Commissioners’ Prefatory Note
The need for uniform laws on partnerships as more and more interstate businesses sprouted up. These businesses not only did business in multiple states, but also had owners in multiple states. The commissioners also wanted to eliminate much of the uncertainty and theoretical inconsistency in the cases from different states. Finally, the committee wanted to provide authoritative guidance on how partnerships were to lawfully run their affairs, and how to properly end the partnership when the time comes.
Part I. The Intro and the Outro
§ 2 – The relevant terms are defined pretty broadly.
§ 3 – (1) “Knowledge” is given a broad meaning with an additional bit that I’m a little unsure of: a person has knowledge when “he has knowledge of such other facts as in the circumstances shows bad faith.” (2) “Notice” can be in person or by mail.
§ 4 – (1) Don’t use the common law anymore! This is the law now! We’re overhauling the common law! (2) Common law estoppel is still good (like promissory estoppel...uh, them other kinds of estoppel too). (3) The law of agency is still good, so check your Restatement. (4) When you interpret these statutes, do it in a way so that they’ll be uniform! That’s the point! (5) This act is prospective only! We won’t screw up existing arrangements.
§ 5 – If we don’t say anything about something, use the common law.
Part II. Just what is a partnership?
§ 6 – (1) A partnership is:
1. an association
2. of two or more persons (and notice how person is defined in § 2: “individuals, partnerships, corporations, and other associations”…a “person” could be another partnership! You could have partnerships of partnerships!)
3. to carry on as co-owners
4. a business (“every trade, occupation, or profession”)
5. for profit.
(2) Caveat! If you become a partnership under some other statute or some other authority other than the enacting state, then you’re not a partnership as far as this act goes. But, if you would have been a partnership before this act was passed, then this act applies to you. And the act applies to limited partnerships except where the statutes are inconsistent.
§ 7 – So does a partnership exist?
(1) If A and B aren’t partners to each other, then they can’t both be partners to C, except under § 16 below.
(2) Common law co-ownership type stuff like joint tenancy, tenancy in common, tenancy by the entireties and so on doesn’t automatically a partnership make.
(3) Sharing gross returns doesn’t make a partnership.
(4) But, if you get a share of the profits, then that’s evidence you’re a partner, unless:
a. The profits were going to pay a debt.
b. The profits were paid as wages or rent.
c. The profits were paid out to a representative of a deceased partner as an annuity.
d. The profits were paid out as interest on a loan.
e. The profits were paid as consideration for the sale of a “good-will”…huh?
§ 8 – Just what belongs to the partnership?
(1) Everything the partnership has when it’s formed and everything it buys on its own account thereafter is considered partnership property.
(2) If you buy something with the partnership’s money, it will belong to the partnership.
(3) The partnership can get real estate, but it must be conveyed in the name of the partnership.
(4) We presume a fee simple absolute will be granted to the partnership in a conveyance unless it says otherwise.
Part III. Doing deals with the partnership
§ 9 – When does the action of some partners bind the whole partnership?
(1) Every partner is an agent of the partnership and can exercise agency power unless they’re otherwise not allowed.
(2) But if a partner does something that doesn’t seem consistent with carrying on the business of the partnership, it’s not binding on the other partners unless they all agree.
(3) You need authorization from all the partners to be able to do these things:
a. Put the partnership property in trust to satisfy creditors
b. Dispose of the “good-will” of the business…huh again? (Black’s suggests that a business is more than just the sum of its assets, and “goodwill” is that something on top of the raw ability of the “stuff” to make income over time. This would include stuff like reputation, prestige, and things like that.
c. Do something that would make it impossible to carry on the business
d. Confess a judgment
e. Go into arbitration to settle a claim or liability
(4) If a partner is restricted from doing certain things, and makes a deal that they’re not supposed to with a third party who knows better (i.e. that the deal can’t be any good for lack of authority by that partner), then the deal doesn’t bind the other partners.
§ 10 – Conveying real property!
(1) Any partner can convey title to real estate. But, the partnership can get it back unless the whole partnership is bound to the conveyance under § 9 or unless the real estate has subsequently been conveyed to somebody else entirely who paid money for the real estate and who had no idea that the partner didn’t have the authority to convey (sort of protecting an innocent bystander).
(2) The equitable interest in real estate can be transferred by any partner, except if the partnership isn’t bound by § 9.
(3) Guh…if some of the partners own land, but it’s not clear, the partners can get it back unless they’re bound by § 9 or there’s an “innocent bystander”.
(4) Same deal as (2), except in this one…wait, what’s the difference? It says something about being held by a third party in trust. But I don’t see how this and (2) are different, and if they are, they seem inconsistent. I dunno.
(5) This one isn’t bad…if title to property is in the names of all the partners and the conveyance is executed by all the partners then all the partners are bound. If you really want to convey stuff, this seems like the cleanest way to do it.
§ 11 – When a partner admits stuff that has to do with the partnership, and it’s within the scope of his authority, it becomes evidence that binds the whole partnership. So watch out!
