Partnership Definition and Liquidation

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Questions and Answers

What is a partnership defined as?

A joint venture between two or more companies

A legal entity created by two or more persons

A type of corporation

A legal relationship created by way of a contract between two or more persons (correct)

What is the main objective of a partnership?

To make a profit (correct)

To minimize losses

To maximize expenses

To reduce taxes

What is true about a partnership?

It is a separate legal entity

It is only formed between natural persons

It is only formed between companies

It is not a separate legal entity (correct)

What is a universal partnership?

A partnership that contributes all their property or all their profits to the partnership Signup and view all the answers

What is a particular partnership?

A partnership that involves partners contributing their resources for a particular defined purpose only Signup and view all the answers

What type of partnership involves partners contributing their resources for a particular defined purpose only?

Particular partnership Signup and view all the answers

What is an application made to a court in any jurisdiction that has not been fully disposed of?

An application to put a foreign company into liquidation Signup and view all the answers

What is a joint venture?

A partnership between two or more companies Signup and view all the answers

What is the total percentage of members' interests in a close corporation?

100% Signup and view all the answers

How many members' interests can a person hold in a close corporation?

One Signup and view all the answers

What is required to reflect a person's membership in a close corporation?

A founding statement reflecting that person's membership Signup and view all the answers

What happens to the balance in the partnership estate if a partner's estate is sequestrated?

The balance passes to the trustee of the individual partner's estate. Signup and view all the answers

What is the nature of a member's interest in a close corporation?

Incorporeal Signup and view all the answers

What happens to a member when they dispose of their member's interest?

They cease to be a member after registration of an amended founding statement Signup and view all the answers

What is an exception to the lack of legal personality of a partnership?

When a claim is made either by or against the partnership. Signup and view all the answers

Who must institute a claim when a partnership is involved in litigation?

All the partners at the time of the cause of action. Signup and view all the answers

What is a member's interest analogous to in a company?

A share Signup and view all the answers

Can a member's interest be held jointly in a close corporation?

No, to ensure that the member number restriction is not evaded Signup and view all the answers

What is the nature of the relationship between partners in a partnership?

A contract of the utmost good faith. Signup and view all the answers

What is the purpose of a certificate of member's interest in a close corporation?

To reflect both membership and the member's interest Signup and view all the answers

What is a fiduciary duty owed by each partner to the others?

All of the above. Signup and view all the answers

What is one of the rights of partners between themselves?

The right to share in the profits of the partnership. Signup and view all the answers

What is governed by the partnership agreement?

The relationship between the partners themselves. Signup and view all the answers

What is the purpose of the principle of utmost good faith in interpreting the partnership agreement?

To give content to the interpretation of the agreed relationship. Signup and view all the answers

What type of trust has the trustees carrying on a business, incurring debts, and trading?

Business/trading trust Signup and view all the answers

Who has ownership of trust assets in a bewind trust?

Beneficiaries Signup and view all the answers

What is the main difference between a business/trading trust and an ordinary trust?

The power given to trustees to carry on business Signup and view all the answers

What is a typical characteristic of a non-trading trust?

Trustees should not put trust assets at risk Signup and view all the answers

What right do beneficiaries in a trading trust usually have?

The right to sell their interest in the trust Signup and view all the answers

Why might entrepreneurs choose to form a business/trading trust instead of a company or close corporation?

To develop a property for commercial purposes Signup and view all the answers

What would be a breach of a trustee's fiduciary duty in a non-trading trust?

Exposing trust assets to business risks Signup and view all the answers

What document gives trustees in a business/trading trust the power to trade or carry on a business?

Trust deed Signup and view all the answers

How must an amendment to or the dissolution of the association agreement be made?

In writing and signed by or on behalf of each member Signup and view all the answers

Who is entitled to inspect the association agreement?

Only members Signup and view all the answers

What is the effect of an association agreement on the corporation and its members?

It binds the corporation to every member, and every member to the corporation and to every other member Signup and view all the answers

Which of the following cannot be changed or altered by an association agreement?

The manner in which a member's interest is disposed of Signup and view all the answers

What is the default rule for decision-making by members?

Majority vote Signup and view all the answers

What is the default rule for payments to members by reason of membership?

In proportion to their interest in the corporation Signup and view all the answers

Can an association agreement override Section 47 of the Act?

No, it cannot override Section 47 Signup and view all the answers

What is the effect of an association agreement on other agreements entered into by the members?

It does not affect other agreements entered into by the members Signup and view all the answers

Study Notes

Partnerships

A partnership is a legal relationship created by a contract between two or more persons, where each partner agrees to make contributions to the partnership business and share profits.
Partnerships can be formed between natural persons, between a natural person and a juristic entity (company or close corporation), or between companies (joint venture).
A partnership is not a separate legal entity; partners are held accountable for the partnership's activities.

Types of Partnerships

Universal partnership: partners contribute all their property or profits to the partnership for an open-ended period and for wide-ranging purposes, with a commensurate sharing of profits.
Particular partnership: partners contribute resources for a specific, defined purpose only and share profits from that particular project.

Litigation and Partnerships

An exception to the partnership's lack of legal personality exists when a claim is made by or against the partnership.
Claims must be instituted by or against all the partners at the time of the cause of action.
Rule 14 of the Uniform Rules of the High Court allows a partnership to be sued in its own name.

Relationship between Partners

A partnership is a contract of utmost good faith, requiring mutual trust and confidence between partners.
Each partner is in a fiduciary relationship to the others.
The partnership agreement governs the relationship between partners.
Partners have rights, including:
- Sharing profits
- Participating in management
- Compensation
- Inspecting partnership books
- Distributing assets on dissolution

Partners' Interests and Close Corporations

In a close corporation, each member has a member's interest, which is a single interest expressed as a percentage.
The aggregate of members' interests must be 100%.
A member's interest may not be held jointly, and a person becomes a member when the founding statement reflecting their membership is registered.
A member is entitled to a certificate of member's interest, which has a dual function, reflecting both membership and interest.

Trusts

A trust can be created to manage and control trust assets, with ownership lying with the trustees (ordinary trust) or beneficiaries (bewind trust).
A business/trading trust is an ordinary trust where trustees have the power to carry on business, incur debts, and trade.
Beneficiaries in a trading trust have the right to sell their interest in the trust when they choose to do so.
Trustees in a business trust have the power to expose trust assets to business risks, as specified in the trust deed.

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Description

This quiz covers the definition of partnership, its legal aspects, and court proceedings related to liquidation and insolvency. Learn about partnerships and their contractual relationships.