Chapter 3Chapter 3

General PartnershipsGeneral Partnerships

An Introduction to General An Introduction to General PartnershipsPartnerships

Partnerships-(1) an association of Partnerships-(1) an association of two or more people (2) to carry on two or more people (2) to carry on (3) as co-owners of (4) a business (5) (3) as co-owners of (4) a business (5) for profit.for profit.• Five elementsFive elements

General partnership-a typical General partnership-a typical partnership in which all partners are partnership in which all partners are general partnersgeneral partners

(1) association of two or more (1) association of two or more personspersons• Includes individuals, partnerships, corps. Includes individuals, partnerships, corps.

& other associations& other associations• Any individual or entity with capacity to Any individual or entity with capacity to

enter into a K can be a partnerenter into a K can be a partner (2) carry on(2) carry on

• Partners must actively carry on the Partners must actively carry on the partnership business togetherpartnership business together

(3) co-owners(3) co-owners• Business must be a single business entity Business must be a single business entity

owned by more than one personowned by more than one person• The partners have a right to participate in The partners have a right to participate in

the management of the partnership and the management of the partnership and to share in the profits (and losses) of the to share in the profits (and losses) of the partnershippartnership

(4) business(4) business• Includes every trade, occupation or Includes every trade, occupation or

professionprofession

(5) for profit(5) for profit• The intention of the partnershipThe intention of the partnership• Earning profit must be objective even if Earning profit must be objective even if

the partnership does not earn a profitthe partnership does not earn a profit• Nonprofit organizations cannot be Nonprofit organizations cannot be

partnerships.partnerships.

Uniform Partnership ActUniform Partnership Act• O.C.G.A. Chapter 14-8 (UPA)O.C.G.A. Chapter 14-8 (UPA)• See See Cleland v. ThironCleland v. Thiron

Prior to 1914, partnerships governed Prior to 1914, partnerships governed by states statutes that codified the by states statutes that codified the common law and civil law.common law and civil law.• Common law-judge-made lawCommon law-judge-made law• Civil law-law originated from ancient Civil law-law originated from ancient

RomeRome

In 1914, the Commission on Uniform In 1914, the Commission on Uniform State Laws approved the Uniform State Laws approved the Uniform Partnership Act (UPA).Partnership Act (UPA).

The UPA was designed to codify The UPA was designed to codify existing statutory and common law. existing statutory and common law.

The ABA approved the UPA in 1915.The ABA approved the UPA in 1915. The UPA has been adopted by most The UPA has been adopted by most

states.states. In 1994, a revised UPA was approved In 1994, a revised UPA was approved

by the ABA House of Delegates.by the ABA House of Delegates.

The newer version is called the The newer version is called the Revised Uniform Partnership Act Revised Uniform Partnership Act (RUPA).(RUPA).

Partnerships are governed by the Partnerships are governed by the UPA or RUPA as modified by the state UPA or RUPA as modified by the state of domicile, the partnership of domicile, the partnership agreement, and common law.agreement, and common law.

Exhibit 3-2 –summarizes partnership Exhibit 3-2 –summarizes partnership law in the U.S.law in the U.S.

Aggregate theory vs. entity theoryAggregate theory vs. entity theory• Extension of individual vs. separate entityExtension of individual vs. separate entity• State statutes and common law are the final State statutes and common law are the final

authority on whether a partnership is authority on whether a partnership is considered a separate entity or an aggregate of considered a separate entity or an aggregate of its partners in a particular stateits partners in a particular state

UPA recognized a partnership as a separate UPA recognized a partnership as a separate entity for certain purposes.entity for certain purposes.• See page 58See page 58

RUPA states “[a] partnership is an entity RUPA states “[a] partnership is an entity distinct from its partners.”distinct from its partners.”• See page 58See page 58

The Relationship between Partners The Relationship between Partners and Othersand Others

The partnership must act through its The partnership must act through its partners when dealing with outside parties.partners when dealing with outside parties.

