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 Partnership Act § 101 ).
Early English mercantile courts recognized a business 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 partnership, and individual 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 enacted its Partner-ship Act in 1890, and legal experts in the United States drafted a Uniform Partnership Act (UPA) in 1914. Every state has adopted some form of the UPA as its partnership statute; some states, however, 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 separate 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 confusion 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 aggregate 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."
The RUPA generally adopted the entity approach, which treats the partnership as a separate legal entity that may own property and sue on its own behalf. The 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, therefore, the present-day partnership has both aggregate and entity 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.
The formation of a partnership requires a voluntary "association" of persons who "coown" 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, corporations, and other partnerships and business associations. Accordingly, some partner-ships may contain individuals as well as large corporations. Family members may also form and operate a partnership, but courts generally look closely at the structure of a family business before recognizing it as a partnership for the benefit of the firm's creditors.
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 partner has a right to share in the profits of the partnership. Unless the partnership agreement states otherwise, partners share profits equally. Moreover, partners must contribute 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 the RUPA, however, 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 also 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 part-nership, 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 partnership property for personal benefit and restricts the partner from competing with the partnership, 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's admission concerning the partnership's affairs is considered an admission of the partnership. A partner may only bind the partnership, however, if the partner has the authority to do so and undertakes transactions while conducting the usual partnership business. If a third person, however, 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.
Generally, each partner is jointly liable with the partnership for the obligations of the partnership. In many states each partner is jointly and severally liable for the wrongful acts or omissions 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 damages in excess of her or his own proportional share.
Some states that have adopted the RUPA provide that a partner is jointly and severally liable for the debts and obligations of the partnership. Nevertheless, 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.
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 the partnership purchases property with partnership assets, such property is presumed to be partnership property and is held in the partnership'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 property 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 the RUPA has expressly stated that the partnership may own partnership property.
A partner's interest in a partnership is considered personal property that may be assigned to other persons. If assigned, however, 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 management of the partnership. Such a right is a separate interest and remains with the partner.
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.
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 predissolution accounting. State law also generally allows for an accounting if copartners exclude a partner from the partnership business or if copartners wrongfully 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.
One of the primary reasons to form a partnership 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 indimvidual 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.
A 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 considered legally dissolved. In addition, a partner may withdraw from the partnership and thereby cause a dissolution. If, however, the partner withdraws in violation of a partnership agreement, the partner may be liable for damages as a result of the untimely or unauthorized withdrawal.
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 provide 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's business will ultimately be wound up and terminated.
Under the RUPA, events that would otherwise cause dissolution are instead classified as the dissociation of a partner. The causes of dissociation are generally the same as those of dis-solution. 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, however, the partnership is dissolved under the RUPA, then its affairs must be wound up and terminated.
Winding up refers to the procedure followed for distributing or liquidating any remaining partnership assets after dissolution. Winding up also provides a priority-based method for discharging 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 winding 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. Generally, however, 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 obligations, 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 the RUPA, creditors are paid first, including 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 a liquidation, such profits and losses are charged to the partners' capital accounts. Accordingly, if a partner has a negative balance upon winding up the partnership, that partner must pay the amount necessary to bring his or her account to zero.
A limited partnership is similar in many respects to a general partnership, with one essential difference. Unlike a general partnership, a limited partnership has one or more partners who cannot participate in the management and control of the partnership's business. A partner who has such limited participation is considered a "limited partner" and does not generally incur personal liability for the partnership's obligations. Generally, the extent of liability for a limited partner is the limited partner's capital contributions to the partnership. For this reason, limited partnerships are often used to provide capital to a partnership through the capital contributions 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, however, a limited partnership may govern its affairs according to a limited partnership agreement. Such an agreement, however, will be subject to applicable state law. States have for the most part relied on the Uniform Limited Partnership Act in adopting 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 partnership. A limited partner may lose protection against personal liability if she or he participates in the management and control of the partnership, contributes services to the partnership, acts as a general partner, or knowingly allows her or his name to be used in partnership business. However, "safe harbors" exist in which a limited partner will not be found to have participated in the "control" of the partnership business. Safe harbors include consulting with the general partner with respect to partnership business, being a contractor or employee of a general partner, or winding up the limited partnership. If a limited partner is engaged solely in one of the activities defined as a safe harbor, then he or she is not considered a general partner with the accompanying potential liability.
