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Questions and Answers
What is considered partnership property?
What is considered partnership property?
If a partner contributes property held in trust, it becomes partnership property.
If a partner contributes property held in trust, it becomes partnership property.
False (B)
What happens to property purchased with partnership money?
What happens to property purchased with partnership money?
It becomes partnership property.
Partnership property must be held and applied by the partners exclusively for the purposes of the _____ and in accordance with the partnership agreement.
Partnership property must be held and applied by the partners exclusively for the purposes of the _____ and in accordance with the partnership agreement.
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In the absence of an agreement to the contrary, how do co-owners of property used in a partnership own property purchased with profits?
In the absence of an agreement to the contrary, how do co-owners of property used in a partnership own property purchased with profits?
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If two partners use their personal assets for partnership purposes, those assets automatically become partnership property.
If two partners use their personal assets for partnership purposes, those assets automatically become partnership property.
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What is necessary for the legal estate in land to devolve according to the nature and tenure thereof?
What is necessary for the legal estate in land to devolve according to the nature and tenure thereof?
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If a partner contributes $100,000 worth of produce, this contribution is considered _____ property.
If a partner contributes $100,000 worth of produce, this contribution is considered _____ property.
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Match the actions with their corresponding outcomes regarding partnership property:
Match the actions with their corresponding outcomes regarding partnership property:
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Explain why the land used to grow apples in the second example is not considered partnership property.
Explain why the land used to grow apples in the second example is not considered partnership property.
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What happens to new land purchased with profits generated by co-owners in a partnership?
What happens to new land purchased with profits generated by co-owners in a partnership?
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A partner can assign their share of partnership property without the consent of other partners.
A partner can assign their share of partnership property without the consent of other partners.
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What is the term used for a partnership that has no fixed duration?
What is the term used for a partnership that has no fixed duration?
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If a partnership is dissolved through __________, it can occur without going to court.
If a partnership is dissolved through __________, it can occur without going to court.
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Match the following dissolution methods with their descriptions:
Match the following dissolution methods with their descriptions:
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Which of the following is an example of property that would be deemed partnership property?
Which of the following is an example of property that would be deemed partnership property?
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Dissolution of a partnership can occur if one partner dies, regardless of any existing agreements.
Dissolution of a partnership can occur if one partner dies, regardless of any existing agreements.
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What must partners do to prevent a new land purchase from being treated as partnership property?
What must partners do to prevent a new land purchase from being treated as partnership property?
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If a partnership is established for a specific term, it is dissolved by the __________ of that term.
If a partnership is established for a specific term, it is dissolved by the __________ of that term.
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What legal right does a rescinding partner have after a partnership agreement is nullified due to fraud?
What legal right does a rescinding partner have after a partnership agreement is nullified due to fraud?
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Under which condition can a partnership be dissolved due to illegality?
Under which condition can a partnership be dissolved due to illegality?
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A partnership can be dissolved if one partner is permanently incapable of performing their role.
A partnership can be dissolved if one partner is permanently incapable of performing their role.
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What must occur for a partnership to be dissolved if it is only operating at a loss?
What must occur for a partnership to be dissolved if it is only operating at a loss?
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A partner who engages in conduct that ______________ affects the partnership may be grounds for dissolution.
A partner who engages in conduct that ______________ affects the partnership may be grounds for dissolution.
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Match the following reasons for dissolution with their corresponding sections.
Match the following reasons for dissolution with their corresponding sections.
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What happens to the legal personality of a partnership once it is dissolved?
What happens to the legal personality of a partnership once it is dissolved?
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Third parties are automatically bound by the partnership agreement in the event of a partner leaving.
Third parties are automatically bound by the partnership agreement in the event of a partner leaving.
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What is required to protect third parties from liability when a partner leaves?
What is required to protect third parties from liability when a partner leaves?
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Under section ____, losses after the dissolution are paid from profits first.
Under section ____, losses after the dissolution are paid from profits first.
