granting these charters, and soon the courts were filled with legal issues concerning this new type of private business entity. The Massachusetts Supreme Judicial Court, under the influe nce of Parsons, assumed an activist role in defining the rights and responsi- bilities of corporations. In a series of decisions between 1806 and 1810, the court announced several basic principles. It recognized that a corporation was a private arrangement, clo ser to a contract than to a municipal government corporation. The court held that a corporation has a duty to be fair to its shareholders and that the shareholders have limite d liability for the debts and obligations of the corporation. The court also ruled that a corporation could be sued in TORT. All of these decisions became part of U.S. corporate law in the nineteenth century. Parsons was a Renaissance man. He studied mathematics and theoretical astronomy and was the author of many scientific studies. He died October 13, 1813, in Boston, Massachusetts. FURTHER READINGS Michigan Historical Reprint Series. 2005. Memoir of Theophilus Parsons, Chief Justice of the Supreme Judicial Court of Massachusetts. Ann Arbor, MI: Scholarly Publishing Office, Univ. of Michigan Library. Osgood, Russell K., ed. 1992. The History of the Law in Massachusetts: The Supreme Judicial Court 1692–1992. Boston: Supreme Judicial Court Historical Society. Parsons, Theophilus. 1856. Essays by Theophilus Parsons (Second Series). Boston: William Carter. CROSS REFERENCE Massachusetts Constitution of 1780. PARTICULAR AVERAGE LOSS In maritime law, damage sustained by a ship, cargo, or freight that is not recompensed by contribution from all interests in the venture but must be borne by the owner of the damaged property. Particular average loss is the opposite of GENERAL AVERAGE LOSS, which denotes contribution by the various interests engaged in a maritime undertaking to recoup the loss of one of them for the voluntary sacrifice of a portion of the ship or cargo in order to save the remaining property and the lives of those on board, or for extraordinary expenses necessarily incurred for the common benefit and safety of all. CROSS REFERENCE Admiralty and Maritime Law. PARTICULARS The details of a claim, or the separate items of an account. When these are detailed in an orderly form for the purpose of informing a defendant, the statement is called a bill of particulars. PARTIES The persons who are directly involved or interested in any act, affair, contract, transaction, or legal proceeding; opposing litigants. Persons who enter into a contract or other transactions are considered parties to the agreement. When a dispute results in litigation, the litigants are called parties to the lawsuit. U.S. law has developed principles that govern the rights and duties of parties. In addition, principles such as the standing doctrine deter- mine whether a person is a rightful party to a lawsuit. Also, additional parties may be added to legal proceedings once litigat ion has begun. Parties in Lawsuits In court proceedings, the parties have common designations. In a civil lawsuit, the person who files the lawsuit is called the plaintiff, and the person being sued is called the defendant. In criminal proceedings, one party is the govern- ment, called the state, commonwealth, or the people of the United States, and the other party is the defendant. If a case is appealed, the person who files the appeal is called the appellant, and the other side is called either the respondent or the appellee. Numerous variations on these basic designations exist, depending on the court and its jurisdiction. Assigning party designa- tions allows the legal system and its observers to quickly determine the basic status of each party to a lawsuit. Parties as Adversaries The U.S. legal system is based on the adversarial process, which requires parties to a legal proceeding to contend against each other. From this contest of competing interests, the issues are presented to the court and fully argued. In the end, one of the parties will obtain a favorable result. For the adversary process to fulfill its mission of producing justice, it is vital that the issues at stake be argued by persons who have a genuine interest in them. Under the old rules of COMMON-LAW PLEADING, which used to regulate GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION 418 PARTICULAR AVERAGE LOSS who could bring a lawsuit, only a person who actually held title to disputed property could be a party in a lawsuit concerning the property. This technicality sometimes prevented a person who had the most to gain or lose on the issue from becoming a party and presenting his or her case. This rule has now been replaced by laws requiring every action to be prosecuted by the real party in interest. This is most important when one person is managing an asset for the benefit of another. For example, admini strators of a deceased person’s estat e can sue to protect the estate’s interests without having to join the beneficiaries of the estate as parties. This modern rule sharpens the issues so that the decision in a case puts a controversy to rest for all the parties involved. The U.S. Supreme Court has develop ed the standing doctrine to determine whether the litigants in a federal civil proceeding are the appropriate parties to raise the legal questions in the case. The Court has developed an elaborate body of principles defining the nature and contours of standing. In general, to have standing a party must have a personal stake in the outcome of the case. A plaintiff must have suffered some direct and substantial injury or be likely to suffer such an injury if a particular wrong is not redressed. A defendant