General Partnerships

Question 1

What document, if any, creates a general partnership?

Answer 1

Unlike most business entities, general partnerships are not created by filing a form w/ the state.

Instead, the law recognizes general partnerships if all parties have demonstrated an intent to carry on as co-owners of a business for profit.

Question 2

Who is in charge of managing a general partnership?

Answer 2

Two or more people who are coworkers/managers of the business.

Question 3

Are “big” & “small” decisions treated differently in a general partnership?

Answer 3

1. Partners have the right to be involved in conducting business operations
2. Partners have the right to sign contracts on behalf of the partnership
3. A contract that is outside the ordinary course of business requires the unanimous consent of all the partners

Question 4

Who may own a general partnership? Are there any restrictions?

Answer 4

1. The company must have 2 or more owners
2. All partners must agree to have unlimited personal responsibility for any debts or legal liabilities the partnership might incur.

Question 5

To what extent are owners liable for actions of a general partnership?

Answer 5

A rule under RUPA that distinguishes general partnerships from other entities, is that all partners involved face joint-and-several liability for contract & tort-related obligations, meaning that the partners’ assets are at risk regardless of the source of the debt/liability

Question 6

Are some owners treated differently than others in a general partnership?

Answer 6

No.
In the absence of partnership agreements, the RUPA outline the rights among partners as such:
1. Rights to share profits/losses equally

2. Right to partnership property
3. Right to co-manage the business
4. Right to indemnity (protection against a loss)
5. Right to vote (majority rules, if there is a tie, a dissolution of the partnership will occur)
6. Right to be informed (contracts, financial info, etc.)

Question 7

Absent an election, who pays tax on earnings of the business?

Answer 7

General partnerships are pass-through entities that do not pay business income taxes. This means each owner reports their share of the partnership’s income and losses on their personal tax return and pays taxes accordingly.

Question 8

What is UPA/RUPA?

Answer 8

(Revised) Uniform Partnership Act
A model statute that determines how a business partnership should be organized and established in the absence of partnership agreements.

Question 9

When can a general partnership be dissolved?

Answer 9

• When the partners give unanimous consent for its dissolution
• When dissolution is mandated by court order
• When the partnership has reached its agreed-upon term

Question 10

What are the “duties of partners”?

Answer 10

1. duty of loyalty
   a. prohibits engaging in competition w/ the
   interest of the partnership
   b. using partnership property for personal gain
   c. taking advantage of a business opportunity
   that would’ve benefitted the partnership
2. duty of care
   a. RUPA states that a partner must refrain from
   engaging in grossly negligent conduct
3. duty of good faith
   a. in partner-to-partner transactions, partners
   owe each other full disclosure