40 Questions
What is a partnership defined as?
A legal relationship created by way of a contract between two or more persons
What is the main objective of a partnership?
To make a profit
What is true about a partnership?
It is not a separate legal entity
What is a universal partnership?
A partnership that contributes all their property or all their profits to the partnership
What is a particular partnership?
A partnership that involves partners contributing their resources for a particular defined purpose only
What type of partnership involves partners contributing their resources for a particular defined purpose only?
Particular partnership
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
What is a joint venture?
A partnership between two or more companies
What is the total percentage of members' interests in a close corporation?
100%
How many members' interests can a person hold in a close corporation?
One
What is required to reflect a person's membership in a close corporation?
A founding statement reflecting that person's membership
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.
What is the nature of a member's interest in a close corporation?
Incorporeal
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
What is an exception to the lack of legal personality of a partnership?
When a claim is made either by or against the partnership.
Who must institute a claim when a partnership is involved in litigation?
All the partners at the time of the cause of action.
What is a member's interest analogous to in a company?
A share
Can a member's interest be held jointly in a close corporation?
No, to ensure that the member number restriction is not evaded
What is the nature of the relationship between partners in a partnership?
A contract of the utmost good faith.
What is the purpose of a certificate of member's interest in a close corporation?
To reflect both membership and the member's interest
What is a fiduciary duty owed by each partner to the others?
All of the above.
What is one of the rights of partners between themselves?
The right to share in the profits of the partnership.
What is governed by the partnership agreement?
The relationship between the partners themselves.
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.
What type of trust has the trustees carrying on a business, incurring debts, and trading?
Business/trading trust
Who has ownership of trust assets in a bewind trust?
Beneficiaries
What is the main difference between a business/trading trust and an ordinary trust?
The power given to trustees to carry on business
What is a typical characteristic of a non-trading trust?
Trustees should not put trust assets at risk
What right do beneficiaries in a trading trust usually have?
The right to sell their interest in the trust
Why might entrepreneurs choose to form a business/trading trust instead of a company or close corporation?
To develop a property for commercial purposes
What would be a breach of a trustee's fiduciary duty in a non-trading trust?
Exposing trust assets to business risks
What document gives trustees in a business/trading trust the power to trade or carry on a business?
Trust deed
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
Who is entitled to inspect the association agreement?
Only members
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
Which of the following cannot be changed or altered by an association agreement?
The manner in which a member's interest is disposed of
What is the default rule for decision-making by members?
Majority vote
What is the default rule for payments to members by reason of membership?
In proportion to their interest in the corporation
Can an association agreement override Section 47 of the Act?
No, it cannot override Section 47
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
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.
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.
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