After reading this chapter, you will be able to answer the following questions: What is a partnership? What are the different ways in which a partnership can be formed? What are the rights of partners as they interact with each other? Are all members of a partnership liable for interactions with third parties?
Chapter 36 Partnerships: Nature, Formation, and Operation Copyright © 2015 McGrawHill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGrawHill Education Partnership (Uniform Partnership Act Definition): “Association of two or more persons to carry on as coowners a business for profit” 362 Characteristics of Partnership Voluntary and consensual relationship Between two or more individuals, partnerships, corporations, or other forms of business organization Engaged in numerous business transactions over period of time Partners share profits and management of business 363 Situations Where No Partnership: Employer shares profits with employee as payment for work Landlord accepts share of profits for payment of rent Party receives share of profits for payment of debt Party receives share of profits for payment of annuity to widow/representative of deceased partner Party receives share of profits for payment from sale of goodwill of business/other property Party receives share of profits for payment of interest on a loan 364 Formation of Partnership Partnership agreement (“articles of partnership”) should include: Name of each partner Name of partnership Duration of partnership How profits divided Division of management responsibilities Contributions from each partner 365 Partnership Duties Duty of Loyalty Duty of Obedience Duty of Care 366 Partnership Rights Right to Share in Management Right to Share in Profits Right to Compensation Rights to Partnership Property Right to Inspect Books Right to an Accounting 367 Circumstances “Triggering” Partner’s Right to an Accounting Whenever partnership agreement provides for an accounting Whenever copartners wrongfully exclude partner from partnership/from access to partnership books Whenever partner fails to disclose profit/benefit from partnership (breach of “fiduciary duty”) Whenever circumstances render accounting “just and reasonable” 368 Interactions Between Partners and Third Parties If partnership has liability, each partner has unlimited personal liability (“joint and several” liability) “Joint and several” liability: Third party can choose to sue partners separately, or all partners jointly in one action; partners are collectively, as well as individually, liable for partnership debts All partners jointly and severally liable for commission of tort by any partner Implied liability of partners when purchases made to perpetuate partnership’s business 369 The Revised Uniform Partnership Act (RUPA) Revised version of Uniform Partnership Act (UPA); use of RUPA varies from state to state 3610 ... Whenever circumstances render accounting “just and reasonable” 368 Interactions Between Partners and Third Parties If partnership has liability, each partner has unlimited personal liability (“joint and several” liability) “Joint and several” liability: Third party can choose to sue partners ... or other forms of business organization Engaged in numerous business transactions over period of time Partners share profits and management of business 363 Situations Where No Partnership: Employer shares profits with employee as payment for work... carry on as coowners a business for profit” 362 Characteristics of Partnership Voluntary and consensual relationship Between two or more individuals, partnerships, corporations, or other forms of business organization