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New York Bar Exam - Partnership


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What is a partnership?
An association of two or more competent persons to carry on as co-owners a business for profit.
What is partnership law based on?
Partnership law is based on the law of contract and agency.
Is a partnership a legal entity?
Treated as an entity for some purposes, but not for others.

**eg, the debts of the partnership are the debts of the individual partners, but title to land may be in the partner ship name and a partnership may be sued in the partnership name.
Why do contract rule apply to partnership?
Contract rules are applied to partnerships because partnerships are the result of agreements.
Who has capacity to be a partner?
Anyone who is capable of entering into a binding contract may be a partner.
To what extent is a partner who lacks capacity liable?
only to the extent of his capital contribution.
What formalities are needed to form a contract?
No formalities are required to form a partnership. The partnership agreement can be express or implied (i.e., established solely through the conduct of the parties).
When is a 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.)
Can a person become a partner without the express or implied consent of all partners?
How do you determine the existence of the partnership?
In determining the existence of a partnership, the express intent of the parties governs.
How is intent infered when not express?
Look to:
1) Title to property (in partnership’s name or individual’s name);
2) Designation of the entity by the parties;
3) Amount of activity involved in the enterprise undertaken by the parties (the more activity, the more likely it is a partnership);
4) Sharing gross returns
5) Sharing profits
6) Sharing losses.
What is partnership by estoppel?
1) When a person represents himself or permits another to represent him as a partner, he will be liable to third parties who extend credit to the partnership in reliance on the representation.
2) When a person holds another out as a partner, he thereby makes that person his agent to bind him to third parties.
Does partnership by estoppel affect liability between would be partners?
No, only affects 3rd party dealings.
What is partnership capital?
The property or money contributed by each partner for the purpose of carrying on the partnership’s business.
What is partnership property?
In its broadest sense, it is everything the partnership owns, including both capital and property subsequently acquired in partnership transactions.
What is includable in partnership property?
There is no restriction as to what may be included as partnership property. In determining what comprises partnership property, the controlling factor is the partners’ intent to devote the property to partnership purposes.
What factors should be considered to determinde intent to devote property to partnership purposes?
1. The source of the funds for the acquisition;
2. The use of the property;
3. Improvement, if any, of the property by the partnership;
4. The relation of the property to the business;
5. Title to the property;
6. Treatment of the property in the partnership books; and
7. Payment of maintenance costs and expenses by the partnership.
What are a partner's rights in partnership property?
A partner’s ownership interest in any specific item of partnership property is that of a tenant in partnership. The incidents of this tenancy are:
What are incidents of a tenancy tenancy in partnership?
1. Right of possession for partnership purposes;
2. Not assignable, mortgageable, subject to dower rights or homestead laws, attachable, or subject to any individual claims on a partner; and
3. Right of ownership vests in surviving partners after death of partner.