must be the party responsible for perpetrating the alleged legal wrong. A person has standing to challenge a law or policy on constitutional grounds if he can show that the enforcement of the law or implemen- tation of the policy infringes on an individual constitutional right. On the other hand, in most cases a taxpayer does not have standing to challenge policies or programs he is forced to financially support. Legal Entities that Can Be Parties Only an actual legal entity may initiate a lawsuit. A natural person is a legal entity, for example, and any number of people can be parties on either side of a lawsuit. A corporation is endowed by its charter with existence as a separate legal entity. A business partnership is usually not considered a legal entity, but generally it can sue or be sued in the partnership name or in the names of the individual partners. Many states permit lawsuits under a com- mon name. This arrangement allows a business to be sued in the commonly used business name if it is clear who the owner or owners are. A lawsuit against Family Dry Cleaners, for exam- ple, may entitle the plaintiff to collect a judgment out of the value of the business property. The plaintiff will not be able to touch property that belongs to the owner or owners personally, however, unless they have also been named defendants in the action. When a group of persons wishes to start a lawsuit, the group has several options. If, for example, a group of residential property owners wants to contest the construction of a toxic waste disposal site in its community, it can file a lawsuit listing each property owner as a plaintiff. The group could also select an association name that the court accepts (Citizens Against Toxic Waste) to represent those individuals. A more expensive alternative would be to incorporate the group and file the suit under the corpora- tion’s name. The CLASS ACTION provides another option for bringing parties into a large-scale civil lawsuit. In a class action lawsuit, thousands and even millions of persons can be parties. To obtain a class action designation, the plaintiffs must convince the court that many persons possess similar interests in the subject matter of the lawsuit and that the plaintiffs can act on the group’s behalf without specifically identifying every individual member of the group as a party to the litigation. The class action lawsuit can be an economical method of resolving civil claims that involve large numbers of persons with common interests, especially when the amount of each individual claim is too small to warrant independent legal actions by the clai mants. The Capacity to Sue or Be Sued A person must have the requisite legal capacity to be a party to a la wsuit. Some people are considered non sui juris: they do not possess full civil and social rights under the law. A child is non sui juris because the law seeks to protect the child from his or her improvidence until the child reaches the age of majority. A child who has not reached the age of majority has a legal disability. Others who suffer a similar legal disability include mentally ill persons, mentally retarded persons, and persons w ho are judged mentally incompetent because of illness, age, or infirmity. Legal disability does not mean, however, that persons in these categories are removed from civil actions. The claims or defenses of a person who is non sui juris usually GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION PARTIES 419 can be asserted by a legal representative, such as a parent, guardian, trustee, or executor. Prisoners also have limited righ ts as parties to civil actions. They can appeal their convic- tions and bring HABEAS CORPUS petitions to challenge the validity of their incarceration. They can file prisoners’ rights cases for a violation of their federally protected CIVIL RIGHTS. Some states permit prisoners to defend them- selves in an action that threatens them with FORFEITURE of their property, but most states will not permit prisoners to start a civil law suit against any other party during the period of incarceration. Convicted felons or prisoners given life sentences may suffer what is called civil death, a total loss of rights, including the right to be a party in a lawsuit. Joinder of Additional Parties Usually a plaintiff decides when, where, and whom she or he wants to sue. In some cases a plaintiff may wish to join, or add, other parties after the start of the lawsuit. Proper parties and necessary or indispensable parties may be added while the action is pending. A proper party is anyone who may be a party in the lawsuit. The JOINDER, or addition, of a proper party in a pending lawsuit is entirely permissible. The court may allow the joinder of an additional party, but the lawsuit does not have to be dismissed if it does not. In some states anyone who has an intere st in the subject of the controversy is a proper party in the lawsuit. Some courts encourage joinder of everyone who could be affected by the decision. Under modern rules of procedure in many states and the federal courts , joinder is not encouraged to the point where a lawsuit becomes unwieldy or cluttered with unrelated parties and claims. Generally, joinder is ap- proved where the claims of the persons sought to be joined arose out of the same transaction or event as the claims of the existing parties, so that all the claims may be settled by answering the same QUESTIONS OF LAW or fact. The decision to join additional parties is within the discretion of the court. Courts are careful not to exclude parties with an interest in a lawsuit because a failure to join those parties might lead to a series of lawsuits with inconsistent verdicts. That