Formation, property, management, and authority

Black-letter propositions

1. 01

   Profit sharing creates a presumption subject to wage, rent, debt, interest, and similar exceptions.

2. 02

   Partnership property belongs to the entity; a partner has economic and management rights but no transferable ownership of specific assets.

3. 03

   Default management gives equal rights, ordinary matters by majority, and acts outside ordinary course or amendments by unanimity.

4. 04

   Each partner is an agent for ordinary-course business unless the partner lacks authority and the third party knows.

5. 05

   A partnership agreement can alter many defaults but not eliminate core mandatory duties and rights.

Use this attack sequence under time

Common wrong turns

• Joint ownership and shared gross returns alone do not establish partnership.
• Calling the relationship a joint venture may still invoke partnership rules.
• A transferee of a partner's economic interest does not automatically gain management rights.

Worked example

Two consultants share profits equally, jointly control clients, and operate continuously without filing papers.

Practice this topic

Forming a partnership

Cornell, quoting New York law, describes a partnership as a voluntary contractual association between two or more parties to carry on business for profit as co-owners. An express agreement is not needed. A partnership is formed simply by persons associating as co-owners to carry on business for profit, and courts evaluate formation without considering the parties' subjective intent. Partners are agents of the partnership and may contract on its behalf.

Partnerships are often governed by the law of the state of the principal place of business, and a partnership differs from a joint venture.

Limited partnerships and the outline

A limited partnership limits the personal liability of some partners. The general partner has unlimited liability and limited partners' liability typically does not exceed their contribution. A limited partner who takes part in decision making may be treated as a general partner depending on state law, and an LP must be registered with the state.

NCBE's MEE outline lists creation of general partnerships, limited partnerships and limited liability partnerships, and rights of partners among themselves on profits and losses, management and control, care and loyalty.

Partnership or joint venture

Cornell says a partnership is distinct from a joint venture even though the two are similar. Courts have generally differentiated partnerships as formed for ongoing general business purposes, while joint ventures usually relate to a single transaction. Because partners are agents of the partnership, each may enter into contracts on its behalf, so the agency rules on authority apply.

Frequently asked questions