Lecture Dynamic business law - Chapter 37: Partnerships: termination and limited partnerships

Chapter 37 - Partnerships: termination and limited partnerships. After studying this chapter you will be able to understand: What are the steps in the termination of a partnership? How is a limited partnership formed? What are the rights and privileges of a limited partner and a general partner?

Chapter 37  Partnerships:  Termination and  Limited Partnerships Copyright © 2015 McGraw­Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw­Hill Education Exhibit 37­1:  The Life Cycle of a Partnership  Formation­­Partnership formed either by written agreement, articles of  partnership, or by estoppel  Performance—Business conducted as partners work for benefit of  partnership, in accordance with partnership agreement  Dissolution—Partnership dissolves either by act of court, act of partners,  or operation of law  Winding Up—Partners complete unfinished partnership business, collect  and pay debts, collect partnership assets, and take inventory  Termination or Continuation—Partnership terminates, or continues by  creation of continuation agreement 37­2 Partnership Termination  Begins when partnership dissolves  Once partnership dissolved and assets liquidated and  distributed (“winding up”), partnership terminated 37­3 Partnership Dissolution  Definition:  Partnership cessation  Partnership dissolution can result from:  Partner actions  Operation of law  Court action 37­4 Events Resulting in Partnership Dissolution  Fulfillment of established (agreed­upon) partnership objective  Expiration of term stated in partnership agreement  Partner withdraws from “partnership at will” (partnership that does not  specify objective/duration of partnership)  Partner withdraws in accordance with partnership agreement  Partner expelled from partnership in accordance with partnership  agreement 37­5 Examples of Partnership Dissolution By  “Operation of Law”  Partner dies  Partner adjudicated bankrupt  Partnership engages in illegal activity 37­6 Examples of Partnership Dissolution By “Court  Action”  Partner adjudicated insane  Impractical to continue partnership business  Partner incapable of fulfilling his/her duties established by  partnership agreement  Partner disagreement as to how to conduct partnership  business 37­7 “Winding Up” of Partnership  (Definition): Activity of completing unfinished  partnership business, collecting and paying  debts, collecting partnership assets, and  taking inventory 37­8 Order of Distribution of Partnership Assets (Upon  “Winding Up”)  Payment to partnership creditors  Payment of refunds/loans to partners for loans made to  partnership  Payment of partners for invested capital  Payment of profits distributed to partners per terms of  partnership agreement 37­9 Limited Partnership  Definition:  Agreement between at least one general  partner and at least one limited partner  Allows investor (limited partner) to share in profits of  partnership  Limited partner’s liability limited to amount he/she  invests in business 37­10 Requirements for Limited Liability (of Limited  Partner)  Limited partner has complied in good faith with certificate of  limited partnership filing requirement  Limited partner does not participate in control of business  Limited partner’s surname is not part of partnership name 37­11 Comparison of General Partners and Limited  Partners   General Partner:  Has all rights associated with controlling business  Has unlimited personal liability for all partnership debts  Acts as agent of partnership Limited Partner:  Has no right to participate in management and control of business  Liability limited to amount of capital partner has contributed to business  Is not an agent of the partnership 37­12 Reasons For Dissolution of Limited  Partnership  Expiration of term established in certificate of limited  partnership  Completion of objective established in certificate of limited  partnership  Unanimous written consent of all partners (limited and general)  Withdrawal of general partner (unless certificate establishes  that other general partners will continue operation of business)  Court action 37­13 Limited Liability Company (LLC)  Similar to limited partnership, since each member has limited  liability (dependent on investment he/she makes)  Tax advantages similar to partnership (“single taxation”)  Created based on agreement between members  Each member can participate in management 37­14 ... Limited partner’s liability limited to amount he/she  invests in business 37­10 Requirements for Limited Liability (of Limited Partner)  Limited partner has complied in good faith with certificate of  limited partnership filing requirement... Limited Partnership  Definition:  Agreement between at least one general  partner and at least one limited partner  Allows investor  (limited partner) to share in profits of  partnership  Limited partner’s liability limited to amount he/she ... Dissolution—Partnership dissolves either by act of court, act of partners,  or operation of law  Winding Up—Partners complete unfinished partnership business,  collect  and pay debts, collect partnership assets, and take inventory  Termination or Continuation—Partnership terminates, or continues by