are partnership liabilities paid?
    • Outside creditors (i.e., creditors who are not partners);
    • Partners' advances;
    • Partners' contributions to capitak; and
    • Surplus or profits.
  91. How is the shortfall covered if the partnership assets are insufficient to pay partnership liabilities upon dissolution?
    The loss must be divided among hte partners.
  92. Where a partner is forced to pay more than his share of the partnership's debts, is he entitled to contribution from the other partners to equalize the shares?
    Yes.
  93. Who has priority where the partnership and a partner are both insolvent?
    (i) Partnership creditors enjoy priority in partnership assets, and (ii) the separate creditors of the partner have a corresponding priority with respect to the partner's individual assets (except under the Bankruptcy Code, where partnership creditors have parity with respect to the individual assets of the insolvent partner, as well as priority with respect to partnership assets).
  94. Which partnerships can become a registered limited liability partnership ("R.L.L.P.")?
    A general partnership engaged in professional services activities (e.g., a law firm).
  95. In an R.L.L.P., is a partner personally liable for obligations of the partnership?
    Generally, no, except for obligations arising out of the partner's own negligent or wrongful act or out of the negligent or wrongful act of a person under the partner's direct supervision adn control while rendering professional services on behalf of the partnership.
  96. How are R.L.L.P.s formed?
    An eligible partnership must file a certificate of registration with the department of state. The certificate must include information similar to the information required in a certificate of limited partnership. In addition, the certificate of registration must include a statement of the profession(s) to be practiced by the R.L.L.P., that it is eligible to register as an R.L.L.P, and that the partnership is filing a registration for status as an R.L.L.P.
  97. What is a limited partnership?
    A partnership composed of one oe more general partners and one or more limited partners.
  98. What is the liability of a limited partner for partnership debts?
    It is generally limited to the capital that she contributes to the partnership.
  99. What partnership statute does New York follow?
    The Revised Uniform Limited Partnership Act ("R.U.L.P.A."), but partnerships formed before July 2, 1991 may be governed by the older Uniform Limited Partnership Act ("U.L.P.A.") unless they elect to be governed by R.U.L.P.A.
  100. How are limited partnerships formed?
    A certificate of limited partnership must be filed with the department of state. The certificate must set forth the partnership's name, the county wherein the partnership's office is to be located, a designation of the department of state as agent for service of process, the latest date on which the partnership is to dissolve, and the names and addresses of the partnership's general partners and agent for service of process.

    NOTE: U.L.P.A. requires more detailed information to be included in the certificate, most significantly the amount of capital contributed by each limited partner.
  101. Can a limited partnership be created without a filing with the department of state?
    No. Unlike a partnership, a limited partnership is a creature of statute and thus can exist only on compliance with the limited partnership statute.
  102. What are the requirements for the limited partnership name?
    Must contain the words "limited partnership" or the abbreviation "L.P." and may not contain the name of a limited partner unless it is also the name of a general partner or the partnership business had been carried on under that name before the admission of that limited partner. A violation of this rule may render the limited partner liable to creditors.
  103. In a limited partnership, in what form may a partner's contribution take?
    Cash, property, or services, or a promise to contribute such.
  104. In a limited partnership, is a partner obligated to make a promised contribution even if she is unable to perform due to death or disability?
    Yes.
  105. If a partner does not make a required noncash contribution, can a limited partnership require her to contribute its cash equivalent?
    Yes.
  106. How can a partner's obligation to make a contribution be compromised?
    Only by the consent of all of the parties; however, a partnership creditor who extended credit in reliance on the obligation may enforce the original obligation.
  107. How does U.L.P.A. limit a limited partner's contribution?
    To cash or property, and such contribution will not be enforceable unless it is set out in the certificate of limited partnership.
  108. What are the liabilites of a general partner in a limited partnership?
    He is subject to all of the liabilities of a partner in a regular partnership, including personal liability for partnership obligations.
  109. What are the liabilities of a limited partner in a limited partnership?
    He is generally not personally liable for partnership obligations beyond his contribution. There are three exceptions. A limited partner may be held personally liable where she: (i) is also a general partner; (ii) participates in control of the business and the person dealing with the limited partnership reasonably believes the limited partner is a general partner; or (iii) knowingly permits her name to be used improperly in the partnership name.
  110. When may a limited partner be held personally liable?
    Where she (i) is also a general partner; (ii) participates in control of the business and the person dealing with the limited partnership reasonably believes the limited partner is a general partner; or (iii) knowingly permits her name to be used improperly in the partnership name.
  111. Can a limited partner lose her limited liability?
    Yes, as by taking part in control of the business.
  112. Can a limited partner run the day-to-day affairs of the limited partnership?
    No, not without losing her limited liability and incurring personal liability.
  113. Can a limited partner work for the limited partnership as an employee and vote on extraordinary management matters without incurring personal liability?
    Yes.
  114. What rights do general and limited partners share?
    • To share in profits and losses according to the partnership agreement (absent such an agreement, R.U.L.P.A. divides profits and losses in proportion to partners' contribution but U.L.P.A. provides that all limited partners will stand on an equal footing);
    • To assign their interest in the partnership, but the assignee is not entitled to exercise the rights of a partner;
    • To transaction business with the partnership;
    • To withdraw from the partnership (a general partner may withdraw at any time by providing written notice ot the other partners, and a limited partner may withdraw in accordance with the partnership agreement, or absent such provision on six months' written notice to the general partners); and
    • To apply for dissolution when it is not reasonably practicable to carry on the business.
  115. What rights are specific to general partners in a limited partnership?
    A general partner of a limited partnership also has all of the rights of a partner in a regular partnership, including the right to manage the partnership.

