GENERAL PARTNERSHIPS
1) Formation (RUPA)
Under the Revised Uniform Partnership Act (RUPA), a general partnership generally does not
require a written agreement, unless it is to be run for at least one year under the Statute of Frauds.
Generally, a general partnership must consist of at least two individuals or entities with capacity
and consent. The partners must co-own the partnership and run for profit, rather than to pay off
debts or rents.
2) Management
Partners are entitled to equal votes in the partnership. In terms of decisions, those in the ordinary
course of business must be approved with a majority vote of the partners. However, those outside of
the ordinary course of business must be approved with a unanimous vote, so the threshold is higher.
Partners are generally entitled to equal profits, unless an agreement made between the parties does
state otherwise. Partners are also liable for losses, which are generally proportional to their
entitlement to profits, unless an existing agreement states otherwise. However, partners are not
entitled to any compensation for the value of their services, unless the partnership is being wound
up.
3) Liability to Partnerships
Partners owe fiduciary duties to the partnership in the same manner as agents do to principals.
These include the duty of care where the partner should not act with malfeasance nor negligence
and must act in the best interests of the partnership. It also includes the duty of obedience in which
the partners must carry out the partnership’s instructions appropriately. It includes the duty of
loyalty whereby the partners must avoid engaging in competing ventures, conflicting interests and
should account for any profits derived from such activities. It lastly includes the duty of disclosure,
in which the partners should disclose any material facts of transactions to the partnership before
entering into them. If the partner breaches his fiduciary duty or the partnership agreement, the
partnership can sue the partner only by obtaining a judgment from the court to target his assets.
4) Liability to TPs
As seen in agency law, a partnership may be liable to third parties for the partners’ actions
concerning the third party. A third party must initially attempt to sue the partnership and target its
assets. This requires that the partner entered into a transaction with the third party with either actual
authority or apparent authority. Like agencies, a partner has actual authority if expressly given by
the partnership according to the partnership agreement or statement of authority filed with the
secretary of state or the partnership approved any decisions by the necessary votes given by the
partners, or impliedly given based on the partnership’s communication to the partner and the partner
had reasonable belief that he had such power in his position. Alternatively, apparent authority may
exist where the partner’s authority was held out by the partnership and it falls within the ordinary
course of the partnership’s business, or if the third party had reasonable belief that the agent had
authority to enter the transaction. However, the third party may not sue the partnership if he had
knowledge or at least received notice of the agent’s lack of authority in the first place (even without
reading the notice).
1) Formation (RUPA)
Under the Revised Uniform Partnership Act (RUPA), a general partnership generally does not
require a written agreement, unless it is to be run for at least one year under the Statute of Frauds.
Generally, a general partnership must consist of at least two individuals or entities with capacity
and consent. The partners must co-own the partnership and run for profit, rather than to pay off
debts or rents.
2) Management
Partners are entitled to equal votes in the partnership. In terms of decisions, those in the ordinary
course of business must be approved with a majority vote of the partners. However, those outside of
the ordinary course of business must be approved with a unanimous vote, so the threshold is higher.
Partners are generally entitled to equal profits, unless an agreement made between the parties does
state otherwise. Partners are also liable for losses, which are generally proportional to their
entitlement to profits, unless an existing agreement states otherwise. However, partners are not
entitled to any compensation for the value of their services, unless the partnership is being wound
up.
3) Liability to Partnerships
Partners owe fiduciary duties to the partnership in the same manner as agents do to principals.
These include the duty of care where the partner should not act with malfeasance nor negligence
and must act in the best interests of the partnership. It also includes the duty of obedience in which
the partners must carry out the partnership’s instructions appropriately. It includes the duty of
loyalty whereby the partners must avoid engaging in competing ventures, conflicting interests and
should account for any profits derived from such activities. It lastly includes the duty of disclosure,
in which the partners should disclose any material facts of transactions to the partnership before
entering into them. If the partner breaches his fiduciary duty or the partnership agreement, the
partnership can sue the partner only by obtaining a judgment from the court to target his assets.
4) Liability to TPs
As seen in agency law, a partnership may be liable to third parties for the partners’ actions
concerning the third party. A third party must initially attempt to sue the partnership and target its
assets. This requires that the partner entered into a transaction with the third party with either actual
authority or apparent authority. Like agencies, a partner has actual authority if expressly given by
the partnership according to the partnership agreement or statement of authority filed with the
secretary of state or the partnership approved any decisions by the necessary votes given by the
partners, or impliedly given based on the partnership’s communication to the partner and the partner
had reasonable belief that he had such power in his position. Alternatively, apparent authority may
exist where the partner’s authority was held out by the partnership and it falls within the ordinary
course of the partnership’s business, or if the third party had reasonable belief that the agent had
authority to enter the transaction. However, the third party may not sue the partnership if he had
knowledge or at least received notice of the agent’s lack of authority in the first place (even without
reading the notice).