Except where a conflict exists, the law of general partnerships applies equally to limited partnerships. Unlike general partnerships, however, limited partnerships must file a certificate with the appropriate state authority to form and carry on as a limited partnership. Generally, a certificate of limited partnership includes the limited partnership's name, the character of the limited partnership's business, and the names and addresses of general partners and limited partners. In addition, and because the limited partnership has a set term of duration, the certificate must state the date on which the limited partnership will dissolve. The contents of the certificate, however, will vary from state to state, depending on which uniform limited partnership act the state has adopted.
Gow, Niel. 2000. A Practical Treatise on the Law of Partnership. Buffalo, N.Y.: W.S. Hein.
Gregory, William A. 2001. The Law of Agency and Partnership. 3d ed. St. Paul, Minn.: West Group.
Hamilton, Robert W., and Jonathan R. Macey. 2003. Cases and Materials on Corporations, Including Partnerships and Limited Liability Companies. 8th ed. St. Paul, Minn.: West Group.
Hynes, J. Dennis. 2001. Agency, Partnership, and the LLC in a Nutshell. 2d ed. St. Paul, Minn.: West Group.
Moye, John E., ed. 1999. The Law of Business Organizations. 5th ed. Albany, N.Y.: West Legal Studies.
Partnerships, LLCs, and LLPs: Uniform Acts, Taxation, Drafting, Securities, and Bankruptcy. 12th ed. Vol. 1. 1996. Philadelphia: American Law Institute–American Bar Association Committee on Continuing Professional Education.
"Partnership." West's Encyclopedia of American Law. . Encyclopedia.com. (August 22, 2017). http://www.encyclopedia.com/law/encyclopedias-almanacs-transcripts-and-maps/partnership
"Partnership." West's Encyclopedia of American Law. . Retrieved August 22, 2017 from Encyclopedia.com: http://www.encyclopedia.com/law/encyclopedias-almanacs-transcripts-and-maps/partnership
MAJOR TYPES OF ORGANIZATIONS
Various forms of business organizations are differentiated by the tax and other liabilities borne by their investors. Three major forms in the mid-2000s were corporations, partnerships, and limited liability companies (LLCs).
In a corporation an investor only risks the value of his or her investments in the company in the case of failure and only owes taxes on dividend income received. The corporation is legally a "person" and pays its own taxes. It is also at liberty to pay or not to pay dividends, although it is technically governed by the will of a majority of stockholders. The stockholder, in effect, is taxed twice: first on the net income of the corporation that he or she owns (in part) and then on the dividends. The investor, of course, never sees the first tax but gets less in dividends because it is paid by the company.
In a partnership each partner is an equal co-owner of the entity, pays an equal share of taxes due, and, in case of failure, equally shares in all of the liabilities of the partnership. Thus, in a partnership, liabilities are shared but not limited. The benefit of partnerships is that general partners are only taxed once. The partnership itself pays no taxes.
In an LLC the structures of a corporation and of a partnership are combined. Participants are "exposed" only to the extent of their investment because the LLC is treated as a corporation for purposes of liability; at the same time, the taxes owed by the LLC are paid by the participants in proportion to their share in the revenues. They are taxed once, not twice, as in corporations. LLCs, described in more detail elsewhere in this volume, are a relatively recent form of organization and growing rapidly because of the advantages that they offer. Because LLCs are limited in various ways, their growth appears above all to impact partnerships—the form of organization described in this article.
WHAT PARTNERSHIPS ARE
In the words of the Uniform Partnership Act, a partnership is "an association of two or more persons to carry on as Co-owners of a business for profit." The essential characteristics of this business form, then, are the collaboration of two or more owners, the conduct of business for profit (a nonprofit cannot be designated as a partnership), and the sharing of profits, losses, and assets by the joint owners. A partnership is not a corporate or separate entity; rather it is viewed as an extension of its owners for legal and tax purposes, although a partnership may own property as a legal entity. While a partnership may be founded on a simple agreement, even a handshake between owners, a well-crafted and carefully worded partnership agreement is the best way to begin the business. In the absence of such an agreement, the Uniform Partnership Act, a set of laws pertaining to partnerships that has been adopted by most states, governs the business.