Partners as AgentsPartners as Agents• Partners are the agents of the other partners Partners are the agents of the other partners

and of the partnershipand of the partnership• Acts of one partner are binding on the Acts of one partner are binding on the

partnership as long as the partner’s act is partnership as long as the partner’s act is apparently undertaken for the purpose of apparently undertaken for the purpose of carrying on the ordinary course of the carrying on the ordinary course of the partnership business or businesses of the kind partnership business or businesses of the kind carried on by the partnership.carried on by the partnership.

• See example on page 59See example on page 59• The act of a partner can bind the partnership The act of a partner can bind the partnership

even if the partner is not acting in good faith.even if the partner is not acting in good faith. Acts requiring unanimous consent of the Acts requiring unanimous consent of the

partnerspartners• Acts not w/in the normal course of business Acts not w/in the normal course of business

require unanimous consent of the partnersrequire unanimous consent of the partners• Can be outlined in the partnership agreementCan be outlined in the partnership agreement• See example on page 60See example on page 60

• Acts not binding on partnership –UPA vs. Acts not binding on partnership –UPA vs. RUPARUPA

• See example on page 61See example on page 61• See See First National Bank and Trust First National Bank and Trust

Company of Williston v. ScherrCompany of Williston v. Scherr Statement of partnership authorityStatement of partnership authority

• RUPA provides partners the option of RUPA provides partners the option of filing a statement of authority with filing a statement of authority with secretary of state or other appropriate secretary of state or other appropriate state officialstate official

• Statement should include items listed in Statement should include items listed in RUPA §303.RUPA §303.

• See on page 63See on page 63• Outside parties may rely on the Outside parties may rely on the

authority granted by a valid statement authority granted by a valid statement of authority as binding on the of authority as binding on the partnership.partnership.

Statement of Denial-statement filed Statement of Denial-statement filed for public record by a partner or for public record by a partner or other interested party to contradict other interested party to contradict the information included in a the information included in a statement of authority.statement of authority.• Can be filed at the state levelCan be filed at the state level

Liability of partnersLiability of partners• Joint and several liability (together and Joint and several liability (together and

individually)individually)• Creditors can look to the individual partners Creditors can look to the individual partners

for payment after the partnership’s assets for payment after the partnership’s assets have been exhaustedhave been exhausted

• The partner with substantial personal assets The partner with substantial personal assets can be held responsible for the entire can be held responsible for the entire obligation of the partnership even if obligation obligation of the partnership even if obligation arose from the wrongdoing of another partnerarose from the wrongdoing of another partner

• See exception to general rule on page 64See exception to general rule on page 64

The Relationship among Partners The Relationship among Partners and between Partners and the and between Partners and the

PartnershipPartnership Tenancy in partnership -under UPA, Tenancy in partnership -under UPA,

each partner was considered a co-each partner was considered a co-owner with the other partners of owner with the other partners of specific partnership property.specific partnership property.• Each partner had an equal right to Each partner had an equal right to

possess specific partnership property for possess specific partnership property for partnership purposes, but had no right partnership purposes, but had no right to possess such property for any other to possess such property for any other purpose without the consent of the purpose without the consent of the other partners.other partners.

RUPA treats partnerships as separate RUPA treats partnerships as separate entities.entities.

The partnership property is considered to The partnership property is considered to be owned by the partnership itself, as an be owned by the partnership itself, as an entity separate from the partners.entity separate from the partners.

This does not refer to each partner’s right This does not refer to each partner’s right to receive income or profits and losses to receive income or profits and losses from the partnership property.from the partnership property.

In states that follow RUPA, partners In states that follow RUPA, partners cannot transfer their entire right to the cannot transfer their entire right to the partnership property.partnership property.

Partners can transfer their rights to receive Partners can transfer their rights to receive income, or profits and losses from the income, or profits and losses from the partnership.partnership.

