A partnership is an organization of two or more people who operate a business for profit as co-owners. The partnership form of doing business predates the founding of the United States. The laws of partnerships did not always develop consistently from state to state. Because partnerships are such an integral part of business entities, the law of partnerships has been standardized in the Uniform Partnership Act, first drafted in 1914. While the act has been adopted in whole or in part by the majority of states and the District of Columbia, there are differences among states, as they have adopted different versions and made modifications.
At A Glance
- A partnership is formed by two or more persons carrying on a profit-oriented business as co-owners.
- Partners owe one another fiduciary duties of loyalty, good faith, honesty, confidentiality, and the highest standard of care.
Partnership agreements spell out how partnership profits and losses are to be shared. If there is no partnership agreement, or if it is silent on the allocation of profits and losses, then the default position is that all partners equally share profits and losses.
General partners share rights to an interest in the partnership and are jointly and severally liable for the obligations of the partnership. They also have a duty to act within the scope of their authority and to pass to the partnership all business that is within the scope of the partnership.
- Partners may be liable to other partners for actions that exceeded their authority arising from the partnership. They may also be liable for actions that interfere with another partner's rights in management and control of the partnership.
- Partners have rights of management and control in the partnership, in accordance with their respective bargaining power in the partnership. Every partner may look to the other partners for their appropriate contribution after satisfying a judgment.
- Partnerships may dissolve in several ways: through expiration of time for a fixed-term partnership; by mutual agreement, court order, or operation of law; through expulsion; by death or incapacity of a partner; or through resignation, withdrawal, or retirement.
To manage liability, partners should notify existing and potential creditors of a partnership dissolution.