36 - Chapter 36 Partnerships and Limited Liability...

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Chapter 36 Partnerships and Limited Liability Partnerships Traditionally, one of the most common forms of business organization selected by two or more persons is the partnership. A partnership arises from an agreement, express or implied, between two or more persons to carry on a business for a profit. Partners are co-owners of a business and have joint control over its operation and the right to share in its profits. Section 1: Basic Partnership Concepts: Partnerships are governed both by common law concepts (in particular, those relating to agency) and by statutory law. Agency Concepts and Partnership Law: When two or more persons agree to do business as partners, they enter into a special relationship with one another. To an extent, their relationship is similar to an agency relationship because each partner is deemed to be the agent of the other partners and of the partnership. Partnership law is distinct from agency law in one significant way, however. A partnership is based on voluntary contract between two or more competent persons who agree to place some or all of their funds or other assets, labor, and skills in a business with the understanding that profits and losses will be shared. In a non-partnership agency relationship, the agent usually does not have an ownership interest in the business, nor is he or she obligated to bear a portion of ordinary business losses. The Uniform Partnership Act: The uniform partnership act (UPA) governs the operation of partnerships in the absence of express agreement and has done much to reduce controversies in the law relating to partnerships.
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The Definition of Partnership: Parties commonly find themselves in conflict over whether their business enterprise is a legal partnership, especially in the absence of a formal, written partnership agreement. The UPA defines the term partnership as ? an association of two or more persons to carry on as co-owners a business for profit. The intent to associate is a key element of a partnership, and one cannot join a partnership unless all other partners consent. Partnership Status: In resolving disputes over whether partnership status exists, courts usually look for the following three essential elements of a partnership implicit in the UPA ? s definition: 1. A sharing of profits or losses. 2. A joint ownership of the business. 3. An equal right in the management of the business. If the evidence in a particular case is insufficient to establish all three factors, the UPA provides a set of guidelines to be used. Joint Property Ownership and Partnership Status: Joint ownership of property, obviously not in and of itself creates a partnership. In fact, the sharing of gross returns and even profits from such ownership ? does not by itself establish a partnership ? . Note, though, that although the sharing of profits from ownership of property does not prove the existence of a partnership, sharing both profits and losses usually does. Entity Versus Aggregate:
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This note was uploaded on 12/03/2011 for the course HIST 101 taught by Professor M during the Spring '11 term at NJIT.

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36 - Chapter 36 Partnerships and Limited Liability...

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