A partnership is an association of two or more individuals who carry on as co-owners in a business for profit. Partnerships are defined under the model statute known as The Revised Uniform Partnership Act (RUPA). The individuals in the partnership are not required to intend to create a partnership on purpose.
There is only one requirement to form a partnership. That is for the individuals to intend to carry on as co-workers in a business for profit. Whether or not individuals intend to do so can be determined by examining two factors: 1) whether or not the individuals share in the profits; and 2) whether or not the individuals have a right to control the business.
For example, suppose Individual Y and Individual Z open a coffee shop. They split the profits of the coffee shop. They also make joint decisions about the coffee shop. Their business venture meets the definition required to form a partnership even if the individuals do not specifically refer to themselves as partners.
As noted above, there are no other legal formalities required in order to create a partnership. However, the majority of partnerships have a partnership agreement. A partnership agreement is an agreement between the partners that outlines the relationship each partner has with the business as well as the rights and obligations each partner has to the partnership.
A partnership agreement may also contain other elements, including:
- The amount or portion of the partnership that is owned by each partner;
- Which partner or partners have authority to make business decisions on behalf of the partnership;
- The method that will use to resolve any business disputes that arise among the partners;
- How and if the partnership can be dissolved or transferred;
- The process for adding a new partner or partners; and
- Any other policies or procedures that the partners have in place for making major decisions or handling important aspects of the partnership.
A well-drafted partnership agreement is very detailed and contains clearly defined terms. It should include solutions for every foreseeable or potential issue that may arise and harm the business. A well-drafted partnership agreement also helps strengthen the partnership itself.
Partnership agreements can be formed orally, impliedly, by the partners’ actions, or in a written form. It is always advisable to have the partnership agreement in writing. This allows the agreement to act as a reference to quickly resolve any disputes that arise. A written agreement may also be used to solve any future legal issues that may arise.
What is the Difference Between a Limited Partnership and a General Partnership?
Limited partnerships and general partnerships have several differences. The most common form of partnership is a general partnership. This type of partnership is formed by the association of two or more individuals intending to be co-owners of a business for profit. In a general partnership, all partners share in the profits, losses, or liabilities of the partnership.
A major difference between a limited partnership and a general partnership is that all partners in a general partnership may be held individually and jointly responsible for any debts or liabilities the partnership incurs. That is not the case, however, for a limited partner in a limited partnership.
A limited partnership has two kinds of partners, limited partners and general partners. A limited partnership may have one or more of either type of partner, but must have at least one general partner. A general partner is typically responsible for day-to-day operations of the business and management decisions.
In contract to a general partner, a limited partner is only responsible for investment duties. They have limited authority over the partnership. Additionally, a limited partner is only liable for debts up to the amount of money they contributed to the partnership. As previously noted, a general partner may be responsible for all liabilities or debts of the partnership.
What is the Difference Between a Limited Partnership (LP) and a Limited Liability Limited Partnership (LLLP)?
A limited liability limited partnership is considered to be a form of limited partnership that provides additional protections. The two types of partnerships are similar because they are both required to have at least one general partner and a number of limited partners. In an LP and an LLLP, the limited partners are liable only for their investments. They are not liable for any debts or obligations of the partnership itself.
In a limited partnership, the general partners would be equally responsible for debts incurred by the partnership. The general partner could also be personally liable.
In a limited liability limited partnership, however, a general partner is not held personally responsible for debts incurred by the partnership. They have what amounts to a figurative shield of limited liability. Because of this, they are also not held liable for the negligence or misconduct of the other general partners.
What is Partnership Liability?
Partnership liability is the division of responsibility with regards to any debts or losses of a business partnership. For example, if the partnership is experiencing a loss of profits, the partners may want to understand how the losses are occurring and who should be responsible.
Partnership liability may also refer to which individuals can be held legally responsible for violations that were performed by the partnership. In addition, it may refer to injuries that the partnership caused to another individual or business entity.
How Does Liability in a Partnership Work?
How liability in a partnership works depends on the type of partnership. In general partnerships, each partner is responsible for all debts or violations of the partnership. For example, if the partnership as a whole is in debt to another business, a creditor may be able to make collections on an individual partner, who would then be liable for a certain amount of the debt. In certain cases, that partner could seek reimbursement from the other partners for their fair share of the debt.
In a limited partnership, liability is different. In this type of partnership, each partner has a limited amount of liability for the partnership’s losses. As noted above, instead of being jointly responsible for the partnership’s losses, each limited partner will only be liable for their own contributions or business decisions.
A partnership may, of court, modify the liability of partners through their partnership agreement. An attorney can assist a partnership in drafting and reviewing the agreement to ensure it is fair and complies with business laws.
Do I Need a Lawyer for Help with Partnership Liability Issues?
It is important to have the assistance of an experienced business lawyer for any partnership liability issues. Partnership liability is a complicated legal subject that may involve multiple areas of law. If you have any questions or concerns regarding your liability in a partnership, a lawyer can answer your questions. Your lawyer can also represent you during any court proceedings, should and issues arise from the partnership.
It is important to note that a lawyer can be of assistance even if a partnership agreement already exists. A lawyer can review the existing agreement and make suggestions or changes if necessary. Having a lawyer’s assistance with your partnership can ensure its success and compliance with all applicable laws.