could ultimately leave a deserving plaintiff without a remedy or force a defendant to pay a certain claim more than once. Whether a person is potentially necessary or indispensable to an action depends on the character and extent of that person’s interest in the subject of the lawsuit. It is fair and equitable to require any person who has an interest that can be affected by the lawsuit to be joined as a party. A person whose interest may be affected by the outcome of the case is considered necessary, and such a person should be joined if possible. A person whose interest is sure to be affected by the outcome of the lawsuit is considered an indispensable party, and the case cannot proceed without this person. The case must be dismissed, for example, if a person cannot be joined because he or she is beyond the jurisdiction of the court. In deciding whether a person should be a party to a lawsuit, the courts carefully weigh the consequences of proceeding without the person and seek a remedy that will give relief to those who are actual parties without doing great harm to a necessary or indispensable party who is missing. Federal courts abandoned this analysis and terminology relating to necessary and indis- pensable parties in 1966. The Federal Rules of Civil Procedure focus on factors affecting the overall balance of fairness to the parties and potential parties involved rather than on categories of parties. Once a federal court determines that someone absent from the proceedings has an interest that can be affected by the case, the court must order that person to be joined as a party if it is practical to do so. If not, the court must weigh the competing interests of the plaintiff who would like to keep the case in federa l court, the defendant who might be exposed to multiple lawsuits on the same issue, and the absent person whose rights may be lost if he or she does not become a party. The court must also consider how best to avoid wasting judicial time and resources and whether the case before it is the most efficient way to resolve the controversy. Impleader A defendant who feels that the plain tiff in a lawsuit should have sued someone else on the claim can bring that other person into the case. The procedure for doing this is called IMPLEADER, and the additional party is called a third-party defendant. The original defendant who impleads a third-party defendant is called a third-party plaintiff, but he or she continues to be a defendant in relation to the plaintiff. GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION 420 PARTIES For example, a restaurant patron who becomes ill after eating a ham dinner can sue the restaurant. The patron is the plaintiff, and the restaurant is the defendant. The restaurant may want to implead the meat-packing company that furnished the ham, if it believes that the meat was tainted before it was delivered to the restaurant. The restaurant cannot avoid being a defendant, but it can cover itself by impleading the meat packer and making that company a third-party defendant. If a jury finds that the ham was bad and that the patron is entitled to $10,000 damages, then the restaurant has an opportunity to show that its employees were not careless in preparing or serving the meat and that the restaurant should not be liable for the damages. The decision to allow impleading of a third party is within the discretion of the court. The court also decides whether the third-party defendant may file claims against any of the other parties or whether the other parties may make additional claims against the third-party defendant. Permitting all parties to put forward all their claims in one action promotes effi- cient use of the courts, but a court will not permit additional parties or claims to compli- cate proceedings, delay resolution of the main controversy, or confuse a jury. Intervention A person can volunteer to become a party in a lawsuit by a procedure called intervention. A person might wish to intervene in a lawsuit if he or she has an interest that will be affected by the outcome of the case and the person believes that this interest will not be adequately protected by the other parties. A court decides whether to permit an intervening party by BALANCING the interests of the person seeking to intervene with the additional burden imposed on the existing parties if the person is allowed to enter the lawsuit. The court considers whether the inter- venor is raising the same issues already present in the case or whether the intervenor is seeking to inject new controversies into the case. The inter- venor must demonstrate some practical effect of the outcome of the case on his or her rights or property. If a person is not allowed to intervene, the person is not bound by the judgment given in the case. An intervenor must make the request to intervene in a motion to the court. Timing is important. If the case has already progressed beyond the preliminary stages, the court is likely to find that the intervenor’s intrusion would prejudice the rights of the existing parties, which would be grounds for the court to deny the motion. FURTHER READINGS Cohen, Alan G., et al, eds. 1992. The Living Law: A Guide to Modern Legal Research. Rochester, N.Y.: Lawyers Cooperative. Kraut, Jayson, et al. 1983. American Jurisprudence. Roche- ster, N.Y.: Lawyers Cooperative. CROSS REFERENCE Adversary System. PARTITION Partition is any division of real property or PERSONAL PROPERTY between co-owners, resulting in individual ownership of the interests of each. The co-ownership of real and PERSONAL PROPERTY can have many benefits to the parties. But when there is discord and the owners cannot agree on the use, improvement, or disposition