The legal relationship between two or more persons based on a written, oral, or implied agreement to carry on a trade or business for profit and share the resulting profits.
New York law is instructive. A partnership is an 'association of two or more persons to carry on as co-owners a business for profit.' N.Y. PARTNERSHIP LAW § 10 (McKinney 1988). Thus, a bona fide partner is one who owns the business, i.e., an employer.
While sharing the firm's gross receipts does not establish a partnership, id., § 11(3), sharing the firm's net profits may be prima facie evidence that one is a partner. Id., § 11(4). No such inference may be drawn, however, if the share of profits was received in payment of a debt, as employee wages, or as loan interest even though the amount of payment varied with the profits of the business. Id.
Partners are jointly liable for all partnership debts and obligations. Id., § 26. A partner contributes toward the partnership losses according to his proportionate share in the profits. Id., § 40(1).
A partner is repaid his capital contribution and shares equally in the partnership's profit after all liabilities are satisfied. Id.
A partner receives interest on his/her capital contribution only from the date when repayment should be made. Id., § 40(4).
The partnership must indemnify a partner. Id., § 40(2).
All partners have equal rights in the management and conduct of partnership business. Id., § 40(5).
No person may become a member of a partnership without the consent of all partners. Id. § 40(7).
While any difference arising as to ordinary matters connected with the partnership may be decided by a majority of the partners, no act in contravention of the agreement between the partners may be done without the consent of all partners. Id., § 40(8).
Subject to any agreement between the partners, the partnership books are kept at the principal place of the partnership's business. Id. § 41. Every partner must have access to and may inspect and copy any of the partnership records. Id. A partner has a duty to render, on demand, all information affecting the partnership. Id., § 42.
Partners owe a fiduciary duty to one another. Id., § 43. The nature of the fiduciary duty is such that each partner owes to the others the highest degree of fidelity, loyalty, and fairness in their mutual dealings. Application of Lester, 87 Misc. 2d 717, 386 N.Y.S.2d 509 (Sup. Ct. 1976). Because of this fiduciary duty, in their dealings with one another partners cannot fall back on morals of the marketplace. Auld v. Estridge, 86 Misc. 2d 895, 382 N.Y.S.2d 897 (Sup. Ct. 1976), aff'd, 58 A.D.2d 636, 395 N.Y.S.2d 969 (App. Div.), appeal denied, 43 N.Y.2d 641, 371 N.E.2d 830 (1977).
The property rights of a partner are: 1) his rights in specific partnership property; 2) his interest in the partnership; and 3) his right to participate in the management of the partnership. Id., § 50. As to specific partnership property, a partner is co-owner with his partners as a tenant in partnership. Id., § 51. A partner's interest in the partnership is his share of the profits and surplus. Id., § 52.
While N.Y. PARTNERSHIP LAW § 40 implies that certain partnership rights may be delegated by agreement, the following rights set forth in other sections are not delegable: The right to access, inspection, and copying of partnership books, id., § 41; The duty of partners to render to another partner on demand true and full information of all things relating to the partnership, id., § 42; The fiduciary duty one partner owes another, id., § 43; The right to participate in the management of the partnership, id., § 50, even though a partner may delegate his equal share of management and operations, id., § 40 (5); The right of a partner to be a co-owner of partnership property, § 51; and The right to share the profits and surplus, id., § 52.
The Uniform Partnership Act (UPA) has been adopted by most states, including New York in 1919, as the governing body of partnership law. It sets forth, among others, the following characteristics of a partner: unlimited liability (§ 15); the right to share in profits and participate in management (§ 18 (a), (e)); the right and duty to act as an agent of the other partners (§ 9); shared ownership (§ 6); and fiduciary relationship among partners (§ 21). The drafters of the UPA used the term 'co-owners' to indicate that each partner has 'the power of ultimate control.' UNIF. PARTNERSHIP ACT § 6 official cmt., U.L.A. (1969).
