Partnership Rules 1

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

Must be an intent to carry on the for-profit business, but need not be specific intent to form a partnership.

Writing evidencing the agreement will be required if statute of frauds applies (i.e., one-year contract)

Test for whether partnership has been formed: sharing of profits from the business. Exceptions:

• deb payments
• interest or other loan charges
• wages or compensation to employees and independent contractors
• goodwill payments from sale of business
• retirement and health benefits
• joint ownership of profit-producing property where no intent to partnership is evident.

Person may be treated as member of a purported partnership where:

• there is representation express or implied that person is partner in purported partnership
• representation was made by purported partner
• third party reasonably relied on the representation
• third party suffered damages as a result of the reliance

Partnership is a distinct entity from its partners, but partners not shielded from personal liability for partnership's obligations.

Use of the partnership is governed by the original partnership agreement.

Partner is partnership's agent

Has fiduciary duties doward the partnership

Right to share of partnership profits and duty toward partnership losses

Right to indemnification from partnership

Share in profits and surpluses. They are presumed equal unless partnership agreement says otherwise.

Partners have equal right to partnership property for partnership purposes

May assign interest, but assignee will only get property interest in the partnership, will not have managerial or administrational power.

Upon death, interest goes back to partnership, unless he is last surviving partner, in which case in goes to his estate.

Where property ownership is documented will be partnership property. Where no documentation is available, intent of the partners governs.


Property rebuttably presumed partner's separate property where:

• acquired in name of one or more partners
• instrument does not indicate partner or partnership status
• partnership assets not used to acquire it

Each partner generally has equal management rights.

Ordinary partnership business - decided by majority of partners

Special partnership business - only with consent of ALL partners

Partners cannot sue or be sued by partnership. Instead, must seek accounting.


Right to accounting where:

• wrongful exclusion from partnership business or property
• rights exist under terms of partnership agreement
• partner has obtainined secret profits in violation of fiduciary duty

May bring separate legal action without accounting:

• negligent partner tort claim
• only one transaction is involved

Can bind partner if partner has actual or apparent authority (i.e., partnership has authorized or appears to have authorized the action)

Partner NEVER has implied authority to guarantee the debts of another.

Apparent authority exists where unauthorized act has to be performed in the ordinary course of business for the partnership.


Can transfer titled partnership property when:

• the property is held in the partnership's name and instrument of transfer (deed) is in partnership's name.
• the property is held in a partner's name and instrument of transfer (deed) is in partner's name.

Partnership is vicariously liable for any wrongful act or omission committed by a partner in the ordinary course of partnership business, including any fraudulent acts on a third party within the scope of partnership business.

Partnership is not criminally liable for crimes of partners unless other partners acted aas accessories to the crime

Partnership can be sued as a separate entity

Partners are jointly and severally liable for all partnership obligations

New partners are liable for obligations arising before joining, but those obligations will only be satisfied out of partnership property.

Dissociated partners are liable for any obligations incurred before disociation.

Unless there is a separate judgment against individual partners, judgments can only be collected from partnership assets.