of the property, all states have laws that permit the remedy of partition. Most cases of partition involve real prop- erty. Persons can own property as tenants in common or joint tenants. As common owners of the property, they have equal rights in the use and enjoyment of the property. Parti tion statutes allow those who own property in common to sever their interests and take their individual share of the property. Partition may be either voluntary or com- pulsory. Voluntary partition occurs when the cotenants (owners) divide the property them- selves, usually by exchanging individual deeds. Each co-owner owns a part of the property and ceases to have an undivided interes t in the whole. When property is divided among co- owners, the process is known as partition in kind. The parties can also provide for the sale of the property and divide the proceeds among themselves. When the co-owners cannot agree on the value of the property and their rightful shares, they may select a disinterested third person, such as an arbitrator or an appraiser, to divide the property and to allot the shares. This type of partition is known as partition by allotment.A voluntary partition by all the co-owners is legally effective unless there is a contractual GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION PARTITION 421 challenge to its recognition. These challenges include allegations of FRAUD or unconscionabil- ity, or the allegation that the parties are seeking to DEFRAUD a THIRD PARTY by agreeing to the partition. When the co-owners cannot agree to a voluntary partition, a lawsuit to compel parti- tion can be filed to sever property interests. Unless there are exceptional circumstances, a tenant in common or a joint tenant has the absolute right to seek a compulsory partition. Partition must be made even if every other owner objects to it. The motives of the party seeking partition are irrelevant, and the court that hears the lawsuit has no discretion to deny partition. Its main function is to determine the method of executing the partition. Commonly the court will order the property sold and the proceeds divided, instead of ordering a physical partition of the property. Such as sale is known as partition by sale. If the title to the property is put into issue, most states permit the court to resolve this issue as well as the partition. Both real and personal property can be subject to co mpulsory partition. Real property that can be subject to partition includes a building, a story of a building, the land on which a building rests, or the surface of land where there is an oil or gas lease. Similarly, personal property can be sub- jected to compulsory partition. The fact that the property is owned in unequal shares does not affect the partition. The right has been enforced with respect to a cashier’s check payable jointly to those who share a TENANCY IN COMMON, promissory notes, shares of stock in a corpora- tion, and stocks of merchandise. FURTHER READINGS Burke, Barlow, and Joseph Snoe. 2008. Property: Examples and Explanations. 3d ed. New York: Aspen. Thomas, David A., ed. 1998. Thompson on Real Property. Charlottesville, Va.: LEXIS. CROSS REFERENCE Joint Tenancy. PARTNERSHIP An association of two or more persons engaged in a business enterprise in which the profits and losses are shared proportionally. The legal definition of a partnership is generally stated as “an association of two or more persons to carry on as co-owners a business for profit” (Revised Uniform Partners hip Act § 101 [1994]). Early En glish mercantile courts recognized a b usiness form known as the societas. The societas provided for an accounting between its business partners, an agency relationship between partners in which individual partners could legally bind the p artnership, and indi- vidual partner liability for the partnership’s debts and obligations. As the regular English courts gradually recognized the societas, the business form eventually developed into the common-law partnership. England e nacted its Partnership Act in 1890, and legal experts in the United States d rafted a Uniform Partner- ship Act ( UPA) in 1914. Every state has adopted some form of the UPA as its partner- ship statute; some states have made revisions to the UPA or have adopted the Revised Uniform Partnership Act (RUPA), which legal scholars issued in 1994. The authors of the initial UPA debated whether in theory a partnership should be treated as an aggregate of individual partners or as a corporate-like entity sep arate from its partners. The UPA generally opted for the aggregate theory in which individual partners (an association) comprised the partnership. Under an aggregate theory, partners are co- owners of the business; the partnership is not a distinct legal entity. This led to the creation of a new property interest known as a “tenancy in partnership,” a legal construct by which each partner co-owned partnership property. An aggregate approach nevertheless led to confu- sion as to whether a partnership could be sued or whether it could sue on its own behalf. Some courts took a technical approach to the aggre- gate theory and did not allow a partnership to sue on its own behalf. In addition, some courts would not allow a suit to go forward against a partnership unless the claimant named each partner in the complaint or added each partner as an “indispensable party.” RUPA generally adopted the entity ap- proach, which treats the partnership as a separate legal entity that may own property and sue on its own behalf. RUPA nevertheless treats the partnership in some instances as an aggregate of co-owners; for example, it retains the joint liability of partners for partnership obligations. As a