§ 12 – Basically, what one partner knows, every partner is imputed to know.
§ 13 – If one partner does something wrong, all the partners are liable.
§ 14 – If one partner breaches a duty as a trustee for a third party, the whole partnership is liable.
§ 15 – The partners are liable jointly and severally for stuff under § 13 and § 14, but only jointly for everything else.
§ 16 – If you act like a partner, and hold yourself out as someone in the partnership (in public), and you make a deal with someone and they believe you rely on your statements and then you screw them over, you and the people you claimed to be your partners will be held liable by estoppel!
§ 17 – When you’re a new partner, you can be held liable for debts and judgments that arose before you became a partner, but you won’t be liable out of your own property, but only out of the partnership’s property.
Part IV. The relationship between the partners
§ 18 – Lots of stuff here. (a) Basically, the partners must share and share alike in good times and in bad, whether there be profits or losses. (b) If a partner spends personal money to do the partnership’s business, the partnership basically promises to pay that partner back. (c) & (d) If the partner makes a loan to the partnership, the partner must be paid back with interest. (e) All the partners get equal rights in managing the partnership. (f) No partner is entitled to get paid for what they do for the partnership. They just get a share of the profits. (g) No one can join the partnership unless all the partners agree. (h) In ordinary matters, it’s majority rules among the partners, but if there’s a previous agreement among them, it can’t be violated without the consent of all the partners.
§ 19 – You have to keep the books of the partnership at its place of business and all the partners must be allowed to look at them.
§ 20 – All the partners must freely share all information about the partnership with other partners or their legal representatives.
§ 21 – The partner has a fiduciary duty to the partnership to make sure the partnership gets all the benefit from any use of any of its property. In other words, if an individual partner has cash in hand from the partnership, it still belongs to the partnership.
§ 22 – A partner can get a formal accounting of the partnership in three specific cases and when justice otherwise requires. (a) You can get an account if you’re wrongfully kicked out of the partnership. (b) You can get one by agreement (contractually). (c) You can get one by § 21. (d) And when justice requires it!
§ 23 – If you originally established the partnership for a fixed period of time or for a certain purpose, but then you keep acting like a partnership after that time or after the completion of the project, then the partnership will keep going under the same rules as a partnership at will, and the partnership keeps going!
Part V. Just what does a partner own?
§ 24 – A partner owns three things: (1) a share of the partnership’s specific property, (2) a share of the partnership itself, and (3) the right to be a part of the management of the partnership.
§ 25 – A partner co-owns the specific partnership property as a tenant in partnership. Each partner can possess partnership property for partnership use only. But with the consent of all the other partners, any one partner can use partnership property for other purposes. (I’m imagining if the partnership owned a beachfront condo for entertaining clients, but one of the partners wanted to use it in the offseason for personal use. They could if all the partners agreed to let them.) Individual partners can’t assign their interest in the ownership of specific partnership property. You can’t attach or execute a partner’s right in specific property. You can only attach property as to the partnership as a whole. When a partner dies, the right to the specific partnership property is divided up among the surviving partners. The partner’s right in specific partnership property isn’t subject to various personal encumbrances.
§ 26 – The second thing a partner owns, an interest in the partnership, is the right to the profits and “surplus” of the partnership. This is considered personal property as opposed to real property.
§ 27 – The partner can convey their interest in the partnership and that doesn’t dissolve the partnership. But the partner can only convey the right to receive profits, not the right to participate in management of the partnership. If the partnership dissolves, the assignee can then get an account of the partnership and whatever their interest is.
§ 28 – An individual partner’s interest can be foreclosed upon. Something like that. I think you can take their share and receive their profits to satisfy a debt they owe. I don’t think this would affect the other partners.
Part VI. Putting the bad boy to bed
§ 29 – The definition of dissolution is broad and generally indicates a continuing process rather than a discrete event. Whenever any of the partners stops doing partnership business and switches into shutdown mode, then dissolution is going on.
§ 30 – But…dissolution doesn’t terminate the partnership all at once! The partnership isn’t terminated until it’s totally “wound up”.
§ 31 – Lots of different things that cause dissolution, like (1)(a) the end of the agreed upon term, (b) the will of any one partner when it’s a partnership at will, (c) consent of all the partners, (d) if one of the partners gets kicked out, (2) if the agreement between the partners is broken, (3) if something makes it illegal to carry on with the partnership, (4) if any partner dies, (5) if any partner or the partnership itself goes bankrupt, or (6) if a court says so under § 32 below.
§ 32 – A court can dissolve a partnership several ways upon the request of any of the partners: (1)(a) if a partner is declared crazy, (b) a partner can’t perform their part of the partnership agreement anymore, (c) a partner is guilt of wrongdoing that hurts the business such that it can’t go on, (d) a partner breaks the partnership agreement willfully, (e) the business would only be able to go on at a loss, (f) whenever it’s just & fair. (2) Something!
§ 40 – Lots of stuff about distribution of assets when the partnership goes kaput!