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                General  Partnerships

In General: A form of business entity in which 2 or more co-owners engage in business for profit. For the most part, the partners own the business assets together and are personally liable for business debts.   (Also see Relational FLP.)

Sharing Profits: In the absence of a partnership agreement, profits are shared equally amongst the partners. A partnership agreement, however, will usually provide for the manner in which profits and losses are to be shared.

Unlimited Personal Liability for Losses: Each Partner is, jointly and severally, personally liable for debts and taxes of the partnership. For example, if the partnership assets are insufficient to satisfy a creditor’s claims, the partners’ personal assets are subject to attachment and liquidation to pay the business debts.

Liability for a Co-partner’s debts: Each general partner is deemed the agent of the partnership. Therefore, if that partner was apparently carrying on partnership business, all general partners can he held liable for his dealings with third persons.

Liability for a co-partner’s wrongdoing: Each partner may be held jointly and severally liable for a co-partner’s wrongdoing or tortuous act (e.g. the misapplication of another person’s money or property.

Duration: Technically, a partnership terminates upon the death, disability, or withdrawal of any one partner. However, most partnership agreements provide for these types of events with the share of the departed partner being purchased by the remaining partners in the partnership.

Management and Control: In the absence of a partnership agreement, each general partner has an equal right to participate in the management and control of the business. Disagreements in the ordinary course of partnership business are decided by a majority of the partners. Disagreements of extraordinary matters and amendments to the partnership agreement require the consent of all partners

Transferability: Unless otherwise provided in the partnership agreement, no one can become a member of the partnership without the consent of all partners. However, a partner may assign his share of the profits and losses and right to receive distributions ("transferable interest"). Further a partner’s judgment creditor may obtain an order charging the partner’s "transferable interest" to satisfy a judgment.

A Succinct History of Partnerships

Partnership, an unincorporated association of two or more persons, known as partners, having for its object the carrying on in common by the partners of some predetermined occupation for profit, such profit, according to the usual definition, to be shared by the several partners. "The terms partnership and partner", remarks Lindley (The Law of Partnership, 7th ed., London, 1905, 10), "are evidently derived from to part in the sense of to divide amongst or share", and the use of the word "co-partnership" in the general sense of "co-ownership" is now obsolete (Queen against Robson, English Law Reports, 16 Queen's Bench Division, 140). Lindley, however, suggests that an association might be deemed according to the English Common Law a partnership even though its object were the application of profits to other use than the use of the partners (op. cit., where numerous definitions of partnership are quoted).

The Roman Civil Law treated elaborately of partnership under the name of Societas (Pothier, "PandectFF JustinianeFF", LXVII, Tit. II). And archeologists claim to have ascertained its existence "in a highly developed state" in ancient Babylon (Johns, "Babylonian and Assyrian Laws", New York, 1904, 287, 290, 291).

Partnerships in the Roman Law were included among consensual contracts, those which required no certain form, nor any writing, but which became effectual by simple consent, qui nudo consensu perficiuntur, "PandectFF", supra, "The Commentaries of Gaius", III (Cambridge, 1874), 135, 136.

And in like manner by the English Common Law, the basis of the law of the several States of the United States, except Louisiana, as well as the basis of the law of all British possessions, except those acquired from France, Holland, and Spain (Burge, "Commentaries on Colonial and Foreign Laws", new ed., London, 1907, 1, 7, 8), partnership may be formed by verbal agreement, although it is usually evidenced by written articles (see as to Statute of Frauds rendering a written agreement necessary, 116 New York Court of Appeals Reports, 97).

The contract of partnership can be legally entered into only by persons who are competent to contract. Accordingly, a partnership could not be formed at Common Law between husband and wife (Bowker against Bradford, 140 Massachusetts Supreme Court Reports, 521).

The English Law of partnership was itself to a great extent founded on what was known as the "Law Merchant", and thus "on foreign ideas as to matters of trade and the customs of merchants drawn frequently from the Lombard or Jew traders of the Continent", which became "by Statute Law, custom or court decision . . . such a considerable body of the English law as to have a name to itself" (Stimson, "Popular Law-making", New York, 1910, 90.