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What is one reason a court may dissolve a partnership simply because it is just and equitable?
What is one reason a court may dissolve a partnership simply because it is just and equitable?
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Study Notes
Partnership Property (Section 20)
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Partnership property includes all assets (e.g., land, goods, capital contributions) brought into or acquired by the partnership.
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This property must be used solely for partnership purposes and in line with the partnership agreement.
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Example: If partners contribute capital to start a business or bring in existing assets, those items become partnership property.
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Purchased assets using partnership funds are considered partnership property.
Trust Property and Partnership Property (Section 20)
- If property is held in trust (e.g. for beneficiaries), it is not partnership property, even if it's used for the partnership.
- Example: Land owned by a partner in trust for their children, used for growing agricultural produce for a partnership, doesn't become partnership property.
- Co-owned land used for partnership profits, but repurchased with these profits, remains co-owned according to the original shares. The new land is not automatically partnership property.
Property Purchased with Partnership Funds (Section 21)
- Property bought with partnership funds is presumed to be for the partnership, unless otherwise specified.
- Example: A warehouse bought with partnership profits becomes partnership property.
- Example (contrary intention): If a partner buys additional land to expand a trust property used for partnership purposes, that land is not a partnership asset.
Indicative of a Partnership
- Purchasing property for the partnership business may indicate a partnership.
- If the property is owned by the firm itself, insurance coverage is handled by the firm and not by individual partners.
Assignment by Partner
- A partner's share of partnership property is an incorporeal right, but they can't assign it without other partners' consent.
Dissolution of Partnership
Dissolution (Not by Court)
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Rescission of Agreement: A partnership can be dissolved if one partner is induced by fraud or misrepresentation. The rescinding partner has rights to retain payments made to the partnership, to be indemnified for debts, and possibly damages.
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Dissolution by Notice: Partnerships without a fixed term are "partnerships at will." One partner can dissolve the partnership with notice. Notice can be implied. Dissolution is effective from the date of the notice.
Dissolution by Expiration of Term
- Partnerships with a set duration dissolve upon its end.
- Continued activity after the term's end creates a "partnership at will".
Dissolution by Death or Bankruptcy
- Death or bankruptcy of a partner dissolves the partnership, unless otherwise agreed.
- A partner's assets can be charged for personal debt, potentially dissolving the partnership at the other partner's discretion.
Dissolution by Illegality
- If an event makes the partnership business illegal, the partnership dissolves.
Dissolution by the Court
- A court can dissolve a partnership if one partner is of unsound mind, permanently incapacitated, acts prejudicially to the business, violates the partnership agreement, or operates at a loss, or if it's just & equitable to dissolve the partnership.
- Courts can dissolve a partnership for severe breaches of contracts by a partner.
Further Acts Following Dissolution
- After dissolution, the partnership's legal personality ceases to exist.
- Partners can't bind other partners, but permitted to fulfill unfinished deals.
- Partners can wind up partnership affairs.
- Partners can use partnership property to pay partnership debts and liabilities.
- Distribution of assets after dissolution prioritizes paying debts, then profits, then capital, with losses calculated according to profit shares.
Changes of Partners
- Without a partnership agreement, continuous succession is not automatic. A change in partners dissolves the existing partnership requiring a new agreement. Impacts creditors but new partners not liable for pre-existing debts.
Rights of Third Parties Dealing with the Firm
- Partnerships should have a governing agreement for partner departures.
- Partnership agreements do not automatically bind third parties.
- Third parties must be notified of partner departures to avoid perceived partnership authority.
Insolvency of Partnership
- English law treats a partnership as subject to separate insolvency rules.
- Scottish law treats the partnership as legally separate from its individual partners regarding insolvency.
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Description
This quiz covers important aspects of partnership property as outlined in Section 20. Learn the distinctions between partnership property and trust property, including what constitutes partnership assets and examples that clarify these concepts. Test your knowledge on the rules governing assets brought into or acquired by a partnership.