practical matter the present- day partnership has both aggregate and entity GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION 422 PARTNERSHIP This PARTNERSHIP AGREEMENT is made on the ______________ day of _______________________________ , 20 ________ between ______________________________________________________________________________________________ , whose address is __________________________________________________________________________________________________________ and ______________________________________________________________________________________________ , whose address is _______________________________________________________________________________________________. NAME AND BUSINESS. The parties hereby form a partnership under the name of ___________________________________________ to conduct the business of ________________________________________________________________________________________________ . The principal office of the business shall be at _________________________________________________________________________ __________________________________________________________. TERM. The partnership shall begin on the _________ day of __________________________________, 20________ , and shall continue until terminated as herein provided. CAPITAL. The capital of the partnership shall be contributed in cash by the partners as follows: A separate capital account shall be maintained for each partner. Neither partner shall withdraw any part of his capital account. Upon the demand of either partner, the capital accounts of the partners shall be maintained at all times in the proportions in which the partners share in the profits and losses of the partnership. PROFIT AND LOSS. The net profits of the partnership shall be divided equally between the partners and the net losses shall be borne equally by them. A separate income account shall be maintained for each partner. Partnership profits and losses shall be charged or credited to the separate income account of each partner. If a partner has no credit balance in his income account, losses shall be charged to his capital account. SALARIES AND DRAWINGS. Neither partner shall receive any salary for services rendered to the partnership. Each partner may, from time to time, withdraw the credit balance in his income account. INTEREST. No interest shall be paid on the initial contributions to the capital of the partnership or on any subsequent contributions of capital. MANAGEMENT DUTIES AND RESTRICTIONS. The partners shall have equal rights in the management of the partnership business, and each partner shall devote his entire time to the conduct of the business. Without the consent of the other partner neither partner shall on behalf of the partnership borrow or lend money, or make, deliver, or accept any commercial paper, or execute any mortgage, security agreement, bond, or lease, or purchase or contract to purchase, or sell or contract to sell any property for or of the partnership other than the type of property bought and sold in the regular course of its business. BANKING. All fund s of the partnership shall be deposited in its name in such checking account or accounts as shall be designated by the partners. All withdrawals therefrom are to be made upon checks signed by either partner. BOOKS. The partnership books shall be maintained at the principal office of the partnership, and each partner shall at all times have access thereto. The books shall be kept on a fiscal year basis, commencing on the __________ day of ________________________________________ and ending on the __________ day of ________________________________________, and shall be closed and balanced at the end of each fiscal year. An audit shall be made as of the closing date. VOLUNTARY TERMINATION. The partners hip may be dissolved at any time by agreement of the partners, in which event the partners shall proceed with reasonable promptness to liquidate the business of the partnership. The partnership name shall be sold with the other assets of the business. The assets of the partnership business shall be used and distributed in the following order: (a) to pay or provide for the payment of all partnership liabilities and liquidating expenses and obligations; (b) to equalize the income accounts of the partners; Partnership Agreement [ continued ] A sample partnership agreement. GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION PARTNERSHIP 423 attributes. The partnership, for instance, is considered an association of co-owners for tax purposes, and each co-owner is taxed on his or her proportional share of the partnership profits. As of 2009, 37 states and territories had adopted RUPA. Two other states—South Dakota and Texas—had adopted statutes sub- stantially similar to RUPA. The most recent states to adopt the uniform act were Kentucky and Maine in 2006. Formation The formation of a partnership requires a vol- untary “association” of persons who “co-own” the business and intend to conduct the business for profit. Persons can form a partnership by written or oral agreement, and a partnership agreement often governs the partners’ relations to each other and to the partnership. The term person generally includes individuals, cor- porations, and other partnerships and business associations. Accordingly, some partnerships may A sample partnership agreement (continued). ILLUSTRATION BY GGS CREATIVE RESOURCES. REPRODUCED BY PERMISSION OF GALE, A PART OF CENGAGE LEARNING. Partnership Agreement (c) to discharge the balance of the income accounts of the partners; (d) to equalize the capital accounts of the partners; and (e) to discharge the balance of the capital accounts of the partners. DEATH. Upon