Profit or gain is the object of the relation; but not necessarily profit or gain to result from buying or selling of goods. Lawyers, for example, may enter into partnership (Kent, "Commentaries on American Law", III, 28). But since the pursuit of gain is essential to the legal notion of partnership, therefore, a "Young Men's Christian Association" defining its object to be "the extension of the kingdom of the Lord Jesus Christ among young men, and the development of their spiritual life and mental powers", has been held to be not such an association as the law deems to be a partnership (Queen against Robson, supra). The title of the association, the partnership or firm name, if not prescribed by express agreement, may be acquired by usage.

These expressions "firm" and "partnership" are frequently employed synonymously. Originally, however, the word firm signified "the partners or members of the partnership taken collectively" (Parsons, "A treatise on the Law of partnership", 4th ed., Boston, 1893, 1). In the English Partnership Law of 1890 "partners are called collectively a firm" (Lindley, op. cit., 10); and Parsons (op. cit., 2) remarks that "the business world" regards the firm "as a body which has independent rights against its members as well as against strangers". This distinction sanctioned by the law of Louisiana, and also by the law of those European countries whose jurisprudence is based on the Roman Civil Law, has not always been so clearly recognized by the English Courts (ibid, 3; Lindley, op. cit., 127, 128). According to the Common Law, the property, or stock in trade, of the firm is owned by the partners in joint tenancy, but without the right of survivorship which ownership in joint tenancy usually implies; "and this", remarks Kent, op. cit., III, 36, "according to Lord Coke was part of the law merchant for the advancement and continuance of commerce and trade".

It is of the essence of the contract that each partner shall "engage to bring into the common stock something that is valuable"; but one of the partners may advance funds and another skill (ibid, 24, 25). And the proportions of their respective interests in the firm property are such as they may have agreed (Parsons, op. cit., 138).

In the course of the business of the partnership and within its scope, every partner "is virtually both a principal and an agent" (Cox against Hickman, 8 House of Lords cases, 312, 313). As principal, each partner binds himself, and, as agent, binds the partnership, or more properly, the firm (Parsons, op. cit., 3, Cox against Hickman supra). The firm is bound by a sale which one of the partners may effect of partnership property, disposition of the property being the object of the partnership (Parsons, op. cit., 134). And so, purchase of property by a partner binds the firm, if the purchase be made "in the course and within the scope of the regular business of the firm" (ibid, 139).

Death of a partner dissolves the firm, unless the partnership agreement provide to the contrary (ibid, 431, 432, note). In the absence of such a provision the surviving partners have, indeed, a right to the possession and management of the property and business, "but only for the purpose of selling and closing the same" (ibid., 443).

And dissolution of a partnership before the lapse of a period agreed upon for its continuance may result from some event other than the death of a partner. The relation being one of mutual and personal confidence and of "exuberant trust" (Bell, "Principles of the Law of Scotland" 10th ed., Edinburgh, 1899, sec. 358), no partner may introduce, whether voluntarily or involuntarily, a substitute for himself. On assignment by an insolvent partner for benefit of his creditors, the assignee becomes entitled to an accounting, but without becoming a partner. And a like result follows bankruptcy of a partner. (Kent, op. cit., 59). Bankruptcy of the firm works its dissolution, the property vesting in an assignee or other statutory official who cannot carry on the business (ib., 58). So, according to the Common Law, marriage of a female partner dissolved the partnership, "because her capacity to act ceases and she becomes subject to the control of her husband" (ibid, 55).

If at any time dissensions among the partners destroy mutual trust and confidence, there seems to be great doubt, at least, whether the discordant partners ought to be compelled to continue in partnership (Parsons, op. cit., 371, 396, note c).

"The law merchant gave a right for an accounting by the representatives of a deceased partner against the survivor" (Street, "Foundations of legal liability", New York, 1906, II, 334), and whenever the partnership is to be dissolved and its affairs settled, each partner or his legal representative is entitled to "his distributive share after the partnership accounts are settled and the debts paid" (Parsons, op. cit., 231, 508).

LINDLEY, The Law of Partnership (7th ed., London, 1905); PARSONS, A Treatise on the Law of Partnership (4th ed., Boston, 1893).

Transcribed by Douglas J. Potter
Dedicated to the Sacred Heart of Jesus Christ

The Catholic Encyclopedia, Volume XI
Copyright © 1911 by Robert Appleton Company
Online Edition Copyright © 1999 by Kevin Knight
Nihil Obstat, February 1, 1911. Remy Lafort, S.T.D., Censor

Imprimatur. +John Cardinal Farley, Archbishop of New York



































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C. Francis Baldwin
Updated Wednesday, May 26, 2004