Business Organizations – General Partnerships/pgs. 682-691 – Flashcards
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General Partnership (Ordinary Partnership)
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An association of two or more persons to carry on as co-owners of a business for profit [UPA Section 6(1)]
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general partners (partners)
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persons liable for the debts and obligations of a general partnership
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Uniform Partnership Act (UPA)
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a model act that codifies partnership law. most states have adopted this in whole or in part.
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criteria to qualify as a general partnership
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It must be: 1. an association of two or more persons 2. carrying on a business 3. as co-owners 4. for profit
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the most important factor in determining co-ownership of a business
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whether the parties share the business's profits and management responsibility
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prima facie evidence of a general partnership
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receipt of a share of business profits
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no inference of the existence of a general partnership is drawn if profits are received in payment of any of these:
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1. a debt owed to a creditor in installments or otherwise, 2. wages owed to an employee, 3. rent owed to a landlord, 4. an annuity owed to a widow, widower or representative of a deceased partner, 5. interest owed on a loan, or 6. consideration for the sale of goodwill of a business
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general partnership
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-can operate under the names of any one or more of the partners or under a fictitious business name. -must file a fictitious business name statement (d.b.a.) -must publish a notice of the use of the trade name in a newspaper of general circulation where it does business -name cannot indicate that it is a corporation (cannot use "inc.") -name cannot be similar to the name used by existing business entity
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general partnership agreement (articles of general partnership or articles of partnership)
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a written agreement that partners sign to form this.
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general partnerships that exist for more than one year or are authorized to deal in real estate
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must be in writing under the Statute of Frauds.
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General partnerships
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do not pay federal income taxes
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flow-through taxation
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the income and losses of partnership flow onto and have to be reported on the individual partners' personal income tax returns.
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right to participate in management
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a situation in which, unless otherwise agreed, each partner has a right to participate in the management of a partnership and has an equal vote on partnership matters.
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right to share in profits
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mandated by UPA, a general partner has right to share in earnings from the investment of capital.
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sharing of profits and losses
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--when partnership agreement provides for the sharing of profits but is silent as to how losses are to be shared, losses are shared in same proportion as profits. --If partnership agreement provides for sharing of losses but is silent as to how profits are to be shared, profits are shared equally.
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right to compensation
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UPA provides that no general partner is entitled to remuneration for performance in the partnership's business. Partners are not entitled to receive salary for providing services to the partnership unless agreed to by partners.
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right to indemnification
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a general partner is entitled to reimbursement for expenditures that are reasonably incurred in the ordinary and proper conduct of business.
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right to return of loans
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a partner who makes a loan to the partnership becomes a creditor of the partnership. He is entitled to loan repayment with interest. (subordinated to claims of creditors who are not partners.)
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right to return of capital
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termination of partnership, partners are entitled to return of capital contributions.
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right to information
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each general partner has the right to demand true and full information from any other partner of all things affecting the partnership. other partners have duty to provide this information
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Duties of General Partners
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Duty of Loyalty Duty of Care Duty to Inform Duty of Obedience
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Duty of Loyalty
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a duty that a partner owes not to act adversely to the interests of the partnership
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Duty of Care
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The obligation partners owe to use the same level of care and skill that a reasonable person in the same position would use in the same circumstances. A breach of this duty is negligence.
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Duty to Inform
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a duty a partner owes to inform his or her co-partners of all information he or she possesses that is relevant to the affairs of the partnership.
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Duty of obedience
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a duty that requires partners to adhere to the provisions of the partnership agreement and the decisions of the partnership.
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action for an accounting
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a formal judicial proceeding in which the court is authorized to 1. review the partnership and the partners' transactions and 2. award each partner his share of the partnership assets This results in a money judgment for or against partners according to the balance struck.
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unlimited personal liability of a general partner
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a general partner's personal liability for the debts and obligations of the general partnership. partners have personal liability for the torts and contracts of the partnership.
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joint and several liability
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tort liability of partners together and individually. A plaintiff can sue one or more partners separately. If successful, the plaintiff can recover the entire amount of the judgment from any or all of the defendant-partners who have been found liable.
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joint liability (contract liability)
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liability of partners for contracts and debts of the partnership. A plaintiff must name the partnership and all of the partners as defendants in a lawsuit
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liability incoming partners
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a new partner is liable for the existing debts and obligations (antecedent debts) of the partnership to the extent of his capital contributions. the incoming partner is liable for debts and obligations incurred by the partnership after becoming a partner.
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liability of outgoing partners
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if general partnership is dissolved, each general partner is personally liable for debts and obligations of the partnership that exist at the time of dissolution. If general partnership is dissolved because a partner leaves the partnership and the partnership is continued by remaining partners, the outgoing partner is liable for the debts and obligations of the partnership at the time of dissolution, but not for new debts/obligations incurred after dissolution, as long as proper notification of his withdrawal is given to the creditor.,
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partnership for a term
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a partnership created for a fixed duration
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partnership at will
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a partnership created with no fixed duration.
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dissolution
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the change in the relationship of partners in a partnership caused by any partner ceasing to be associated in the carrying on of the business
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winding up
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the process of liquidating a partner's assets and distributing the proceeds to satisfy claims against the partnership. follows its dissolution
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wrongful dissolution
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a situation in which a partner withdraws from a partnership without having the right to do so at that time. the partner is liable for damages causes by the wrongful dissolution of the partnership.
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notice of dissolution
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dissolution of a partnership terminates the partners' actual authority to enter into contracts or otherwise act on behalf of the partnership. Notice of Dissolution must be given to certain third parties.
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actual notice
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third parties who have actually dealt with the partnership must be given actual notice (verbal or written) of dissolution or have acquired knowledge of dissolution from another source.
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constructive notice
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third parties who have not dealt with the partnership but have knowledge of it must be given either actual or constructive notice of dissolution. this consists of publishing a notice of dissolution in a newspaper of general circulation serving the area where the business of the partnership was regularly conducted.
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third parties
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third parties who have not dealt with the partnership and do not have kinowlefge of it do not have to be given notice.
