Partnership Question
Partnership Question
BUL II
Do not bring to class. Please e-mail me your answers no later than 6:00 P.M. on the Due Date. I will not collect your answers in class.
Gennie, Gerry, and Lem formed Sterling Properties Limited Partnerships to engage in the business of buying, selling, and managing real estate. Gennie and Gerry were general partners. Lem was a limited partner entitled to 50% of all profits. Genie, Gerry and Lem agreed that Gerry’s personal liability be limited to 25% of each partnership liability.
Within a few months of Sterling’s formation, it became apparent to Lem that Gennie and Gerry’s inexperience was likely to result in financial disaster for the partnership. Therefore, Lem became more involved in day-to-day management decisions. Lem met with prospective buyers and sellers of properties, assisted in negotiating partnership loans with various lenders, and took an active role in dealing with personal problems. Things continued to deteriorate for Sterling, and the partners began blaming each other for the partnership’s problems.
Finally, Gennie could no longer deal with the situation and withdrew from the partnership. Gerry reminded Gennie that the Sterling partnership specifically prohibited withdrawal by a general partner without the consent of all the other partners. Gennie advised Gerry and Lem that she would take no part in any further partnership undertaking and would not be responsible for partnership debts incurred after this withdrawal.
With Sterling on the verge of collapse, the following situations have occurred:
- Lem demanded the right to inspect and copy the partnership’s books and records, and Gerry refused to allow Lem to do so, claiming that Lem’s status as a limited partner precludes that right.
- Anchor bank, which made a loan to the partnership prior to Gennie’s withdrawal, si suing Sterling and each partner individually, including Gennie, because the loan is in default. Lem denied any liability based on his limited partner status. Gennie denies liability based on her withdrawal.
- Gerry sued Gennie for withdrawing from the partnership and is uncertain about the effect on her withdrawal on the partnership.
- Lem assigned his partnership interest to Larry, who wants to become a substitute limited partner. Lem is uncertain about his right to assign this interest to Larry and, further, the right of Larry to become a substitute limited partner. The Sterling partnership agreement and certificate are silent in this regard.
- Gerry, after all the above occurs, assigns his partnership interest to Garth. Larry consents to Garth’s admission as a new partner, and Garth and Larry release Gerry from all prior or future partnership obligations.
The following list represents possible levels of liability for an obligation of Sterling Properties.
A. No liability
B. A share of partnership capital.
C. Partnership capital
D. A share of partnership profits
E. The partner’s partnership interest.
F. 25% of the obligation
G. The amount of the obligation
H. Partnership property
I. The net assets of the partnership
J. The partner’s net personal assets
For items 1 through 6 below, select the level of liability, from (A) through (J) above, which best describes the named person’s liability for the anchor bank loan. Each answer may be used once, more than once, or not at all.
1. Sterling Properties
2. Gennie
3. Gerry
4. Garth
5. Lem
6. Larry
For items 7 through 13, mark (C) if the statement is correct. Mark (I) if the statement is incorrect.
7. Lem had the right to inspect Sterling’s books.
8. Lem’s assignment dissolved the partnership.
9. Larry has the right to inspect Sterling’s books.
10. Gennie’s withdrawal is void.
11. Gennie’s withdrawal may dissolve Sterling.
12. Gerry has a claim against Gennie.
13. Notice is required to terminate authority upon Sterling’s bankruptcy.
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