See example on page 66.See example on page 66. A partner’s right in specific partnership A partner’s right in specific partnership

property is not assignable except in property is not assignable except in connection with the assignment of rights of connection with the assignment of rights of all the partners in the same property, nor is all the partners in the same property, nor is the right in specific partnership property the right in specific partnership property subject to attachment or execution, except subject to attachment or execution, except on a claim against the partnership.on a claim against the partnership.

See example at bottom of page 66.See example at bottom of page 66.

Whenever partners contribute real or Whenever partners contribute real or personal property to the partnership personal property to the partnership or acquire property with funds of the or acquire property with funds of the partnership, it is considered partnership, it is considered partnership property.partnership property.

See §204 of the RUPA on page 67See §204 of the RUPA on page 67 See Exhibit 3-4 on page 68See Exhibit 3-4 on page 68

Partner’s rights in dealing with each otherPartner’s rights in dealing with each other• Partner’s rightsPartner’s rights• (1) to a separate account(1) to a separate account• (2) to an equal share of partnership profits(2) to an equal share of partnership profits• (3) to repaid contributions and share equally in (3) to repaid contributions and share equally in

the surplusthe surplus• (4) to reimbursement(4) to reimbursement• (5) to participate in management(5) to participate in management• (6) to access books and records(6) to access books and records• (7) to wind up partnership business(7) to wind up partnership business• (8) to have one’s partnership interest (8) to have one’s partnership interest

purchased by remaining partners purchased by remaining partners

Separate accountsSeparate accounts• Under RUPA, each partner deemed to have a Under RUPA, each partner deemed to have a

separate account in an amount equal to the separate account in an amount equal to the partner’s contributions and share of the partner’s contributions and share of the partnership profits, less the partner’s partnership profits, less the partner’s distributions received and the partner’s share of distributions received and the partner’s share of partnership lossespartnership losses

Equal shareEqual share• Under RUPA, each partner is entitled to an equal Under RUPA, each partner is entitled to an equal

share of the partnership’s profits and is share of the partnership’s profits and is responsible for a share of the partnership losses responsible for a share of the partnership losses in proportion to their share of the profits.in proportion to their share of the profits.

ReimbursementReimbursement• Partners who spend their own money on Partners who spend their own money on

behalf of partnership can be reimbursed behalf of partnership can be reimbursed for expenditures.for expenditures.

Participate in managementParticipate in management• Each partner has right to participate in Each partner has right to participate in

managementmanagement• Partnership agreement may appoint a Partnership agreement may appoint a

managing partner or a managing managing partner or a managing partnership committeepartnership committee

Access books and recordsAccess books and records• Books and records must be kept at principal Books and records must be kept at principal

place of business or chief executive officeplace of business or chief executive office• Books and records must be available to each Books and records must be available to each

partner and each partner’s agent and partner and each partner’s agent and attorneysattorneys

Wind up partnershipWind up partnership• Partners who have not caused a wrongful Partners who have not caused a wrongful

dissolution or dissociation of the partnership dissolution or dissociation of the partnership have the right to wind up the partnership have the right to wind up the partnership business.business.

Partners’ duties in dealing with each otherPartners’ duties in dealing with each other Partners’ dutiesPartners’ duties (1) to contribute to partnership losses(1) to contribute to partnership losses (2) to work without remuneration(2) to work without remuneration (3) to submit to a vote of the majority(3) to submit to a vote of the majority (4) to render information(4) to render information (5) fiduciary duties to partnership and (5) fiduciary duties to partnership and

other partnersother partners

Advantages of Doing Business as a Advantages of Doing Business as a General PartnershipGeneral Partnership

(1) participation and flexibility in (1) participation and flexibility in managementmanagement

(2) minimal formalities and (2) minimal formalities and regulatory and reporting regulatory and reporting requirementsrequirements

(3) low cost of organization(3) low cost of organization (4) income tax benefits(4) income tax benefits (5) diversified capital resources(5) diversified capital resources

Disadvantages of Doing Business Disadvantages of Doing Business as a General Partnershipas a General Partnership

