Partnerships in every state but Louisiana are governed by the revised versions of the Uniform Partnership Act (UPA) which was initiated in 1914. Throughout this article we shall discuss some of the important aspects of this act as applied to the modern day businesses.
Definition of a partnership
The UPA defines a partnership as “an association of 2 or more persons to carry on as co-owners a business for profit.”
Liability of Partners
- Partnership is liable on partner’s breach of trust. This means the rest of the partners is liable in case of one partner within the scope of his/her authority receives money or property and misapplies it.
- All partners are liable jointly and severally for everything chargeable to the partnership. Although they are jointly liable for all other debts and obligations of the partnership, any partner may enter into a separate obligation to perform a partnership contract.
- A partner in a registered limited liability partnership is however not personally liable directly or indirectly, for any debt, obligation or liability of the partnership.
- However even if you are a limited partner you are liable in case of your own omissions, negligence, wrongful acts, misconduct or malpractice.
Rights and duties of partners
- Each partner is entitled to earn an equal share of profits if not agreed otherwise in the partnership.
- The partnership must indemnify every partner in respect of payments made and personal liabilities incurred by him or her in the ordinary and proper conduct of the partnership’s business.
- If a partner contributes any additional payment beyond the amount of capital which is agreed he or she shall be paid interest from the date of the payment.
- A partner shall receive interest on the capital contributed by him or her only from the date when repayment should be made.
- All partners have equal rights in the management and conduct of the partnership business.
- No partner is entitled to remuneration for acting in the partnership business other than a surviving partner who is entitled to reasonable compensation for his or her services.
- No person can become a member of a partnership without the consent of all the partners.
- A decision on a matter can be made by a majority of the partners only if it is agreed upon in the partnership agreement. If not it needs the consent of all the partners.
Dissolution
This is a situation where any partner intends to cease from associating in the continuation of the partnership. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. Dissolution could be due to
- the termination of a definite term agreed in the partnership agreement
- the willingness of one or more partners
- the removal of any partner from the business if such power is vested among partners
- any event which makes it unlawful for the business to be carried on
- the death of any partner
- the bankruptcy of any partner or the partnership or any other incapacity of a partner specified under decree of court
Winding up
Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of the last surviving partner has the right to wind up the partnership affairs provided that the partner or his/her legal representative may obtain the permission to wind up by the court.
These are few of the most important aspects of the UPA, for someone who is willing to start up a partnership. However it is highly advisable to consult a qualified lawyer for a detailed understanding of the applicability of the act to your unique circumstance.
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