There are two types of partnerships:
General Partnerships In this standard form of partnership, all of the partners are equally responsible for the business's debts and liabilities. In addition, all partners are allowed to be involved in the management of the company. In fact, in the absence of a statement to the contrary in the partnership agreement, each partner has equal rights to control and manage the business. Therefore, unanimous consent of the partners is required for all major actions undertaken. It is well to note, however, that any obligation made by one partner is legally binding on all partners, whether or not they have been informed.
Limited Partnerships In a limited partnership, one or more partners are general partners, and one or more are limited partners. General partners are personally liable for the business's debts and judgments against the business; they can also be directly involved in the management. Limited partners are essentially investors (silent partners, so to speak) who do not participate in the company's management and who are also not liable beyond their investment in the business. State laws determine how involved limited partners can be in the day-today business of the firm without jeopardizing their limited liability. This business form is especially attractive to real estate investors, who benefit from the tax incentives available to limited partners, such as being able to write off depreciating values.
Collaboration. As compared to a sole proprietorship, which is essentially the same business form but with only one owner, a partnership offers the advantage of allowing the owners to draw on the resources and expertise of the co-partners. Running a business on your own, while simpler, can also be a constant struggle. But with partners to share the responsibilities and lighten the workload, members of a partnership often find that they have more time for the other activities in their lives.
Tax advantages. The profits of a partnership pass through to its owners, who report their share on their individual tax returns. Therefore, the profits are only taxed once (at the personal level of its owners) rather than twice, as is the case with corporations, which are taxed at the corporate level and then again at the personal level when dividends are distributed to the shareholders. The benefits of single taxation can also be secured by forming an S corporation (although some ownership restrictions apply) or by forming a limited liability company (a new hybrid of corporations and partnerships that is still evolving).
Simple operating structure. A partnership, as opposed to a corporation, is fairly simple to establish and run. No forms need to be filed or formal agreements drafted (although it is advisable to write a partnership agreement in the event of future disagreements). The most that is ever required is perhaps filing a partnership certificate with a state office in order to register the business's name and securing a business license. As a result, the annual filing fees for corporations, which can sometimes be very expensive, are avoided when forming a partnership.
Flexibility. Because the owners of a partnership are usually its managers, especially in the case of a small business, the company is fairly easy to manage, and decisions can be made quickly without a lot of bureaucracy. This is not the case with corporations, which must have shareholders, directors, and officers, all of whom have some degree of responsibility for making major decisions.
Uniform laws. One of the drawbacks of owning a corporation or limited liability company is that the laws governing those business entities vary from state to state and are changing all the time. In contrast, the Uniform Partnership Act provides a consistent set of laws about forming and running partnerships that make it easy for small business owners to know the laws that affect them. And because these laws have been adopted in all states but Louisiana, interstate business is much easier for partnerships than it is for other forms of businesses.
Acquisition of capital. Partnerships generally have an easier time acquiring capital than corporations because partners, who apply for loans as individuals, can usually get loans on better terms. This is because partners guarantee loans with their personal assets as well as those of the business. As a result, loans for a partnership are subject to state usury laws, which govern loans for individuals. Banks also perceive partners to be less of a risk than corporations, which are only required to pledge the business's assets. In addition, by forming a limited partnership, the business can attract investors (who will not be actively involved in its management and who will enjoy limited liability) without having to form a corporation and sell stock.
Conflict with partners. While collaborating with partners can be a great advantage to a small business owner, having to actually run a business from day to day with one or more partners can be a nightmare. First of all, you have to give up absolute control of the business and learn to compromise. And when big decisions have to be made, such as whether and how to expand the business, partners often disagree on the best course and are left with a potentially explosive situation. The best way to deal with such predicaments is to anticipate them by drawing up a partnership agreement that details how such disagreements will be dealt with.
