Partnership Law: Key Concepts and Legal Frameworks

partnership

A relationship where two or more people carry on business together with a view to profit.

why profits matter

Sharing profits is strong evidence of a partnership, but it is not the only factor.

mutual agency

Each partner can bind the firm in the ordinary course of business.

why mutual agency matters

One partner's actions can create liability for all partners.

general partner

A partner with management rights and unlimited personal liability for partnership debts.

limited partner

A partner who invests capital and usually avoids management so liability stays limited if the statutory rules are followed.

partnership agreement

The contract that controls the partners' rights and duties.

why a written agreement matters

It prevents disputes over profit sharing, authority, retirement, and dissolution.

default rules

Rules that apply when the partnership agreement does not say otherwise.

duty of good faith

Partners must deal honestly with each other and put the firm's interests ahead of secret personal gain.

duty to disclose

Partners must reveal important information that affects the business or the other partners' interests.

duty not to compete

A partner cannot secretly compete with the firm or take a business opportunity belonging to the partnership.

duty to account

A partner must hand over partnership money or property received and keep proper records.

secret profit

Any personal gain a partner makes from partnership property or business opportunities that must usually be returned to the firm.

partnership property

Property owned for partnership purposes.

why property classification matters

It affects who can use the asset, whether creditors can reach it, and what happens on dissolution.

liability for debts

Partners are personally exposed for partnership obligations.

joint and several liability

A creditor can sue one partner for the full amount of a partnership debt.

new partner liability

A new partner usually is not responsible for debts that existed before admission unless they agree to assume them.

retiring partner notice

A retiring partner should give notice of departure to reduce later liability.

dissolution

The legal ending of the partnership.

why dissolution matters

Once dissolved, the firm stops normal business and focuses on winding up debts, assets, and obligations.

winding up

The process of finishing the partnership's affairs by collecting assets, paying creditors, and distributing leftovers.

order of payment on winding up

Outside creditors are paid first, then partner loans or advances, then capital, and only then any remaining surplus is shared.

limited liability partnership

A partnership form that reduces liability for some partner negligence, usually for professionals.

why LLPs are useful

They keep the partnership structure but reduce personal exposure for one partner's mistakes in some situations.