The concurring opinion in Hishon v. King & Spalding, 467 U.S. 69, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984), also provides some guidance as to the nature of partnership. There, Justice Powell reasoned that the relationship among partners should not be characterized as an employment relationship to which Title VII may apply: The relationship among law partners differs markedly from that between employer and employee . . . . The essence of the law partnership is the common conduct of a shared enterprise. The relationship among law partners contemplates that decisions important to the partnership normally will be made by common agreement. . . or consent among the partners. Id. at 79-80 (emphasis added). Critical to this concept of a professional partnership is the partners' authority to make decisions important to the partnership. The mere labeling of an individual as a partner does not make him so. Id. at 80, n. 2. See also EEOC v. Peat, Marwick, Mitchell & Co., 589 F. Supp. 534, 539 (E.D. Mo. 1984), aff'd, 775 F.2d 928 (8th Cir. 1985), cert. denied, 475 U.S. 1046, 89 L. Ed. 2d 572, 106 S. Ct. 1263 (1986).
A partnership is 'an association of two or more persons to carry on, as coowners, a business for profit.' The capital of a partnership is partnership property. It belongs to the partnership; not the individual partners. Roberts v. Roberts, 118 Colo. 524, 526, 198 P.2d 453, 454 (1948); People v. Zangain, 301 Ill. 299, 133 N.E. 783 (1921); In re the Estate of Johnson, 129 Ill. App.3d 22, 84 Ill. Dec. 322, 472 N.E.2d 72 (1984). Courts have interpreted the Uniform Partnership Act in different ways, some holding that a partnership is a separate legal entity, State v. Siers, 197 Neb. 51, 248 N.W.2d 1 (1976); Insurance Company of North America v. Department of Industry, Labor, and Human Relations, 45 Wisc.2d 361, 173 N.W.2d 192 (1970) (in dicta, the court stated that a joint venture in this state is not a legal entity separate from the participants in the venture as a partnership is); State v. MacGregor, 202 Minn. 579, 279 N.W. 372 (1938); In re Fulton, 43 Bankr. 273 (M.D. Tenn. 1984), while others have rejected the legal entity theory and held that a partnership is an aggregate of its partners, Patterson v. Bogan, 261 S.C. 87, 198 S.E.2d 586 (1973); Ward v. State Farmers Mutual Tornado Insurance Company of Missouri, 441 S.W.2d 1 (Mo. 1969); State v. Brown, 38 Mont. 309, 99 P. 954 (1909); see 59 Am. Jur.2d Partnership §6 (1971); 50 Am. Jur.2d Larceny §8 (1970); 82 A.L.R. 3d 822.
There is a modern trend towards treating partnerships as legal entities for some purposes. United States v. A & P Trucking Co., 358 U.S. 121, 3 L. Ed. 2d 165, 79 S. Ct. 203 (1958); Grober v. Kahn, 47 N.J. 135, 219 A.2d 601 (1966) (a partnership is a separate entity for some purposes to further a just result); Schwartzman v. Miller, 262 A.D. 635, 30 N.Y.S. 2d 882 (1941), aff'd, 288 N.Y. 568, 42 N.E.2d 22 (1942) (as a general rule, a partnership is not a separate entity, but courts may regard it as such for many purposes). A partnership is a voluntary association of two or more persons who are engaged in a business as co-owners. As defined by the Uniform Partnership Act, An association of two or more persons to carry on as co-owners, a business for profit. The business must be lawful and the partners must agree to share in the profit or loss (but not necessarily equally).
