Why Partnership Is Not a Separate Legal Entity

A corporation organized as a separate legal entity is a structure capable of: If the lawsuit costs $25,000, your bet consists of $6,250 for litigation ($25,000 x 25%). If, in the context of criminal proceedings, a booking request is legally admissible, as a pro. This article contains only general information on legal issues and developments and is not intended to be specific legal advice. For more information, please see our disclaimer. The General Partner is responsible for the management of LP and its activities. A general partner has all the rights and is subject to all the obligations and responsibilities of a partner in a partnership and, as such, is liable without limitation for the obligations and liabilities of LP. A general partner acts as a representative of CP and the limited partners for the purposes of CP`s business and enters into contracts with third parties on behalf of CP. A general partner may not perform certain acts without the consent of all the limited partners, including an act contrary to the act or declaration of partnership, or actions that prevent the limited partnership from conducting its business in the ordinary course of its business. Since a general partner has unlimited liability, it is common for the general partner to be a corporation.

The partners have the right to participate equally in the profits of the company and to contribute to the losses of the company, unless the articles of association provide for a different division. Often, partnerships distribute profits in proportion to the capital each partner contributes to the business or the time each partner devotes to the partnership business. A partnership can be formed in two main ways: by oral or written agreement. A partnership that occurs at will or orally can also be dissolved at will. In the absence of a formal agreement, state laws (the Uniform Partnership Act, except in Louisiana) govern business. These laws stipulate that, without agreement, all partners share equally in the profits and losses of the partnership and that the partners are not entitled to compensation for services. If you want to shape your partnership differently, you need to draft a partnership agreement. The subject is dealt with in more detail in this volume in the framework of the Partnership Agreement. Under both versions of the Act, the partnership may maintain business records as if it were a separate entity, and its accountants may treat them as such for the purposes of preparing profit and loss accounts and balance sheets.

Thus, according to RUPA, a partnership has entity characteristics, but the partners, as always, remain guarantors of the partnership obligations – this is the joint and several liability of the partners, which was mentioned in the previous paragraph (and will be discussed in more detail in Chapter 12 „Operation and termination of the partnership”). This is a very important point and a major weakness of the social form: all partners are, and each of them ultimately personally responsible, for the obligations of the partnership, without limitation, which includes personal and unlimited liability. This personal liability is very unpleasant and, with a few exceptions, has been abolished with limited partnerships and limited liability companies, as indicated in Chapter 13 „Hybrid Forms of Business”. And, of course, corporate owners are generally not responsible for the obligations of the company, which is a major reason for the popularity of the corporate form. Partnership law is very important because it is the way most small businesses are organized and because it is possible for a person to become a partner unintentionally. Partnership law goes back a long way, but in the United States, most—but not all—states have passed the Revised Uniform Partnership Act (RUPA, 1997) over the previous Uniform Partnership Act, originally enacted in 1914. An important change from RUPA is the direct announcement that a partnership is a unit: it is like a person for accounting, litigation, bankruptcy and property purposes. Partnerships do not pay taxes; This is what individual partners do.

But in practice, RUPA codifies existing state law in these areas, and the partners can shape their relationship in the partnership agreement as they wish.