Chapter 30: Formation and Internal Relations of General Partnerships

Partnership

An association of two or more persons to carry on as co-owners a business for profit.

Partnership as a Legal Entity

An organization having a legal existence separate from that of it's members; the Revised Act considers a partnership a legal entity for nearly all purposes.

Partnership as Legal Aggregate

A group of individuals not having a legal existence separate from that of it's members; the Revised Act considers a partnership a legal aggregate for few purposes.

Partnership Agreement

It is preferable, although not usually required, that the partners enter into a written partnership agreement.

Tests of Partnership Existence

The formation of a partnership requires all of the following: Association - Two or more persons with legal capacity who agree to become partners; Business for Profit; Co-ownership - Includes sharing of profits and control of the business.

Partnership Capital

The total money and property contributed by the partners for use by the partnership.

Partnership Property

The sum of all the partnership's assets, including all property acquired by the partnership.

Duties Among Partners

Fiduciary Duty; Duty of Obedience; Duty of Care

Fiduciary Duty

A duty of utmost loyalty, fairness, and good faith owed by partners to each other and to the partnership; includes duty not to appropriate partnership opportunities, not to compete, note to have conflicts of interest, and not to reveal confidential information.

Duty of Obedience

A duty to act in accordance with the partnership agreement and any business decisions properly made by the partners.

Duty of Care

A duty owed by partners to manage the partnership affairs without gross negligence, reckless conduct, intentional misconduct, or knowing violation of law.

Rights in Specific Partnership Property

Partners have the right to use and possess partnership property for partnership purposes.

Partners Interest in the Partnership

Includes a (1) partner's transferable interest and (2) all management and other rights.

Transferable Interest in Partnership

The partner's share of the profits and losses of the partnership and the partner's right to receive distributions.

Assignability

A partner may sell or assign his transferable interest in the partnership; the new owner becomes entitled to the assigning partner's right to receive distributions but does not become a partner.

Creditor's Rights

A partner's transferable interest is subject to the claims of creditors, who may obtain a charging order (judicial lien) against the partner's transferable interest.

Distributions

Transfer of partnership property from the partnership to a partner.

Profits

Each partner is entitled to an equal share of the profits unless otherwise agreed.

Capital

A partner does not have a right to receive a distribution of the capital contributions in his account before his withdrawal or the liquidation of the partnership.

Indemnification

If a partner makes an advance (loan) to the firm, he is entitled to repayment of the advance plus interest; a partner is entitled to reimbursement for payments made and indemnification for liabilities incurred by the partner in the ordinary course of the business.

Compensation

Unless otherwise agreed, no partner is entitled to payment for services rendered to the partnership.

Management

Each partner has equal rights in management of the partnership unless otherwise agreed.

Choice of Associates

Under the doctrine of delctus personae, no person can become a member of a partnership without the consent of all the partners.

Enforcement Rights

Right to Information and Legal Actions

Information

Each partner has the right (1) without demand, to any information concerning the partnership and reasonably required for the proper exercise of the partner's rights and duties and (2) on demand, to any other information concerning the partnership.

Legal Actions

A partner may maintain a direct suit against the partnership or another partner for legal or equitable relief to enforce the partner's rights; the partnership itself may maintain an action against a partner for any breach of the partnership agreement of for the violation of any duty owed to the partnership.