** no nght to use partnership property other than for the benefit of the partnership
What is the partner's interest in the partnership?
His share of profits and surplus, which is:
(i) Treated as personal property;
(ii) Assignable without dissolving the partnership; and
(iii) Attachable.
When can a partner sell his partnership status?
Only with unanimous consent of other partners
What is the fiduciary duty between partners?
Profits made in the course of the partner ship belong to the partnership, and one partner will not be permitted to gain for himself at the expense of the partnership.
What are a partners rights to management participation?
All partners have equal rights in the management of the partnership business absent an agreement to the contrary.
How are profits and surplus distributed among partners?
Equal shares absent contrary agreement.
How are losses divided?
Each partner must contrib ute to the partnership losses according to her share of the profits.
Is there a general right of remuneration?
No such right for service to the partnership absent express or implied agreement.
When will a partner be liable for breach of agreement to work?
When a partner has impliedly or expressly promised to devote time to the partnership business and fails to do so, he may be charged in an accounting for damages caused to the partnership.
What are idemnification rights among partners?
A partnership must indemnify every partner with regard to payments made and personal liabili ties reasonably incurred in the ordinary and proper conduct of business, or for the preservation of business or property.
What are contribution rights among partners?
Where one partner has been required to pay or satisfy more than her share of a partnership debt, she may require the other partners to contribute their pro rata shares.
When can there be a general legal action between partners or by/against the partnership?
1) A partner cannot sue or be sued by his partnership in an action at law;
2) nor may one partner sue another partner on matters related to the partnership business.
What is the no legal action exception?
Actions for accounting. An action lies to recover the balance due any partner.
What is an action for accounting?
An equitable proceeding whereby the liabilities between each partner and the partnership are converted into liabilities between the partners individually.
How does agency law apply to partnerships?
1) Every partner is an agent of the partnership for the purpose of its business.
2) The act of every partner “for apparently carrying on in the usual way the business of the partnership” will bind the partnership and thereby bind the other partners.
3) The partnership’s liability for the act of a partner may be in contract, in tort, or for breach of trust.
What sources will give a partnership actual authority to bind partnership?
Sources of actual authority include the partnership agreement, a majority vote of the part ners, or a unanimous vote of the partners.
When is unanimous vote of the partners required?
Unless the agreement provides otherwise:
1)authorize a submission to arbitration,
2) assignment of partnership property for the benefit of creditors,
3) confession of judgment, and
4) disposition of the partnership’s goodwill.
What is the apparent authority of a partner?
See Notes
When is notice to a partnership effective?
“Notice” is 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.
What is "knowlegde"?
“Knowledge” is information that is or reasonably should be known by an individual partner.
When is knowledge imputed to the firm?
Depends whether the partner with knowledge participated in the action:
1) Participation: Usually imputed.
2) No-participation: Imputed only if the partnerwith knowledge could and should have communicated to the participating partner
What is the effect of dissolution?
Where dissolution is caused by the act, death, or bankruptcy of a partner, the acts of other partners will bind the partnership as if it were not dissolved until the other partners have notice or knowledge of the act, death, or bankruptcy.
When will a partnership beheld liable for a partner defrauding a 3rd party?
Generally, only when iti is inside the scope of the partnership business.
What is the effect if a partner seeks to defraud the partnership as part of a transaction with a 3rd party and that party is awary of the fraud?
Partnership is not liable to the 3rd party.
What kinds of civil liability may be had againtst the partners?
(i) contract liability, if the contract is within the scope of the partnership business or expressly authorized, and
(ii) tort liability for partners’ and employees’ torts committed within the ordinary course of partnership business.
What is the nature of a partner's liability?
Liability is joint and several for torts and breaches of trust and joint for all other partnership obligations.
What is the extent of a partners liability?
Each partner is personally and individually liable for the entire amount of partnership obligations.
Is a partner entitled to indemnification?
1) If he pays the whole of a partnership obligation, he is entitled to indemnification from the partnership;
2) if the partnership is unable to indemnify, he may require the other partners to contribute their pro rata shares.
What is the liability of an incoming partner?
Liable for prior partnership obligations only to the extent of her capital contribution.
What is the liability of a retiring partner?
A retiring partner remains liable for partnership obligations arising while he was a partner, unless there has been payment, release, or novation.

