Chapter Three General Partnerships

A voluntary association of two or more persons who agree to carry on business together for profit.

Unlimited Personal Liability  Liability for business debt, which extends beyond what is invested in a business to an individual’s personal assets

Law Governing Partnerships  UPA: Uniform Partnership Act, model for partnership legislation in about one-fourth of the states  RUPA: Revised Uniform Partnership Act, model for partnership legislation in about three-fourths of the states

Partnerships by Categories (2008) Arts, Entertainment and Recreation2% Health Care and Social Assistance2% Agricultural, Forestry, Fishing, and Hunting5% Accommodation and Food Services4% Retail Trade5% Construction6% Financing and Insurance11% Admin/Support/Waste Management/ Remediation Services 2% Professional, Scientific, and Technical Services6% Real Estate/Rental/Leasing46% Other11%

Advantages of General Partnerships  Ease of formation  Flexible management  Ease of raising capital  Pass-Through Taxation

Disadvantages of General Partnerships  Unlimited personal liability  Lack of continuity  Difficulty in transferring partnership interest

Partnership Agreement  Name of the partnership  Names and addresses of the partners  Recitals  Purpose  Address  Term  Financial provisions  Profits and losses  Management and control  Admission of new partners and withdrawal of partners  Dissolution  Miscellaneous provisions  Signature and dates

UPA Approach to Dissolution  Under the UPA, dissolution of the partnership triggers a winding up, namely, a wrapping up of the business affairs of a partnership.  A variety of events can cause a dissolution, including the following:  the ending of the term of a partnership;  the withdrawal at will of any partner (if there is no definite term or purpose of the partnership);  unanimous agreement of all partners;  and the death, expulsion, or bankruptcy of a partner.

RUPA Approach  To ameliorate the harsh effects of the UPA approach requiring a dissolution and winding up of a partnership every time a partner leaves the enterprise, the RUPA provides that in almost all cases, a partnership may buy out the interest of a partner who leaves the partnership (such departure being referred to as a dissociation), and the partnership will continue its business.

Dissociation  A withdrawal of a partner from a partnership; does not necessarily cause a dissolution or termination of partnership  Wrongful dissociation: a dissociation caused by a breach of partnership agreement

Key Features of General Partnerships Slide 1 of 2  Partnerships are formed by agreement, either oral or written.  All partners share rights to manage the partnership.  Partners share profits and losses according to their agreement; if no agreement, profits and losses are shared equally, regardless of capital contribution.  Partners have unlimited personal liability for partnership obligations.  Liability is joint and several, meaning that each partner is completely liable for any debt.

Key Features of General Partnerships Slide 2 of 2  Partnerships are easily and inexpensively formed.  Partners owe each other fiduciary duties.  Under the UPA, nearly any withdrawal by a partner causes a dissolution of the partnership.  Under the RUPA, withdrawal of a partner may not necessarily cause a dissolution and winding up of the partnership; in many instances the dissociating partner is bought out.  Partnerships file information tax returns but do not pay federal taxes; all income, whether distributed or not, is passed through to the partners who pay tax at their appropriate individual rates.