The Center For Debt Management
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Type of Business:
General Partnership

In the commercial and legal parlance of most countries, a general partnership or simply a partnership, refers to an association of persons

  • Created by agreement, proof of existence and estoppel.
  • Formed by two or more persons
  • The owners are all personally liable for any legal actions
    and debts the company may face

Characteristics

Partnerships have certain default characteristics relating to both (i) the relationship between the individual partners and (ii) the relationship between the partnership and the outside world. The former can generally be overridden by agreement between the partners, whereas the latter generally cannot be.

The assets of the business are owned on behalf of the other partners, and they are each personally liable, jointly and severally, for business debts, taxes or tortious liability. For example, if a partnership defaults on a payment to a creditor, the partners' personal assets are subject to attachment and liquidation to pay the creditor.

By default, profits are shared equally amongst the partners. However, a partnership agreement will almost invariably expressly provide for the manner in which profits and losses are to be shared.

Each general partner is deemed the agent of the partnership. Therefore, if that partner is apparently carrying on partnership business, all general partners can be held liable for his dealings with third persons.

By default a partnership will terminate upon the death, disability, or even withdrawal of any one partner. However, most partnership agreements provide for these types of events, with the share of the departed partner usually being purchased by the remaining partners in the partnership.

By default, each general partner has an equal right to participate in the management and control of the business. Disagreements in the ordinary course of partnership business are decided by a majority of the partners, and disagreements of extraordinary matters and amendments to the partnership agreement require the consent of all partners. However, in a partnership of any size the partnership agreement will provide for certain electees to manage the partnership along the lines of a company board.

Unless otherwise provided in the partnership agreement, no one can become a member of the partnership without the consent of all partners, though a partner may assign his share of the profits and losses and right to receive distributions ("transferable interest"). A partner's judgment creditor may obtain an order charging the partner's "transferable interest" to satisfy a judgment.


Separate Legal Personality

There has been considerable debate in most states as to whether a partnership should remain aggregate or be allowed to become a business entity with a separate legal personality.

In the United States, section 201 of the Revised Uniform Partnership Act (RUPA) of 1994 provides that "A partnership is an entity distinct from its partners."

The two main consequences of allowing separate personality are that one partnership will be able to become a partner in another partnership in the same way that a registered company can, and a partnership will not be bound by the doctrine of ultra vires but will have unlimited legal capacity like any other natural person.

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