the death of either partner, the surviving partner shall have the right either to purchase the interest of the decedent in the partnership or to terminate and liquidate the partnership business. If the surviving partner elects to purchase the decedent's interest, he shall serve notice in writing of such election, within three months after the death of the decedent, upon the executor or administrator of the decedent, or, if at the time of such election no legal representative has been appointed, upon any one of the known legal heirs of the decedent at the last-known address of such heir. If the surviving partner elects to purchase the interest of the decedent in the partnership, the purchase price s hall be equal to the decedent's capital account as at the date of his death plus the decedent's income account as at the end of the prior fiscal year, increased by his share of partnership profits or decreased by his share of partnership losses for the period from the beginning of the fiscal year in which his death occurred until the end of the calendar month in which his death occurred, and decreased by withdrawals charged to his income account during such period. No allowance shall be made for goodwill, trade name, patents, or other intangible assets, except as those assets have been reflected on the partnership books immediately prior to the decedent's death; but the survivor shall nevertheless be entitled to use the trade name of the partnership. Except as herein otherwise stated, the procedure as to liquidation and distribution of the assets of the partnership business shall be the same as stated in the section regarding VOLUNTARY TERMINATION. ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or the breach hereof, shall be settled by arbitration in accordance with the rules, then obtaining, of the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof. In witness whereof the parties have signed this Agreement. Executed this ______ day of ______________________ , 20______. _______________________________________________________ Signature _______________________________________________________ Signature Warning: These forms are provided AS IS. They may not be any good. Even if they are good in one jurisdiction, they may not work in another. And the facts of your situation may make these forms inappropriate for you. They are for informational purposes only, and you should consult an attorney before using them. GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION 424 PARTNERSHIP contain individuals as well as large corporations. Family members may form and operate a partnership, but courts generally look closely at the structure of a family business before recog- nizing it as a partnership for the benefit of the firm’screditors. Certain conduct may lead to the creation of an implied partnership. Generally, if a person receives a portion of the profits from a business enterprise, the receipt of the profits is evidence of a partnership. If, however, a person receives a share of profits as repayment of a debt, wages, rent, or an ANNUITY, such transactions are considered “protected relationships” and do not lead to a legal inference that a partnership exists. Relationship of Partners to Each Other Each partn er has a right to share in the profits of the partnership. Unless the partnership agreement states otherwise, partners share profits equally. Moreover, partners must con- tribute equally to partnership losses unless a partnership agreement provides for another arrangement. In some jurisdictions a partner is entitled to the return of her or his capital contributions. In jurisdictions that have adopted RUPA, the partner is not entitled to such a return. In addition to sharing in the profits, each partner also has a right to participate equally in the management of the partnership. In many partnerships a majority vote resolves disputes relating to management of the partnership. Nevertheless, some decisions, such as admitting a new partner or expelling a partner, require the partners’ unanimous consent. Each partner owes a FIDUCIARY duty to the partnership and to copartners. This duty requires that a partner deal with copartners in GOOD FAITH, and it requires a partner to account to copartners for any benefit that he or she receives while engaged in partnership business. If a partner generates profits for the partnership, for example, that partner must hold the profits as a trustee for the partnership. Each partner also has a duty of loyalty to the partnership. Unless copartners consent, a partner’s duty of loyalty restricts the partner from using partner- ship property for personal benefit and restricts the partner from competing with the partner- ship, engaging in SELF-DEALING, or usurping partnership opportunities. Relationship of Partners to Third Persons A partner is an agent of the partnership. When a partner has the apparent or actual authority and acts on behalf of the business, the partner binds the partnership and each of the partners for the resulting obligations. Similarly, a partner’sad- mission concerning the partnership’s affairs is considered an admission of the partnership. A partner may only bind the partnership if the partner has the authority to do so and undertakes transactions while conducting the usual partner- ship business. If a third person knows that the partner is not authorized to act on behalf of the partnership, the partnership is generally not liable for the partner’s unauthorized acts. Moreover, a partnership is not responsible for a partner’s wrongful acts or omissions committed after the DISSOLUTION of the partnership or after the dissociation of the partner. A partner who is new to the partnership is not liable