There are several elements that the courts have taken into consideration in determining the existence or non-existence of the partnership relation. The first element is that of the intention of the parties and here, of course, the agreement itself is evidential although not conclusive. Another element of partnership is the right to share in profits. However, not every agreement that gives the right to share in profits is, for all purposes, a partnership agreement. Wild v. Davenport, 48 N.J.L. 129, 132; Cornell v. Redrow, 60 N.J. Eq. 251. Therefore, this point is not conclusive. Another factor is the obligation to share in losses. The next is community of power in administration. Another element is the language in the agreement, and although the parties call themselves partners and the business a partnership, if language used excludes a party from most of the ordinary rights of a partner, there is no partnership. The conduct of the parties toward third persons is also an element to be considered. Another element is the rights of the parties on dissolution.
The Uniform Partnership Act defines a partnership as an association of 'two or more persons to carry on as co-owners a business for profit.' Sharing of profits is prima facie evidence of partnership but 'no such inference shall be drawn if such profits were received in payment as * * * wages of an employee.'
Under a general partnership, the liability of each partner is unlimited. The liability of corporate shareholders is limited to the amount of their investment. A partner cannot transfer his partnership interest giving the transferee partnership status without the consent of the remaining partners. But a partner may assign his interest in a partnership without the consent of the other partners. However, the assignee is not entitled to interfere in management or administration, inspect the books, or require any information or account of the partnership activities. A partnership is not capable of perpetual existence.
Under the common law: An agreement between two or more persons, for joining together their money, goods, labor and skill, or either or all of them, for the purpose of advancing fair trade, and of dividing the profits and losses arising from it, proportionably or otherwise, between them. Sometimes partnership signifies a moral being composed of the reunion of all the partners. As a partnership has a separate existence as a person, it becomes liable to fulfill all its engagements, and the partners are individually bound and responsible only on its default, as sureties.
- §1. In respect to their character and extent, as they regard property, partnerships maybe divided into three classes, namely: universal partnerships; general partnerships; and limited or special partnerships. 1. A universal partnership is one where the parties agree to bring into the firm all their property, real, personal and mixed, and to employ all their skill, labor, and services, in the trade, or business, for their common benefit. This, kind of partnership is perhaps unknown in the United States. - 2. General partnerships are properly such, where the parties carry on all their trade and business for their joint benefit and profit; and it is not material whether the capital stock be limited or not, or the contributions of the partners be equal or unequal. The game appellation is given to a partnership where the parties are engaged in one branch of trade only. - 3. Special partnerships, are those formed for a special or particular branch of business, as contra-distinguished from the general business or employment of the parties, or of one of them. When they extend to a single transaction or adventure only, such as the purchase and sale of a particular parcel of goods, they are more commonly called limited partnerships. The appellation is however given to both classes of cases indiscriminately.
- §2. When considered in relation to the number and character of the parties, partnerships are divided into private partnerships and public companies. 1. Private partnerships are those which consist of two or more partners for some private undertaking, trade, or business. 2. Public companies are those where a greater number of persons are concerned, and the stock is divided into a considerable number of shares, the object embracing generally public as well as private interests. This term is, however, perhaps loosely applied, as these companies have for the most part the character of private associations. They are either incorporated or not. The incorporated are to be governed by the rules established in their respective charters. The unincorporated are in general subject, to all the regulations of a common private partnership.
- §3. In the French law, partnerships are divided into three kinds, namely: 1. Partnerships under a collective name, that is, where the name of the firm contains the names of all or some of the partners. - 2. Partnerships en commandite or in commendam; these are limited partnerships, where one or more persons are general partners, and are jointly and severally responsible with all their estates, and one or, more other persons who furnish a part or the whole of the capital, who are liable only to the extent of the capital they have furnished. The business is carried on in, the name of the general partners. This species of partnership, with some modifications, has been adopted in several of the states of the American union. - 3. Anonymous partnerships are those in which all the partners are engaged in the business, there is no social name or firm, but a name designating the object of the association. The business is managed by syndics or directors.
