The Revised Uniform Partnership Act (“RUPA”) is a model statute that determines how a business partnership should be organized and established. RUPA also dictates the legal obligations and rights of the partners involved in a partnership business. RUPA defines a partnership as an organization that consists of two or more individuals who carry on as co-owners of a business for profit.
As its title indicates, RUPA is the revised version of the original Uniform Partnership Act (“UPA”). RUPA allows partners in a partnership business a lot more discretion in deciding how their partnership will function when compared to the latitude that partners had under the initial version of UPA. RUPA permits the partnership agreement to govern each of the partners as well as the overall partnership business.
Briefly, a partnership agreement is a legal document that describes the relationship between the partners and the partnership business. While this document is not necessary for the creation of a partnership, it is strongly recommended that partners in a partnership have one given the provisions of RUPA.
In addition, RUPA states that individuals who form a partnership can be held severally and jointly liable for any issues that arise in connection with a partnership business.
RUPA also provides that any persons who permit another party to advertise or solicit business in a way that suggests they are business partners, can then be viewed as such by external parties. This means that you may be held responsible for the acts of a person who you were unaware was a partner.
Today, nearly every state in the country has adopted some version of RUPA. Thus, it is crucial that you understand the requirements of RUPA as a business owner since you could potentially be held liable for damages due to the actions of an unknown business partner.
According to RUPA, it does not matter whether the parties intended to form a partnership or not. It only matters that they carried on a business for profit and performed acts that would suggest they were partners in a partnership business.
Therefore, you may want to speak to a business law attorney in your county if you are being sued for the actions of an unknown partner. An attorney will be able to help you prove to the court that you did not intend to form a partnership with that individual. On the other hand, if you wish to hold yourselves out as partners in a business, an attorney can help you comply with RUPA’s requirements in order to form a valid partnership.
What Kinds of Partnerships Does RUPA Govern?
Generally speaking, there are several types of partnerships that can be formed under business laws in the United States. However, RUPA only covers certain types of partnerships. In particular, RUPA applies to two main categories of partnerships: general partnerships and limited liability partnerships (“LLPs”).
In contrast, RUPA does not govern limited partnerships because it does not recognize them as true forms of partnerships. Therefore, limited partnerships will not be subject to any versions of RUPA.
What Are Some of the Revisions Included in RUPA?
RUPA is responsible for a number of revisions to the UPA. As previously mentioned, UPA was the original model of rules that governed partnership businesses. One of the most important contributions of RUPA is that it allowed partners to “dissociate” from a partnership. The dissociation mechanism permits partners to withdraw from a partnership without the worry of terminating or dissolving the rest of the partnership business.
Another key update that RUPA added to the original rules is that it is the partnership agreement and not the laws on partnerships that forms the legal obligations and rights of each of the partners. As such, the partners in a partnership are free to incorporate or omit various rights and obligations within their partnership agreement.
Under RUPA, however, partners will be prohibited from carrying out any of the following actions:
- Denying any of the partners in a partnership the right to withdraw from the partnership business;
- Eliminating or unreasonably reducing the partners’ duty of care that they must provide to one another;
- Placing restrictions on any of the partners’ access to view the records or books of the partnership; and
- Removing the two main duties that are legally required of all partners in a partnership, which include:
In addition, RUPA also provides guidance on when a partner may be at risk of being held liable for the actions of another partner. For instance, if the individuals permit each other to use their names or the name of a business when networking or conducting business activities with outside parties. If the individuals also fail to correct the misconception of external parties, this may serve as further proof that they work together as partners in a business.
One final revision to take note of in RUPA is that its guidelines essentially allowed individuals who were holding themselves out as partners, either intentionally or unknowingly, to be held responsible for any damages, debts, or liabilities incurred by a partnership business. Prior to the revisions in RUPA, this concept was referred to as a partnership by estoppel.
A basic example that demonstrates both the partnership by estoppel relationship as well as the new revisions in RUPA would likely resemble the following scenario:
- Imagine that two roadside vendors sell coffee from the same food cart. Although they never refer to themselves as partners, they evenly split any profits they earn and jointly make management-like decisions about their coffee cart together.
- If such a relationship carried on for an extended period of time and the vendors never bothered to correct anyone about their business relationship, then a court determining whether a partnership was formed under RUPA would likely consider their relationship a partnership.
Should I Contact an Attorney About My Partnership Issue?
There are many reasons as to why it may be in your best interest to consider consulting with a local corporate lawyer if you are experiencing issues involving a partnership business. For one, a qualified business lawyer will be able to determine whether a partner has violated any of the requirements set out in RUPA. Your lawyer will also be able to determine whether or not your partnership agreement complies with RUPA and all other applicable laws.
In addition, your lawyer will be able to assist you in drafting a partnership agreement for your business and can assess whether a partnership is the right type of business formation for your company. A lawyer will also be able to advise you on the relevant laws and can make sure that you, your partners, and your business are in compliance with all laws that affect partnerships in your state.
Another reason why you may want to speak to a lawyer is so that they can give you valuable advice on which option of partnerships is best suited for your particular business. Your lawyer can explain the differences between a limited and general partnership, as well as can inform you of the liabilities and risks associated with each form of partnership. They can also discuss how your partnership may be taxed under the U.S. Internal Revenue Code.
Finally, your lawyer will be able to assist you in resolving any legal disputes that arise in connection with your partnership by providing legal representation during court proceedings and at any outside meetings related to your partnership matter.