for the obligations of the partnership that occurred prior to the partner’s admission. Liability Generally, each partner is jointly liable with the partnership for the obligations of the partner- ship. In many states each partner is jointly and severally liable for the wrongful acts or omis- sions of a copartner. Although a partner may be sued individually for all the damages associated with a wrongful act, partnership agreements generally provide for indemnification of the partner for the portion of damag es in excess of her or his own proportional share. Some states that have adopted RUPA provide that a partner is jointly and severally liable for the debts and obligations of the partnership. Never- theless, before a partnership’s creditor can levy a judgment against an individual partner, certain conditions must be met, including the return of an unsatisfied writ of execution against the partnership. A partner may also agree that the creditor need not exhaust partnership assets before proceeding to collect against that partner. Finally, a court may allow a partnership creditor to proceed against an individual partner in an attempt to satisfy the partnership’s obligations. Partnership Property A partner may contribute PERSONAL PROPERTY to the partnership, but the contributed property becomes partnership property unless some other arrangement has been negotiated. Similarly, if GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION PARTNERSHIP 425 the partnership purchases property with partner- ship assets, such property is presumed to be partnership property and is held in the partner- ship’s name. The partnership may convey or transfer the property but only in the name of the partnership. Without the consent of all the partners, individual partners may not sell or assign partnership property. In some jurisdictions the partnership prop- erty is considered personal property that each partner owns as a “tenant in partnership,” but other jurisdictions expressly state that the partnership may own property. The tenant in partnership concept, which is the approach contained in the UPA, is the result of adopting an aggregate approach to partnerships. Because the aggregate theory is that the partnership is not a separate entity, it was thought that the partnership could not own property but that the individual partners must actually own it. This approach has led to considerable confusion, and RUPA has expressly stated that the partnership may own partnership property. Partnership Interests A partner’s interest in a partnership is consid- ered personal property that may be assigned to other persons. If assigned, the person receiving the assigned interest does not become a partner. Rather, the assignee only receives the economic rights of the partner, such as the right to receive partnership profits. In addition, an assignment of the partner’s interest does not give the assignee any right to participate in the manage- ment of the partnership. Such a right is a separate interest and remains with the partner. Partnership Books Generally, a partnership maintains separate books of account, which typically include records of the partnership’s financial transactions and each partner’s capital contributions. The books must be kept at the partnership’s principal place of business, and each partner must have access to the books and be allowed to inspect and copy them upon demand. If a partnership denies a partner access to the books, he or she usually has a right to obtain an INJUNCTION from a court to compel the partnership to allow him or her to inspect and copy the books. Partnership Accounting Under certain circumstances a partner has a right to demand an accounting of the partnership’s affairs. The partnership agreement, if any, usually sets forth a partner’s right to a pre-dissolution accounting. State law also generally allows for an accounting if copartners exclude a partner from the partnership business or if copartners wrong- fully possess partnership property. In a court action for an accounting, the partners must provide a report of the partnership business and detail any transactions dealing with partnership property. In addition, the partners who bring a court action for an accounting may examine whether any partners have breached their duties to copartners or the partnership. Taxation One of the primary reasons to form a partner- ship is to obtain its favorable tax treatment. Because partnerships are generally considered an association of co-owners, each of the partners is taxed on her or his proportional share of partnership profits. Such taxation is considered “pass-through” taxation in which only the individual partners are taxed. Although a partnership is required to file annual tax returns, it is not taxed as a separate entity. Rather, the profits of the partnership “pass through” to the individual partners, who must then pay individual taxes on such income . Dissolution Dissolution of a partnership generally occurs when one of the partners ceases to be a partner in the firm. Dissolution is distinct from the termination of a partnership and the “winding up” of partnership business. Although the term dissolution implies termination, dissolution is actually the beginning of the process that ultimately terminates a partnership. It is, in essence, a change in the relationship between the partners. Accordingly, if a partner resigns or if a partnership expels a partner, the partnership is considered legally dissolved. Other causes of dissolution are the BANKRUPTCY or death of a partner, an agreement of all partners to dissolve, or an event that makes the partnership business illegal. For instance, if a partnership operates a gambling casino and