- §4. Partnerships are created by mere act of the parties; and in this they differ from, corporations which require the sanction of public authority, either express or implied. The consent of the parties may be testified, either in express terms, as by articles of partnership, or positive agreement; or the assent may be tacit, and to be implied solely from the act of the parties. An implied or presumptive assent has equal operation with one that is express and determined. And it may be laid down as a general and undeniable proposition, that persons having a mutual interest in the profits and loss of any business, or particular branch of business, carried on by them, or persons appearing ostensibly to the world as joint traders, are to be recognized and treated as partners, whatever may be the nature of the agreement under which they act, or whatever motive or inducement may prompt them to such an exhibition. A community of property does not of itself create a partnership, however that property may be acquired, whether by purchase, donation, accession, inheritance or prescription. Hence joint tenants or tenants in common of lands, goods, or chattels, under devises or bequests in last wills or testaments, and deeds or donations inter vivos, and inheritances or successions, are not partners. Joint owners of ships are not, in consequence of such ownership, to be considered as partners. The free and personal choice of the contracting parties is so essentially necessary to the constituting of a partnership, that even executors and representatives of deceased partners do not, in their representative capacity, succeed to the state and condition of partners although a community of interest necessarily exists between them and the surviving partners, until the affairs of the partnership are wound up. When there is a positive agreement at the commencement of the partnership, that the personal representative or heir of a partner shall succeed him in the partnership, the obligation will be considered valid.
- §5. The object of the partnership must be legal. All partnerships, therefore, which are formed for any purpose forbidden by law or good morals, are null and void. But all the partners in such a partnership are jointly liable to third persons who may contract with them without a knowledge of the illegal or immoral object of the partnership. Partnerships are not confined to mere commercial trade or business; but generally extend to, manufactures and, to all other lawful occupations and employments, or to professional or other business. They may extend to all the business of the parties; to a single branch of such business; to a single adventure; or to a single thing. But there cannot lawfully be a partnership in a mere, personal office, especially when it is of a public nature, requiring the personal confidence in the skill and integrity of the officer.
- §6. Partnerships may be formed to last for life, or for a specific period of time; they may be conditional or indefinite in their duration, or for a single adventure or dealing; this depends altogether on the will of the parties. The period of duration is either expressed or implied, but the law will not presume that it shall last beyond life. When a particular term is fixed, it is presumed to endure until the period has elapsed; when no term is fixed, it is presumed to endure for the life of the parties, unless previously dissolved, by the acts of one of them, by mutual consent, or by operation of law. When no time is limited for the duration of a general trading partnership, it is a partnership at will, and may be dissolved at any time at the pleasure of any one or more of the partners.
- §7. A partnership may be dissolved in several ways: when the partnership is formed for a single dealing or transaction, it follows that it is at an end so soon as the dealing or transaction in which the partners jointly engaged is completed. Where a general partnership is formed, either for a definite, or an indefinite period of time, the causes which may operate a destruction of it, are various. In the case of a partnership limited as to its duration, it may, in the intermediate time, before the restricted period of its termination arrives, be dissolved either by the death, the confirmed insanity, the bankruptcy of all or one of the partners, or it may endure the stipulated period, and expire with the passage of time; but where the partnership is unlimited as to its existence, although in the instances of death or bankruptcy, it is determined, yet if they do not intervene, any partner may withdraw himself from it whenever he thinks proper. Besides the causes above stated for a dissolution, a partnership, limited or unlimited as to its duration, may be dissolved by the decree of a court of equity, where the conduct of some or all of the partners has been such as not to carry on the trade or undertaking on the terms stipulated or by the involuntary or compulsory, sale or transfer of the partnership interest of any one of the partners. In New York, it has been held that there is no such thing as an indissoluble partnership, and that, therefore, any partner may withdraw at any time; and by that act the partnership will be solved; the other party having his action against the withdrawing partner upon his covenant to continue the partnership. This doctrine is not in accordance with the English law. It may also be dissolved by the extinction of the thing or object of the partnership; or by the agreement of the parties. The effect of the dissolution of the partnership is to disable any one of the partners from contracting new obligations or engagements on account of the firm. But notwithstanding the dissolution there remain, with each of the partners, certain powers, rights, duties, authorities, and relations between them, which are indispensable to the complete arrangement and final settlement of the affairs of the firm.
