Partnership Law Overview

A partnership is defined as a for-profit business organization comprised of two or more persons. A partnership allows two or more persons to share responsibility for a business.

By Brad Nakase, Attorney

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A partnership is a business created by two or more individuals who wish to share profits and duties and assume responsibility for the company’s liabilities. In this contractual relationship, each partner also shares the other’s debts.

Partnership law is the type of law that governs partnerships, and it often deals with disputes between partners as they conduct their legal partnership and fulfill their obligations. This article will discuss partnership law and duties and explain why partnership agreements are so important.

In this article, our lawyer for partnership agreement discusses partnership law as follows:

1. What Are the Rules of a Business Partnership?

2. What is a Partnership Agreement?

3. What Are Partnership Duties?

4. Does a Partnership Require a Written Agreement?

5. What is a Limited Partnership?

6. How Can a Partnership Dispute Attorney Help?

What Are the Rules of a Business Partnership?

When two or more individuals begin sharing profits, they become partners by default, and no written documentation is needed to create the partnership. Business partners enter into their partnerships voluntarily.

Therefore, they are legal partners when partners begin assuming the roles of a general partnership, such as sharing each other’s debts.

To become a partner, one person might invest startup money into the company, offer their services to the business, or both. Once the partnership begins operating, each partner must fulfill certain obligations and have specific legal rights.

While partners do not need written documentation to set their companies into motion, they must create a shared partnership agreement.

What is a Partnership Agreement?

Partnership agreements help partners control the operations of their new businesses. Partnership agreements also establish rules and help partners preemptively avoid any partnership disputes that may form. While partnership agreements are not necessary for partners to start a company together, they help establish partners’ duties and responsibilities.

For example, a partnership agreement might stipulate which partner owns what percentage of the company, how roles are assigned, and how profits and liabilities will be divided. The partnership agreement also usually includes instructions regarding disputes or what happens if a partner retires, grows ill, or passes away.

When drafting a partnership agreement, individuals should contact an experienced business lawyer to ensure that they include all necessary information.

What Are Partnership Duties?

When no written agreement exists, business partners do not share profits and losses equally or take a salary.

Business partners pledge their loyalty to other partners, which means all partners have a duty to the business instead of themselves. Therefore, if a partner, for example, profits personally from a business deal but does not share their profits with their partner or the company, they violate their duty to the company.

Business partners must account for the partnership, meaning they must remain honest with the other partners about all business affairs.

Company partners also have unique rights. For example, unless the partnership agreement states differently, each partner has the right to contribute to the daily affairs and operations of the company. Each partner also possesses the right to bind the firm.

Business partners must choose their partners prudently since they trust them. All business partners should also establish protective policies through partnership agreements to protect themselves from possible negligence or misbehavior.

All company partners are personally responsible for their business duties. However, if the partnership, for example, assumes a significant amount of debt and cannot afford to pay the debt, the partners may sacrifice their assets to creditors. Therefore, business partners assume a significant risk when they create business partnerships.

Does a Partnership Require a Written Agreement?

A written agreement is not mandatory to start a partnership, yet many successful business partners a partnership agreement at the start of their partnership because of the benefits it offers.

What Are the Benefits of a Partnership Agreement?

Partnership agreements can:

Help partners update the traditional partnership structure to suit the company’s unique needs
Prevent present and future disputes among partners
Provide the company with a collective vision and agreed-upon direction
Establish the partners’ duties and responsibilities
Establish the partner’s different roles
Establish the priorities and goals of the company

The stronger and more specific the partnership agreement, the stronger the business partnership will become. While partnership agreements are not legally necessary, they help partners stay committed to the business, and to each other.

What is a Limited Partnership?

A limited partnership is a unique kind of business partnership because its owners invest money in the business while not having direct control.

Limited partners invest money into the business, but they do not take part in operating the business. Therefore, limited partners are typically investors who do not want to be held liable for any of the company’s debts.

How Can a Partnership Dispute Attorney Help?

Not all partnerships begin and end in harmony, but an attorney can help partners remedy the situation. Luckily, partners seeking to resolve disputes can turn to legal strategies for help. A skilled partnership dispute attorney can offer assistance based on the facts of the case.

If you did not create a partnership agreement, or the agreement in place is ineffective, contact an experienced attorney at Nakase Wade. We offer free consultations, so contact us today.

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