Authority of partners. When one partner signs a contract, each of the other partners is legally bound to fulfill it. For example, if Anthony orders $10,000 of computer equipment, it is as if his partners, Susan and Jacob, had also placed the order. And if their business cannot afford to pay the bill, then the personal assets of Susan and Jacob are on the line as well as those of Anthony. And this is true whether the other partners are aware of the contract or not. Even if a clause in the partnership agreement dictates that each partner must inform the other partners before any such deals are made, all of the partners are still responsible if the other party in the contract (the computer company) was not aware of such a stipulation in the partnership agreement. The only recourse the other partners have is to sue.
The Uniform Partnership Act does specify some instances in which full consent of all partners is required:
- Selling the business's good will
- Decisions that would compromise the business's ability to function normally
- Assigning partnership property in trust for a creditor or to someone in exchange for the payment of the partnership's debts
- Admission of liability in a lawsuit
- Submission of a partnership claim or liability to arbitration
Unlimited liability. As the previous example illustrated, the personal assets of the partnership's members are vulnerable because there is no separation between the owners and the business. The primary reason many businesses choose to incorporate or form limited liability companies is to protect the owners from the unlimited liability that is the main drawback of partnerships or sole proprietorships. If an employee or customer is injured and decides to sue, or if the business runs up excessive debts, then the partners are personally responsible and in danger of losing all that they own. Therefore, if considering a partnership, determine which of your assets will be put at risk. If you possess substantial personal assets that you will not invest in the company and do not want to put in jeopardy, a corporation or limited liability company may be a better choice. But if you are investing most of what you own in the business, then you don't stand to lose any more than if you incorporated. Then if your business is successful, and you find at a later date that you now possess extensive personal assets that you would like to protect, you can consider changing the legal status of your business to secure limited liability.
Vulnerability to death or departure. Unlike corporations, which exist perpetually, regardless of ownership, general partnerships dissolve if one of the partners dies, retires, or withdraws. (In limited partnerships, the death or withdrawal of the limited partner does not affect the stability of the business.) Even though this is the law governing partnerships, the partnership agreement can contain provisions to continue the business. For example, a provision can be made allowing a buy-out of a partner's share if he or she wants to withdraw or if the partner dies.
Limitations on transfer of ownership. Unlike corporations, which exist independently of their owners, the existence of partnerships is dependent upon the owners. Therefore, the Uniform Partnership Act stipulates that ownership may not be transferred without the consent of all the other partners. (Once again, a limited partner is an exception: his or her interest in the company may be sold at will.)
FORMING A PARTNERSHIP
Reserving a Name
The first step in creating a partnership is reserving a name, which must be done with the secretary of state's office or its equivalent. Most states require that the words "Company" or "Associates" be included in the name to show that more than one partner is involved in the business. In all states, though, the name of the partnership must not resemble the name of any other corporation, limited liability company, partnership, or sole proprietorship that is registered with the state.
The Partnership Agreement
A partnership can be formed in essentially two ways: by verbal or written agreement. A partnership that is formed at will, or verbally, can also be dissolved at will. In the absence of a formal agreement, state laws (the Uniform Partnership Act, except in Louisiana) will govern the business. These laws specify that without an agreement, all partners share equally in the profits and losses of the partnership and that partners are not entitled to compensation for services. If you would like to structure your partnership differently, you will need to write a partnership agreement. The subject is covered more fully in this volume under Partnership Agreement.
RIGHTS AND RESPONSIBILITIES OF PARTNERS
The Uniform Partnership Act defines the basic rights and responsibilities of partners. Some of these can be changed by the partnership agreement, except, as a general rule, those laws that govern the partners' relationships with third parties. In the absence of a written agreement, then, the following rights and responsibilities apply:
- All partners have an equal share in the profits of the partnership and are equally responsible for its losses.
- Any partner who makes a payment for the partnership beyond its capital, or makes a loan to the partnership, is entitled to receive interest on that money.
- All partners have equal property rights for property held in the partnership's name. This means that the use of the property is equally available to all partners for the purpose of the partnership's business.
- All partners have an equal interest in the partnership, or share of its profits and assets.
- All partners have an equal right in the management and conduct of the business.
- All partners have a right to access the books and records of the partnership's accounts and activities at all times. (This does not apply to limited partners.)
- No partner may be added without the consent of all other partners.
