A partnership is a for-profit business organization comprised of two or more persons. State laws govern partnerships. Under various state laws, "persons" can include individuals, groups of individuals, companies, and corporations. As such, partnerships vary in complexity.
Each partner shares directly in the organization's profits and shares control of the business operation. The consequence of this profit sharing is that partners are jointly and severally liable for the partnership's debts.
Creating A Partnership
Creation, organization, and dissolution of partnerships are governed by state law. However, many states have adopted the Uniform Partnership Act.
A partner relationship is generally the result of a contract either express or implied. To determine whether a partnership exists courts look at: (1) intention of the parties, (2) sharing of profits and losses (3) joint administration and control of business operation, (4) capital investment by each partner, and (5) common ownership of property.
Federal law plays a minimal role in partnership law except in the context of a diversity action, or in instances where a partnership agreement contains an effective choice-of-law provision designating the application of federal law. Federal law also governs whether a partnership exists for federal tax purposes.
For state and federal tax purposes, a partnership is not a taxable entity. Partnership income is taxable to the partners in proportion to their share in the company's profits.
menu of sources
- U.S. Code: 26 U.S.C.
- Internal Revenue Code
Federal Judicial Decisions
- U.S. Supreme Court:
- U.S. Circuit Courts of Appeals: Recent Partnership Decisions
State Judicial Decisions
- N.Y. Court of Appeals:
- Appellate Decisions from Other States
Key Internet Resources
- Partnerships and LLPs (Nolo)
Useful Offnet (or Subscription - $) Sources
- Good Starting Point in Print: J. Dennis Hynes, Agency, Partnership, and the LLC in a Nutshell, West Group (2001)