Business, Legal & Accounting Glossary
In the commercial and legal parlance of most countries, a General partnership or simply a Partnership refers to an association of persons or an unincorporated company with the following major main features:
For the most part, the partners own the business assets together and are personally liable for business debts.
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.
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.
Each general partner is deemed the agent of the partnership. Therefore, if that partner was apparently carrying on partnership business, all general partners can be held liable for his dealings with third persons.
Each partner may be held jointly and severally liable for a co-partner wrongdoing or tortious act (e.g. the misapplication of another person’s money or property).
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.
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.
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.
There has been considerable debate in most states as to whether a partnership should remain aggregate or be allowed to become a business entity with a separate legal personality.
In the United States, section 201 of the Revised Uniform Partnership Act (RUPA) of 1994 provides that “A partnership is an entity distinct from its partners.” Likewise, the UK Law Commission in Report 283 has proposed to amend the law to create a separate personality for all general partnerships (the Limited Liability Partnerships Act 2000 does confer separate personality on LLPs).
While France, Luxembourg, Norway, the Czech Republic and Sweden also grant some degree of legal personality to commercial partnerships, other countries such as Belgium, Germany, Switzerland, and Poland do not allow partnerships to acquire a separate legal personality but permit partnerships the rights to sue and be sued, to hold property, and to postpone a creditor’s lawsuit against the partners until he or she has exhausted all remedies against the partnership assets.
In December 2002, the Netherlands proposed to replace their ordinary partnership, which does not have legal personality, with a public partnership which allows the partners to opt for legal personality.
Japanese law provides for Civil Code partnerships (組合 kumiai), which have no legal personality, and Commercial Code partnership corporations (持分会社 mochibun kaisha) which have full corporate personhood but otherwise function similarly to partnerships.
The two main consequences of allowing separate personality are that one partnership will be able to become a partner in another partnership in the same way that a registered company can, and a partnership will not be bound by the doctrine of ultra vires but will have unlimited legal capacity like any other natural person.
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This glossary post was last updated: 5th May, 2020 | 0 Views.