Business Law 101/ Partnership
A partnership is created by an agreement between two or more persons to act as co-owners of a business. The partners are considered the agents of the partnership, not employees. As such, each partner has the authority to bind the partnership and each is liable for the debts of the partnership.
The partnership does not require a written agreement, but it is highly advisable. Even in the absence of a written agreement, the formation and operation of the partnership will fall under the requirements of the Uniform Partnership Act of the Florida Statutes. A partnership does not need a trade name though they are common. If they use one, it must be registered with the Department of State. In addition, a partnership generally may not use the words “company,” “corporation” or “incorporated” in its name.
A partnership may be a general partnership formed to operate a continuing business, or it may be a special partnership formed for a single transaction only. It is also not required in most circumstances for a partnership to register its existence with the Department of State; however, registration is available and advisable. Because a partnership does not have to be registered, the identity of the partners may be kept confidential, unless required to be disclosed by law. Anyone who can legally enter into a contract may become a partner, including minors. A partnership may also be created even if the partners don’t design it as such. The issue is how the relationship appears, not what it is called.
To determine if a partnership exists, look at the following factors: Control, sharing of profits and losses, co-ownership of property, contribution of property, contribution of efforts, among other things.
Property purchased with partnership assets becomes property of the partnership. Each partner has the right to use partnership property for partnership purposes. The property is not divisible, so the partners cannot exclude the other from using the assets. Upon the death of a partner, the rights of the partnership assets transfer to the remaining partner rather than to his heirs. A partnership is a voluntary agreement and is personal between the partners. No one can be forced to be a partner with someone they don’t want to be a partner with.
Partnerships can be terminated by a number of methods. It may occur by agreement of the partners, by expulsion of a partner, by a withdrawal of a partner, by the death of a partner, by bankruptcy of the partnership or by court order based on insanity, incapacity, misconduct, impracticability, failure and equitable circumstances such as fraud. The partners must be given notice of the dissolution, unless it is clearly shown. After the dissolution, the partnership may continue for a reasonable period for the sole purpose of winding down its affairs. During this period, the partners cannot continue with business activity, but only take those actions necessary to wind the business down. At the winding down, creditors get first priority of payment, and then the partners divide the balance. This is done by first reimbursing the partners for their contributions to the partnership, then dividing the capital of the business and lastly dividing the assets.
What can partners do? Each partner may do the following in the furtherance of the partnership business: Enter into partnership contracts, sell goods, purchase property in the partnership name, borrow money, obtain insurance, hire employees, pay claims, make admissions of liability and accept notice of service on behalf of the partnership.
What can’t a partner do? Without consent of all other partners, a partner cannot: enter into a contract that ceases partnership business (such as selling all assets of the partnership), submit controversies to arbitration, confess judgments, or assign property to creditors.
Partners have certain duties to the partnership and to the other partners. These duties include a duty of loyalty and good faith (a partner cannot take actions that would be detrimental to the partnership, nor take a benefit for himself that would rightfully belong to the partnership), a duty of obedience to the partnership agreement, a duty to use reasonable care, a duty to provide information to the partnership for any issue that may affect the partnership, and a duty of accounting for all expenses of the partnership.
Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.
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