    However, under the U.L.P.A., a general partner may not engage in certain acts without the written consent or ratification of the limited partners (e.g., confessing a judgment against the partnership, possessing partnership property or assigning rights in partnership property for other than partnership purposes, and admitting a person as a general partner).
  116. What rights are specific to limited partners in a limited partnership?
    • To vote on specific matters, but not to participate in control of the business; and
    • To obtain partnership information, including inspection of books, etc. (New York does not statutorily provide a limited partner with the right to obtain partnership information, but it may be available under the common law.)
  117. How can a person who erroneously believes herself to be a limited partner avoid being held liable as a general partner?
    If, on ascertaining the mistake, she causes an appropriate certificate of partnership or certificate of amendment to be filed or withdraws from the partnership by providing the partnership with written notice of withdrawal.

    However, the person will still be liable as a general partner to any third party who (i) in good faith believed the person to be a general partner, and (ii) transacts business with the partnership before an appropriate certificate is filed to show that the person is not a general partner or before the person withdraws and a certificate of withdrawal is filed.

    NOTE: U.L.P.A. suply provides that a mistaken partner can avoid liable if she renounces her interest in the profits or other compensation by way of income from the business.
  118. R.U.L.P.A. provides that a limited partnership is dissolved at the happening of the first to occur of what five (5) events?
    • The time specified in the certificate of limited partnership for dissolution;
    • The events stated in the partnership agreement that will trigger dissolution;
    • Written consent of all general partners and a majority of each class of limited partners to dissolve;
    • Withdrawal of a general partner (absent a special consideration); or
    • Entry of a decree of judicial dissolution.
  119. How may a limited partnership be dissolved under U.L.P.A.?
    • Occurence of the time or event specified in the certificate;
    • Withdrawal of a general partner by way of death, insanity, or retirement, unless the business is continued by the remaining general partners under a right to do so or with consent of all partners; or
    • Entry of a decree of judicial dissolution.
  120. What is a limited liability company (L.L.C.)?
    An entity distinct from its members which is taxed like a partnership but which offers members limited liability similar to that of corporate shareholders.
  121. How is an L.L.C. formed?
    By filing articles of organization with the department of state, and publishing a summary of the articles of organization once a week for six consecutive weeks. Management is presumed to be by all members, absent a contrary provision in the articles.
  122. Are members personally liable for obligations of an L.L.C.?
    No.
  123. How are profits and losses of an L.L.C. allocated?
    On the basis of contributions, unless otherwise provided in the articles.
  124. What is the effect of an assignment of a member's interest in an L.L.C.?
    Transfers only that member's right to receive profits and losses; management rights are not transferred.
  125. Can members of an L.L.C. bring derivative suits on behalf of hte L.L.C.?
    Yes, even in the absence of statutory authorization.
  126. Does disassociation of an L.L.C. member, e.g., by death, retirement, bankrtupcy, or incompetence, cause dissolution of the L.L.C.?
    Yes.

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