(1) unlimited liability(1) unlimited liability (2) loosely structured management(2) loosely structured management (3) lack of business continuity(3) lack of business continuity (4) difficulty in transferring (4) difficulty in transferring

partnership interestpartnership interest (5) limited ability to raise capital(5) limited ability to raise capital (6) legal and organizational expenses(6) legal and organizational expenses (7) tax disadvantages(7) tax disadvantages

Organization and Management of a Organization and Management of a General PartnershipGeneral Partnership

(1) Management and control(1) Management and control (2) Oral partnership agreements(2) Oral partnership agreements (3) Partnership agreements(3) Partnership agreements

Management and controlManagement and control• All partners have equal rights to All partners have equal rights to

manage the partnershipmanage the partnership• Managing partner-partner delegated to Managing partner-partner delegated to

oversee the management of the oversee the management of the partnershippartnership

Oral partnership agreementOral partnership agreement• Partnership agreement may be oralPartnership agreement may be oral

See pages 80-89 for sample clauses.See pages 80-89 for sample clauses. Partnership agreementsPartnership agreements

• Name and addresses of partnersName and addresses of partners• Name of partnershipName of partnership• Purpose of partnershipPurpose of partnership• Address of principal place of doing businessAddress of principal place of doing business• Term of partnership agreementTerm of partnership agreement• Contribution of partnersContribution of partners• Additional contribution requirementsAdditional contribution requirements• Assets of partnershipAssets of partnership

• Goodwill evaluation to be considered on Goodwill evaluation to be considered on distribution of assetsdistribution of assets

• LiabilityLiability• Distribution of profits and lossesDistribution of profits and losses• Indemnity provisionsIndemnity provisions• Duties of partnersDuties of partners• Powers of partners and limitations Powers of partners and limitations

thereonthereon• Compensation and benefits for partnersCompensation and benefits for partners• Management and control of businessManagement and control of business

• Partnership accounting and financial Partnership accounting and financial managementmanagement

• Change in partnersChange in partners• Death of partnerDeath of partner• Sale or purchase of partnership interestSale or purchase of partnership interest• Arbitration of differencesArbitration of differences• Termination of partnershipTermination of partnership• Dissolution and winding upDissolution and winding up• Date of agreement and signature of Date of agreement and signature of

partnerspartners

Financial Structure of a General Financial Structure of a General PartnershipPartnership

Partnership capitalPartnership capital• No minimal capital contributionNo minimal capital contribution• Capital may be in the form of cash, real Capital may be in the form of cash, real

property, or personal property.property, or personal property.• Partners may provide capital to Partners may provide capital to

partnership in the form of a loan that can partnership in the form of a loan that can be reimbursedbe reimbursed

• Partners have right to accountingPartners have right to accounting• Partners have right to partnership recordsPartners have right to partnership records

Profits and lossesProfits and losses• Partners share the profits and losses of Partners share the profits and losses of

the partnership equallythe partnership equally• Partners may set their own formula for Partners may set their own formula for

sharing in the profitssharing in the profits

Dissolution, Dissociation, Winding Up, & Dissolution, Dissociation, Winding Up, & Termination of the General PartnershipTermination of the General Partnership

Dissociation-the event that occurs Dissociation-the event that occurs when a partner withdraws or when a partner withdraws or otherwise ceases to be associated in otherwise ceases to be associated in the carrying on of the partnership the carrying on of the partnership businessbusiness

Dissolution-the termination of a Dissolution-the termination of a corporation, partnership, or other corporation, partnership, or other business entity’s existencebusiness entity’s existence

Events causing partner’s dissociationEvents causing partner’s dissociation• RUPA § 801RUPA § 801• See page 91-93See page 91-93• A partner’s dissociation can be caused A partner’s dissociation can be caused

by agreement, statute or wrongfully.by agreement, statute or wrongfully.