**also is liable for acts done after retirement until he has given notice of his withdrawal.
What is a frequently test partnership distinction?
The liability between incoming and outgoing partner.
What is the criminal liability of a partner?
Will not be liable for the crimes of other partners committed within the scope of the partnership business, unless the he participated in the commission of the crime either as principal or accessory.
What is dissolution?
Change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business.
How may dissolution occur?
1) Acts of partners
2) Opperation of law
3) Decree of equity court
What acts of the partners will result in disolution?
1) pursuant to the partnership agreement,
2) by mutual assent of all partners,
3) the proper expulsion of a partner, or
4) by the express will of any one partner.
When can a partnership be disolved by opperation of law?
1) In the event the partnership business becomes illegal,
2) a partner dies, or
3) there is a bankruptcy of a partner or the partnership.
When can a court disolve a partnership by decree of equity?
On the request of a partner in the case of:
1) Breach of the partnership agreement so that it is not reasonably practicable to carry on the business with the breaching partner;
2) Unprofitability;
3) Misconduct of a partner that prejudicially affects the carrying on of the business;
4) Incompetence of a partner;
5) Incapability of a partner; or
6) Other circumstances that render a dissolution equitable.
What is proper notice of dissolution?
1) Personal notice - is required to those who are creditors at the time of the dissolution and to those who have extended credit to the partnership in the past.
2) Publication notice - will suffice for other third parties dealing with the partnership or those who knew of the partnership.
What is the effect of failure to give proper notice?
It binds partners personally to third parties who, while unaware of the dissolution, extended credit to the partnership.
What is the authority of partners to transact business after dissolution?
Absent an agreement to the contrary, dissolution terminates the authority of any partner to act as an agent for either the partnership or any other partner.
What is the partners winding up power?
After dissolution, a partner does have authority to wind up the partnership’s affairs.
What acts can constitute winding up?
1) assigning claims;
2) selling partnership assets;
3) performing contracts made prior to dissolution;
4) collecting debts due;
5) compromising claims;
6) paying off creditors; and
7) distributing the remainder of the business.=
Who may not wind up affiars?
A partner who wrongfully disolves.
What is the order of distribution of partnership assets?
1) Outside creditors (i.e., creditors who are not partners);
2) Partners’advances;
3) Partners’ contributions to capital; and
4) Surplus or profits.
Who has priority when both the partner and partnership are insolvent?
1) partnership creditors enjoy priority in partnership assets, and
2) the separate creditors of the partner have a conespond ing priority with respect to the partner’s individual assets
When is it possible for the remaining partners to continue the partnership business after disolution?
1) A partner dissolves the partnership in contravention of the partnership agreement;
2) A partner is expelled according to the terms of the partnership agreement; or
3) The partners agree to continue the partnership.
What is the effect if there is a continuation without a settle of the missing partner's share?
He may receive either:
1) the value of his share, plus interest from the date of dissolution, or
2) a share of the profits attributable to the use of his property in the partnership for that period.
What are creditors' rights when a partnership is disolved by change in personnel or property is tranfer non-fraudulently and the business continues?
Creditors of the existing partnership retain their rights as creditors of the partnership continuing the business.
What is a registered limited liability partnership?
Professional service partnership where a partner is generally not personally liable for obligations of the partnership except for:
1) obligations arising out of the partner’s own negligent or wrongful act or
2) out of the negligent or wrongful act of a person under the partner’s direct supervision and control while rendering professional services on behalf of the partnership.
What is a limited partnership?
partnership composed of one or more general partners and one or more limited partners.

**It is created under specific statutory authority
What is the liability of a limited partner for partnership debts?
Generally limited to the capital that she contributes to the partnership
How is a LP formed?
A certificate of limited partnership must be filed with the dept. of state.

**Watch for essay questions where one partner is intended to be limited but no certificate is filed.
What are the rules regarding name of a limited partner?
1) Must contain LP in the name
2) Can not contain the name of a limited partner.
What is the nature of each partner's contribution in a limited partnership?
A partner's contribution can be cash, property, or services, or a promise to contribute such.

**A partner iso obligated to make a promised contribution even if she is unable to perform due to death or disability.
What is the liability of a general partner in an LP?
A general partner of a limited partnership is subject to all of the liabilities of a partner in a regular partnership, including personal liability for partnership obligations.
Generally, what is the liability of a limited partner in an LP?
Limited partners generally are not personally liable for partnership obligations beyond their contributions.
When can a limited partner be held personally liable?
1) is also a general partner;
2) participates in control of the business and the person dealing with the limited partnership reasonably believes the limited partner is a general partner; or
3) knowingly permits her name to be used improperly in the partner ship name.
What are the rights of both general and limited partners in an LP?
1) Share profits and losse accoriding to the agreement
2) Assign in profits and losses
3) Transact business with the partnership
4) Withdraw from the partnership
5) Apply for dissolution
What are the rights specific to general partners in an LP?
1) Vote on specific matters, but not control business
2) Obtain partnership info, including inspection of books.
What events will result in disolution of the limited partnership under the RULPA?
1) the time specified in the certificate of limited partnership for dissolution;
2) the events stated in the partnership agreement that will trigger dissolution;
3) written consent of all general partners and two-thirds of each class of limited partners to dissolve; 4) withdrawal of a general partner (absent a special consideration); or
5) entry of a decree of judicial dissolution.

**The RUPLA applies to partnerships for after 1991.
What events will result in disolution of the limited partnership under the ULPA?
1) occurrence of the time or event specified in the certificate;
2) 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
3) entry of a decree of judicial dissolution.

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