The partnership must, therefore, subsist for many purposes, notwithstanding the dissolution. Among these are, 1st. The completion of all the unperformed engagements of the partnership. 2d. The conversion of all the property, means and assets of the partnership, existing at the time of the dissolution, for the benefit of those who, were partners, according to their respective shares. 3d. The application of the partnership funds, to, the liquidation of the partnership debts. By the laws of Louisiana, partnerships are divided, as to their object, into commercial partnerships and ordinary partnerships.
Commercial partnerships are such as are formed, 1. For the purchase of any personal property, and the sale thereof, either in the same state or changed by manufacture. 2. For buying and selling any personal property whatsoever, as factors or brokers. 3. For carrying personal property for hire, in ships or other vessels. Ordinary partnerships are, such as are not commercial; they are divided into universal or particular partnerships. Universal partnership is a contract by which the parties agree to make a common stock of all the property they respectively possess; they may extend it to all the property real and personal, or restrict it to personal only; they may, as, in other partnerships, agree that the property itself shall be common stock, or that the fruits only shall be such; but property which may accrue to one of the parties, after entering into the partnership, by donation, succession, or legacy, does not become common stock, and any stipulation to that effect, previous to the obtaining the property aforesaid, is void. Particular partnerships are such as are formed for any business not of a commercial nature. The business of this partnership must be conducted in the name of all the persons concerned, unless a firm is adopted by the articles of partnership reduced to writing, and recorded as is prescribed with respect to partnerships in commendam.
There is also a species of partnership which may be incorporated with either of the other kinds, called partnership in commendam, or limited partnership. Partnership in commendam is formed by a contract, by which one person or partnership agrees to furnish another person or partnership a certain amount, either in property or money, to be employed by the person or partnership whom it is furnished, in his or their own name or firm, on condition of receiving a share in the profits, in the proportion determined by the contract, and of being liable to losses and expenses to the amount furnished, and no more. Every species of partnership may receive such partners. It is therefore a modification of which the several kinds of partnerships are susceptible, rather than a separate division of partnerships.
- n. The state or condition of being a partner; as, to be in partnership with another; to have partnership in the fortunes of a family or a state. A division or sharing among partners; joint possession or interest. An alliance or association of persons for the prosecution of an undertaking or a business on joint account; a company; a firm; a house; as, to form a partnership.
- (Law) A contract between two or more competent persons for joining together their money, goods, labor, and skill, or any or all of them, under an understanding that there shall be a communion of profit between them, and for the purpose of carrying on a legal trade, business, or adventure. Community of profit is absolutely essential to, though not necessary the test of, a partnership. (Arith.) See Fellowship, n.
- Limited partnership, a form of partnership in which the firm consists of one or more general partners, jointly and severally responsible as ordinary partners, and one or more special partners, who are not liable for the debts of the partnership beyond the amount of cash they contribute as capital.
- Partnership in commendam, the title given to the limited partnership (F. société en commandité) of the French law, introduced into the code of Louisiana.
- Silent partnership, the relation of partnership sustained by a person who furnishes capital only.
The common law rule in the District of Columbia is that a partnership cannot sue or be sued as a separate entity. See: Mayflower Hotel Stockholders v. Mayflower Hotel Corp., 73 F. Supp. 721 (D.D.C.1947), rev'd on other grounds, 84 U.S.App.D.C. 275, 173 F.2d 416 (1949); Fennell v. Bache, 74 App.D.C. 247, 123 F.2d 905 (1941); Matson v. Mackubin, 61 App.D.C. 102, 57 F.2d 941 (1932); National Ass'n for Community Development v. Hodgson, 356 F. Supp. 1399, 1402 (D.D.C.1973).