Partnership in United States

Partnership Definition

The relation subsisting between two or more persons who have contracted together to share as common owners the profits of a business carried on by all or any of them on behalf of all of them, Shumaker, Partnership, 2. Elements : The essential elements of a partnership are (1) a contract between the partners; a true partnership being always formed by contract, not by operation of law. 138 111. 74; 43 Mo. 391; 63 Pa. St. 273. The socalled partnership by estoppel or holding out is only an apparent exception; it not being a true partnership inter s4, but only a liability of individuals to third persons as if they were partners. (2) A sharing of profits; but the profits must be shared between the partners as common owners thereof, not because of a portion thereof being due to a party as a debt. 8 H. L. Cas. 268; 5 Colo. 564; 30 Me. 384; 38 Cal. 206; 28 Ohio St. 319. But community of ownership in the stock or capital by means of which profits are earned is not essential. 15 Conn. 67. Test: Profit sharing, therefore, is not a test, nor is mutual agency, for mutual agency results from partnership, not partnership from agency. The true test is the intention of the parties to share in the profits as common owners. An agreement to share both profits and losses is prima fade but not conclusive evidence of intention to form a partnership (97 111. 303), as is an agreement to share profits with nothing said about losses (145 U. S. 611), or with a stipulation against the liability of one of the parties for losses (18 Fed. 888) ; but not an agreement to share gross returns (15 111. 31; 20 N. Y. 93), or to share losses or expenses only (92 111. 103; 132 Mass. 423). The common ownership of property does not create a partnership unless it be employed in business for common profit. 27 Iowa, 131. Classification : Partnerships classified with reference to the nature of the association are either (1) ordinary partnerships, (2) limited partnerships, being those wherein the liability of one or more partners is, by compliance with certain statutory provisions, limited to the amount of their contribution to the capital stock, or (3) joint-stock companies, being partnerships with a capital stock divided into transferable shares. Partnerships classified with reference to their extent are either (1) universal partnerships, being those in which the parties bring into the firm all their property, of whatever nature, and employ all their services for the common benefit, (2) general partnerships, being those formed to transact some general class of business, or (3) special or particular partnerships, being those formed for a particular transaction. Partnerships classified with reference to their business are either (1) trading or commercial partnerships, being those whose business consists in buying or preparing for sale and selling commodities for profit, or (2) nontrading partnerships.

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The relation subsisting between two or more persons who have contracted together to share as common owners the profits of a business carried on by all or any of them on behalf of all of them, Shumaker, Partnership, 2. Elements : The essential elements of a partnership are (1) a contract between the partners; a true partnership being always formed by contract, not by operation of law. 138 111. 74; 43 Mo. 391; 63 Pa. St. 273. The socalled partnership by estoppel or holding out is only an apparent exception; it not being a true partnership inter s4, but only a liability of individuals to third persons as if they were partners. (2) A sharing of profits; but the profits must be shared between the partners as common owners thereof, not because of a portion thereof being due to a party as a debt. 8 H. L. Cas. 268; 5 Colo. 564; 30 Me. 384; 38 Cal. 206; 28 Ohio St. 319. But community of ownership in the stock or capital by means of which profits are earned is not essential. 15 Conn. 67. Test: Profit sharing, therefore, is not a test, nor is mutual agency, for mutual agency results from partnership, n
ot partnership from agency. The true test is the intention of the parties to share in the profits as common owners. An agreement to share both profits and losses is prima fade but not conclusive evidence of intention to form a partnership (97 111. 303), as is an agreement to share profits with nothing said about losses (145 U. S. 611), or with a stipulation against the liability of one of the parties for losses (18 Fed. 888) ; but not an agreement to share gross returns (15 111. 31; 20 N. Y. 93), or to share losses or expenses only (92 111. 103; 132 Mass. 423). The common ownership of property does not create a partnership unless it be employed in business for common profit. 27 Iowa, 131. Classification : Partnerships classified with reference to the nature of the association are either (1) ordinary partnerships, (2) limited partnerships, being those wherein the liability of one or more partners is, by compliance with certain statutory provisions, limited to the amount of their contribution to the capital stock, or (3) joint-stock companies, being partnerships with a capital stock divided into transferable shares. Partnerships classified with reference to their extent are either (1) universal partnerships, being those in which the parties bring into the firm all their property, of whatever nature, and employ all their services for the common benefit, (2) general partnerships, being those formed to transact some general class of business, or (3) special or particular partnerships, being those formed for a particular transaction. Partnerships classified with reference to their business are either (1) trading or commercial partnerships, being those whose business consists in buying or preparing for sale and selling commodities for profit, or (2) nontrading partnerships.

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This definition of Partnership is based on The Cyclopedic Law Dictionary. This entry needs to be proofread.

Plain-English Law

Partnership as defined by Nolo’s Encyclopedia of Everyday Law (p. 437-455):

When used without a qualifier such as limited or limited liability, this term usually refers to a legal structure called a general partnership: a business that is owned and managed by two or more people who are personally liable for all business debts.

Practical Information

Note: Some of this information was last updated in 1982

A business owned by two or more persons, each of whom is legally responsible for the total liabilities of the
business, unless this responsibility is limited, as in a limited partnership (in U.S. law). Partnerships are governed by fairly uniform laws, which are codified in many states by the Uniform Partnership Law. A partnership may carry on business in any state without paying greater taxes than residents of the state pay.

Each partner of a general partnership is fully liable personally for all partnership debts regardless of the amount of his or her investment. All types of capital produced or acquired by the partnership become partnership property. Real estate is generally acquired in the individual names of the partners or in the name of one partner who holds the property in trust for the partnership.

In absence of a specific contract, partners share profits and losses equally. It is customary, however, to provide in the partnership agreement that profits and losses shall be distributed pro rata according to the amount of capital contributed by each, or in any other ratio to which they agree. Partners have no right to salaries unless they are agreed upon, even though one partner may devote all of his or her time to the business and another may devote little or none. The agreement may provide for the division of profits after allowing each of the partners an agreed upon salary.

Partnerships are dissolved without violation of the partnership agreement by (1) withdrawal of one of the members under some circumstances; (2) operation of law through death or bankruptcy of one of the partners or a change in the law that makes the partnership’s business illegal; (3) court decree granted because of incapacity or insanity of one of the partners, gross misconduct, or neglect or breach of duty. See also joint adventure (in U.S. law) (venture (in U.S. law)).

(Revised by Ann De Vries)

What is Partnership?

For a meaning of it, read Partnership in the Legal Dictionary here. Browse and search more U.S. and international free legal definitions and legal terms related to Partnership.

Existence of Partnership

This section discusses generally the subject of Existence of Partnership, how to determine the facts essential to Existence of Partnership, and, to some extent, how to prove it in litigation and defense. Related topics are also addressed.