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Chapter Three
General Partnerships
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 Recreation 2%
Health Care and Social Assistance 2%
Agricultural, Forestry, Fishing, and Hunting 5%
Accommodation and Food Services 4%
Retail Trade 5%
Construction 6%
Financing and Insurance 11%
Admin/Support/Waste Management/
Remediation Services
2%
Professional, Scientific, and Technical Services 6%
Real Estate/Rental/Leasing 46%
Other 11%
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.