Wrongful dissociationWrongful dissociation• A dissociation that is contrary to the A dissociation that is contrary to the

partnership agreementpartnership agreement• A dissociation can also be considered A dissociation can also be considered

wrongful if the dissociation occurs prior wrongful if the dissociation occurs prior to the expiration of any set term for the to the expiration of any set term for the partnership or prior to the completion of partnership or prior to the completion of any pre-established taskany pre-established task

See events on page 93See events on page 93

Effect of partner’s dissociationEffect of partner’s dissociation• The partner’s rights to participate in the The partner’s rights to participate in the

management and conduct of the partnership management and conduct of the partnership business terminate.business terminate.

• The dissociated partner will no longer be able The dissociated partner will no longer be able to act on behalf of the partnership except to to act on behalf of the partnership except to wind up the affairs of a dissolving partnership.wind up the affairs of a dissolving partnership.

• The dissociated partner’s duty of loyalty and The dissociated partner’s duty of loyalty and duty of care continue with regard to matters duty of care continue with regard to matters arising and events occurring before the arising and events occurring before the partner’s dissociation, unless the partner partner’s dissociation, unless the partner participates in winding up the partnership’s participates in winding up the partnership’s business.business.

Effect of partner’s dissociation when Effect of partner’s dissociation when partnership continuespartnership continues• Dissociating partner has the right to have Dissociating partner has the right to have

his or her interest in the partnership his or her interest in the partnership purchased for a buyout price as set forth purchased for a buyout price as set forth in the partnership agreement or by in the partnership agreement or by statute.statute.

Statement of dissociationStatement of dissociation• Statement may be filed in states that Statement may be filed in states that

have adopted the RUPA by the have adopted the RUPA by the dissociated partner or the partnershipdissociated partner or the partnership

Events causing dissolution and Events causing dissolution and winding up of partnership businesswinding up of partnership business• §31 of the UPA§31 of the UPA• See page 94-95See page 94-95• In states that have adopted the RUPA, In states that have adopted the RUPA,

see page 95.see page 95.• Exhibit 3-8Exhibit 3-8

Dissolution agreementDissolution agreement• Notice to third partiesNotice to third parties• Winding up –process by which the accounts Winding up –process by which the accounts

of the partnership are settled and the of the partnership are settled and the assets are liquidated to make distribution assets are liquidated to make distribution of the net assets of the partnership to the of the net assets of the partnership to the partners and dissolve the partnershippartners and dissolve the partnership

• Distribution of assetsDistribution of assets UPA rules for distribution of assets (see page UPA rules for distribution of assets (see page

97)97) See Exhibit 3-9See Exhibit 3-9

Other Types of PartnershipsOther Types of Partnerships

Limited partnership –partnership Limited partnership –partnership formed by general partners and formed by general partners and limited partnerslimited partners• General partners-run the business and General partners-run the business and

have liability for all partnership debtshave liability for all partnership debts• Limited partners-partly or fully finance Limited partners-partly or fully finance

the business, take no part in running it, the business, take no part in running it, and have no liability for partnership debts and have no liability for partnership debts beyond the money they put in or promise beyond the money they put in or promise to put into put in

Limited liability partnerships-a Limited liability partnerships-a partnership in which the partners partnership in which the partners have less than full liability for the have less than full liability for the actions of other partners, but full actions of other partners, but full liability for their own actionsliability for their own actions

Joint ventures –the relationship Joint ventures –the relationship created when two or more persons created when two or more persons combine jointly in a business combine jointly in a business enterprise with the understanding enterprise with the understanding that they will share in the profits or that they will share in the profits or losses and that each will have a losses and that each will have a voice in its management. voice in its management.

The Paralegal’s RoleThe Paralegal’s Role

List of tasks can be found on page List of tasks can be found on page 100-101100-101

See Corporate paralegal profileSee Corporate paralegal profile See ethical considerationSee ethical consideration

ResourcesResources

State statutesState statutes UPA and RUPAUPA and RUPA Legal form books and partnership Legal form books and partnership

formsforms Secretaries of state officesSecretaries of state offices Federal and state tax informationFederal and state tax information