gambling subsequently becomes illegal, the partnership will be consid- ered legally dissolved. In addition, a partner may withdraw from the partnership and thereby cause dissolution. If, however, the partner with- draws in violation of a partnership agreement, the partner may be liable for damages as a result of the untimely or unauthorized withdrawal. GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION 426 PARTNERSHIP After dissolution, the remaining partners may carry on the partnership business, but the partnership is legally a new and different partnership. A partnership agreement may pro- vide for a partner to leave the partnership without dissolving the partnership but only if the departing partner’s interests are bought by the continuing partnership. Nevertheless, unless the partnership agreement states otherwise, dissolution begins the process whereby the partnership’sbusinesswillultimatelybewound up and terminated. Dissociation Under RUPA, events that would otherwise cause dissolution are instead classified as the dissociation of a partner. The causes of dissocia- tion are generally the same as those of dissolu- tion. Thus, dissociation occurs upon receipt of a notice from a partner to withdraw, by expulsion of a partner, or by bankruptcy-related events such as the bankruptcy of a partner. Dissociation does not immediately lead to the winding down of the partnership business. Instead, if the partnership carries on the business and does not dissolve, it must buy back the former partner’s interest. If the partnership is dissolved under RUPA, then its affairs must be wound up and terminated. Winding Up Winding up refers to the procedure followed for distributing or liquidating any remaining part- nership assets after dissolution. Winding up also provides a priority-based method for dischar- ging the obligations of the partnership, such as making payments to non-partner creditors or to remaining partners. Only partners who have not wrongfully caused dissolution or have not wrongfully dissociated may participate in wind- ing up the partnership’s affairs. State partnership statutes set the procedure to be used to wind up partnership business. In addition, the partnership agreement may alter the order of payment and the method of liquidating the assets of the partnership. Gener- ally, the liquidators of a partnership pay non- partner creditors first, followed by partners who are also creditors of the partnership. If any assets remain after satisfying these obligation s, then partners who have contributed capital to the partnership are entitled to their capital contributions. Any remaining assets are then divided among the remaining partners in accordance with their respective share of partnership profits. Under RUPA, creditors are paid first, includ- ing any partners who are also creditors. Any excess funds are then distributed according to the partnership’s distribution of profits and losses. If profits or losses result from liquidation, such profits and losses are charged to the partners’ capital accounts. Accordingly, if a partner has a negative balance upon winding up the partner- ship, that partner must pay the amount necessary to bring his or her account to zero. Limited Partnerships A limited partnership is similar in many respects to a general partnership, with one essential difference. Unlike a general partner- ship, a limited partnership has one or more partners who cannot participate in the man age- ment and control of the partnership’s business. A partner w ho has such limited participation is considered a “limited partner” and does not generally incur personal liability for the partner- ship’s obligations. Typically, the extent of liability for a limited partner is the limited partner’s capital contributions to the partn er- ship. For this reason, limited partnerships are often used to provide capital to a partnership through the capital contributio ns of its limited partners. Limited partnerships are frequently used in REAL ESTATE and entertainment-related transactions. The limited partnership did not exist at COMMON LAW. Like a general partnership, a limited partnership may govern its affairs according to a limited partnership agreement. Such an agreement will be subject to applicable state law. States have for the most part relied on the Uniform Limited Partnership Act in adopt- ing their limited partnership legislation. The Uniform Limited Partnership Act was revised in 1976 and 1985. Accordingly, a few states have retained the old uniform act, and other states have relied on either revision to the uniform act or on both revisions to the uniform act. A limited partnership must have one or more general partners who manage the business and who are personally liable for partnership debts. Although one partner may be both a limited and a general partner, at all times there must be at least two different partners in a limited partner- ship. A limited partner may lose protection against personal liability if she or he participates GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION PARTNERSHIP 427 . with- draws in violation of a partnership agreement, the partner may be liable for damages as a result of the untimely or unauthorized withdrawal. GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION 426. (b) to equalize the income accounts of the partners; Partnership Agreement [ continued ] A sample partnership agreement. GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION PARTNERSHIP 423 attributes This type of partition is known as partition by allotment.A voluntary partition by all the co-owners is legally effective unless there is a contractual GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION PARTITION