Partnership is an association formed by two or more people to carry on a business. The people usually agree either in writing or verbally to become partners. But people who run a business together and share the profits are usually considered partners, even if they do not intend to be.
Rights and responsibilities of partners.
All partners have equal rights and obligations in running the business, unless they have agreed on another arrangement. Any disagreement that arises among them is decided by majority vote. Each partner is an agent for the other partners. Ordinarily, therefore, anything a partner does that seems to be carrying on the business in the usual way is binding on the other partners.
All partners share in the profits of the business, but they do not necessarily share equally. The size of each share is agreed upon when the partnership is set up. It depends on how much money or property each contributes to get the business started, and on the kind and amount of work each partner is to do. Every partner is expected to devote time to the business. If one does more work than the others, the partners may agree to pay that person a salary in addition to a share of the profits. Unless a system for sharing the debts of the partnership is set up formally, partners share their debts equally.
All the partners must be faithful to one another in their business dealings. No partner may enter into a transaction in the same line of business as the partnership without sharing the profits with the other partners. Neither may any partner use the funds or property of the partnership as his or her own.
All partners are liable for any debts acquired by the business. These debts are normally paid out of funds or property belonging to the business. If they cannot be paid in this way, any other property of a partner can be taken by the people to whom the debt is owed. A person can lose much money by belonging to a partnership that fails. To avoid such loss, many states allow limited partnerships. A limited partner may not take an active part in running the business, but is liable only for the amount of money he or she has invested. If a person wants to take part in running a business and still not risk losing more than he or she has invested, that person must form a corporation. See Corporation .
Changing or ending a partnership.
No new partner may be taken into the partnership without the consent of all the members. A new agreement must then be made, stating what the new partner must contribute and what will be his or her share of the profits. A person who wishes to leave the business can agree with the other partners on a price for buying him or her out. If the partners cannot agree, that person may have the business closed out and the property sold in order to take his or her share in cash. When a partner dies, the people who are named to handle the estate have the same rights.
Under the law, all partners are co-owners of the property belonging to the business. The Uniform Partnership Act, which is in force in most states, permits a partner to sell his or her interest in the partnership, but not in a particular piece of property. Similarly, people to whom a partner owes money may seize that partner’s interest in the business, but not in any one piece of property. When a partner sells his or her interest, or when creditors seize it, the buyer or creditors can collect that partner’s share of the profits, but they cannot help run the business.
