The Uniform Partnership Act
(UPA) defines a partnership
as "an association of two or more persons to carry on as co-owners a business for profit
." The UPA, an American law, also says that the key element of a partnership is the intent to associate
. In other words, one cannot join
a partnership unless all other partners consent
Partnership status is attained if there is:
- a sharing of profits and losses,
- a joint ownership of the business, and
- an equal right in the management of the business.
However, these conditions can be amended according to the partnership agreement. The previous three elements are the basic outlines that are defined by the UPA. However, should the partners in the business draft a partnership agreement, the guidelines set there will take precedence.
In forming a partnership, there must be an agreement, oral, written, or implied by conduct. There are some partnerships that must be in writing to be legally enforceable within the Statute of Frauds. If the partnership is to continue for over one year, then there must be a written agreement.
For most purposes, the law treats the general partnership as an aggregate of the individual partners. Sometimes the partnership is recognized as an independent entity, separate and apart from its aggregate members.
- There are tax advantages to partnerships. The partnership files only an informational tax return with the Internal Revenue Service, so pays nothing. The partners only have to pay their personal income taxes.
- There is more access to capital than a sole proprietorship. Each partner can contribute to the partnership.
- There are no organizational fees, annual license fees, or annual reports required by law.
- There is unlimited liability, as was the case with the sole proprietorship. The partners are fully responsible for any obligations, debts, or liabilities incurred by the partnership.
- There is joint liability amongst the partners. Each partner is responsible for the torts committed by other partners within the scope of the partnership.
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