partnerships and limited liability partnerships chapter 30
TRANSCRIPT
Partnerships and Limited Liability Partnerships
Chapter 30
Agency Concepts and Partnership Law
– Partnerships are governed by common law and statutory laws.
– Partners are agents and fiduciaries of each other.
Basic Partnership Concepts
• Uniform Partnership Act. – In the absence of a partnership agreement the
UPA, as adopted by most states, governs the partnership.
Basic Partnership Concepts
• Definition of a Partnership. – UPA defines as “association of two or more
persons to carry on a business for profit.”– Partnership presumed under UPA if:
• 1. Sharing of profits or losses. • 2. Joint ownership of the business.• 3. Equal right to be involved in the
management of the business.
Basic Partnership Concepts• Entity versus Aggregate.
– Today, a majority of states recognize the partnership as a separate legal entity for the following purposes: • (1) To sue and be sued
• (2) To have judgments collected against it’s assets, and individual partners’ assets.
• (3) To own and convey partnership property.
Basic Partnership Concepts• Tax Treatment.
– Under federal (and most state) tax laws, a partnership is treated as a “pass through” entity, with profits, losses, and taxes attributed on a pro-rata basis to the partners.
Basic Partnership Concepts• Tax Treatment.
– Under federal (and most state) tax laws, a partnership is treated as a “pass through” entity, with profits, losses, and taxes attributed on a pro-rata basis to the partners.
Partnership Formationand Operation
• The Partnership Agreement.–Can be written or oral, unless the
Statute of Frauds requires a written agreement.
• Duration of the Partnership.–Partnership for a Term. –Partnership at Will.
Partnership Formationand Operation
• Rights of Partners.– In the absence of a partnership agreement
(oral or written) state statutes govern the partner rights.
–Management: equal, each one vote, majority wins; need unanimous consent for some actions.
– Interest in the Partnership: equal profits, losses shared as profits shared.
Partnership Formationand Operation
• Rights of Partners.–Compensation: none.–Inspection of the Books: always and also
by rep. of deceased partner.–Accounting: when fraud, embezzlement,
wrongful exclusion, etc, it is just and reasonable.
Partnership Formationand Operation
• Rights of Partners.–Property Rights.
•Property acquired by the partnership remains partnership property.
•An individual partner has no right to sell, mortgage, or transfer partnership property.
Partnership Formationand Operation
• Rights of Partners.–Property Rights. Each partner can:
•Use or possess property on behalf of the partnership.
•Assign her right to her share of the profits to another to satisfy individual debt.
Partnership Formationand Operation
• Duties and Liabilities of Partners. –Liability of Partners.
• If Partner is sued for Partnership debt, Partner has right to insist that other partners be sued with him or her.
• Joint Liability: third party must sue ALL partners as a group, but each partner can be held liable for the full amount.
Dissociation of a Partner
• Dissociation occurs when one partner ceases to be associated in the partnership business.–Allows partner to have her interest
purchased by the partnership.–Terminates her voting interest in the
partnership.
Dissociation of a Partner
• Events That Cause Dissociation:–Notice.–Triggering Event.–Unanimous Vote.–Court or Arbitrator Order.–Partner’s bankruptcy, assignment of interest,
incapacity, or death.
Dissociation of a Partner
• Effects of Dissociation.–Rights and Duties.–Liability to Third Parties. Partnership
bound for two years by acts of outgoing partner, unless proper notice given.
Partnership Termination
• The termination of a partnership occurs in two stages:–Dissolution (is the legal “death” of
the partnership), and–Winding up and Distribution of
Assets (collecting and distributing partnership assets).
Partnership Termination• Dissolution: by operation of law or judicial
decree.– Partners can Agree to Dissolve.– By Operation of Law:
• Death of a partner. • Bankruptcy of a partner. • Bankruptcy of partnership.• Illegality.
Partnership Termination• Dissolution.
– By Judicial Decree:
• Insanity.• Incapacity.• Business Impracticality. • Improper Conduct.• Other Circumstances (personal dissension).
Partnership Termination• Winding Up and Distribution of Assets.
–After dissolution, partnership continues to wind up the partnership affairs.
–Creditors’ Claims:• 1. Payment of debts, including those
owed to partner and nonpartner creditors.
• 2. Return of capital contributions and distribution of profits to partners.
Partnership Termination• Winding Up and Distribution of Assets.
–Creditors’ Claims:• 1. Payment of debts, including those owed
to partner and nonpartner creditors.• 2. Return of capital contributions and
distribution of profits to partners. • If liabilities are greater than assets partners
bear losses in proportion in which they shared profits, unless agreed otherwise.
Limited Liability Partnerships
• Designed for professionals service firms, it allows limits on personal liability of the partners but allows “pass through” tax advantages.
Limited Liability Partnerships • Liability in an LLP.
–LLP allows professionals to avoid personal liability for the malpractice of other partners.
Limited Liability Partnerships • Liability in an LLP.
–LLP allows professionals to avoid personal liability for the malpractice of other partners.
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Limited Partnerships
• Entity that limits the liability of some of its owners (the limited partners).–Consists of at least one general
partner and one limited partner to carry on a business for profit.
Limited Partnerships
• Formation: –Creature of state statute.
• Liabilities of Partners. –Only General Partners can manage,
but they have a fiduciary obligation to LP’s.
Limited Partnerships
• Liabilities of Partners. –LP’s enjoy limited liability as long
as they do not engage in management functions.
–General partner assumes all management and personal liability.
Limited Partnerships
• Liabilities of Partners. –Limited Partner has no management
rights, and liability is limited to the amount of investment; however limited partner can be liable if he participates in management.
–On dissolution, the limited partner is entitled to return of capital contributions.
Partnerships and Limited Liability Partnerships
Chapter 30