- Partners must report and turn over to the partnership any income they have derived from use of the partnership's property.
- Partners are not allowed to conduct business that competes with the partnership.
- Each partner is responsible for contributing his or her full time and energy to the success of the partnership.
- Any property that a partner acquires with the intention of it being the partnership's property must be turned over to the partnership.
- Any disputes shall be decided by a majority vote.
see also Limited Liability Company
Clifford, Denis, and Ralph E. Warner. The Partnership Book: How to Write A Partnership Agreement. Nolo, 2001.
Gage, David. The Partnership Charter: How to Start Out Right With Your New Business Partnership. Basic Books, 2004.
Mancuso, Anthony. Form Your Own Limited Liability Company. Nolo, 2005.
Thompson, Margaret Gallagher. "Where We Were and Where We Are in Family Limited Partnerships." The Legal Intelligencer. 1 August 2005.
Hillstrom, Northern Lights
updated by Magee, ECDI
"Partnership." Encyclopedia of Small Business. . Encyclopedia.com. (August 22, 2017). http://www.encyclopedia.com/entrepreneurs/encyclopedias-almanacs-transcripts-and-maps/partnership
"Partnership." Encyclopedia of Small Business. . Retrieved August 22, 2017 from Encyclopedia.com: http://www.encyclopedia.com/entrepreneurs/encyclopedias-almanacs-transcripts-and-maps/partnership
A partnership is a legal organization in which two or more individuals own and operate the business. Partnerships are not limited as to the number of possible partners or the number of employees. Generally, however, partnerships are small in size. Partnerships are a common form of organization in the professions (businesses such as retail shops and service trades like car repair shops) and in wholesale firms (which buy from producers and sell to retailers).
Businesses organized as partnerships are advantageous for several reasons. No formal legal process is required to start a partnership, but most are based on signed agreements between partners as to how the costs and profits will be divided. Although certain licenses or permits may be required, few fees are to be paid or papers filed with government agencies. Owners may have a great deal of flexibility and freedom in decision making. Also, instead of working for someone else and receiving a salary, the owners may keep all the profits to do with as they see fit. The talents and abilities of more than one person will be available to the business, and, with several individuals backing the firm, bank loans may be easier to obtain.
The largest economic disadvantage of partnerships is unlimited liability. The owners are personally responsible to the full extent of whatever wealth they own for all the debts of the business, both jointly and separately. This means that if one individual owns 1/4 of a firm and the firm goes out of business with debts of $400,000, the individual is liable for $100,000. However, if the other three partners disappear, the one remaining would be liable for the entire $400,000 (and even personal possessions may be taken to satisfy creditors). The actions of any one partner are the legal, unlimited responsibility of all partners. Another disadvantage is the limited ability to raise enough capital for the business to grow, be efficient, and highly profitable. In most cases raising sufficient investment capital is problematic.
In the United States during the 1980s and the 1990s, the percentage of total firms organized under partnerships and their sales remained relatively constant. In 1993 partnerships made up 6.9 percent of all U.S. firms and represented 1,467,000 businesses; they received 4.8 percent of total sales, about $627 billion.
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"Partnership." Gale Encyclopedia of U.S. Economic History. . Retrieved August 22, 2017 from Encyclopedia.com: http://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/partnership
part·ner·ship / ˈpärtnərˌship/ • n. the state of being a partner or partners: we should go on working together in partnership. ∎ an association of two or more people as partners: an increase in partnerships with housing associations. ∎ a business or firm owned and run by two or more partners. ∎ a position as one of the partners in a business or firm.
"partnership." The Oxford Pocket Dictionary of Current English. . Encyclopedia.com. (August 22, 2017). http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/partnership
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an association of two or more persons for carrying on business; the persons collectively —Wilkes.
"Partnership." Dictionary of Collective Nouns and Group Terms. . Encyclopedia.com. (August 22, 2017). http://www.encyclopedia.com/education/dictionaries-thesauruses-pictures-and-press-releases/partnership
"Partnership." Dictionary of Collective Nouns and Group Terms. . Retrieved August 22, 2017 from Encyclopedia.com: http://www.encyclopedia.com/education/dictionaries-thesauruses-pictures-and-press-releases/partnership