Partnerships – Core Vocabulary

These vocabulary flashcards cover key partnership concepts: formation requirements for general, limited, and limited-liability partnerships; authority and liability rules; partners’ rights and duties; and dissolution procedures.

General Partnership

An association of two or more persons who, as co-owners, carry on a business for profit; no formalities or written agreement required.

Partnership Presumption

Arises when parties agree to share profits equally, regardless of their subjective intent to form a partnership.

Default Voting Rule (General Partnership)

Absent agreement, each partner has an equal vote.

Default Profit-and-Loss Sharing

Profits are shared equally and losses are shared in the same proportion as profits.

Limited Partnership (LP)

A partnership with at least one general partner and one limited partner, formed by filing a Certificate of Limited Partnership.

Certificate of Limited Partnership

Filing document that must state the LP’s name, principal office address, registered agent’s name/address, each general partner’s name/address, LLLP status, and signatures of all general partners.

Name Requirements (LP)

Must contain “Limited Partnership,” “LP,” or “L.P.”

Limited Liability Limited Partnership (LLLP)

An LP that elects limited liability for all partners; name must include “Limited Liability Limited Partnership,” “LLLP,” or “L.L.L.P.”

Effect of Defective LP Filing

Failure to meet certificate requirements creates a general partnership by default.

Limited Liability Partnership (LLP)

An existing partnership whose partners obtain limited personal liability by approving and filing a Statement of Qualification.

Statement of Qualification

Document filed to become an LLP; must include partnership name/address, statement of LLP election, and any deferred effective date.

LLP Continuity Rule

Filing a Statement of Qualification does not create a new entity; the same partnership remains liable for pre-filing obligations.

Factors Distinguishing Separate Businesses

Courts look to separate name, separate files, shared staff, financial contributions, profit-sharing intent, and separate rent payments.

Express Actual Authority

Authority a partner receives directly from the partners; majority approval suffices for acts in the ordinary course, unanimous for acts outside it.

Implied Actual (Incidental) Authority

Authority to take actions reasonably necessary to carry out express duties.

Apparent Authority (Partners)

Power to bind the partnership for acts apparently within the ordinary course unless the third party knows the partner lacks authority.

Ordinary Course of Business

Actions normal and necessary for managing the partnership that a reasonable person would view as embraced by the business.

Personal Liability – General Partner

Joint and several liability for all partnership obligations unless otherwise agreed or provided by law.

Incoming Partner Liability

Not personally liable for obligations incurred before admission, but capital contributions remain at risk.

Outgoing Partner Liability

Remains liable for partnership debts arising while still a partner unless released by novation, release, or payment.

Judgment Enforcement Against Partner

A creditor may reach personal assets only after obtaining a judgment against the partner and exhausting partnership assets.

Partner Liability in an LLP

Partners are not personally liable for LLP obligations, except for their own misconduct, personal guarantees, or pre-LLP debts.

Transferable Interest

A partner’s transferable right to share profits, losses, and distributions; does not include management or property rights.

Admission of Transferee as Partner

Requires unanimous consent of existing partners unless the agreement provides otherwise.

Fiduciary Duty of Care

Partner must avoid grossly negligent or reckless conduct, intentional misconduct, and knowing violations of law.

Fiduciary Duty of Loyalty

Partner must not self-deal, usurp partnership opportunities, or compete with the partnership.

Remedies for Loyalty Breach

Disgorgement of profits and rescission of offending contracts.

Dissolution

Event that triggers winding up; partnership continues until affairs are settled.

Winding Up

Process of liquidating assets and settling liabilities after dissolution.

Order of Distribution on Winding Up

1) Outside creditors; 2) Inside creditors (partner loans); 3) Return of partners’ capital contributions; 4) Distribution of remaining profits.