Formation of a Partnership

There's a lot that can be tested in Partnership law on the UBE. As an initial matter, though, you'll want to know how a partnership is formed. And to understand that, you'll need to know both what is required and also what is not required.

A partnership is formed when when two or more people associate to carry on as co-owners of a business. Interestingly, no formal agreement is required to form a partnership.  In other words, the intent to associate may be implied from conduct. Worth noting though that the Statute of Frauds will generally require a writing if the partners wish to agree to remain partners for more than a year. 

Because no formal agreement is generally required, it may be difficult to determine whether a partnership actually exists, and the courts will generally look to the intent of the parties which can be established by observing whether profits were shared. Sharing of profits raises a presumption of partnership unless the share was received as payment for a debt, services rendered, rent payments, etc.  Courts will also look to other factors such as whether property is held in joint tenancy, and whether the parties have designated themselves as partners, but none of these factors will be as dispositive as a determination that profits were shared. 

As to the required capacity, anyone who is capable of entering into a binding contract may enter into a partnership. If someone lacks such capacity, that person will be liable only to the extent of his capital contributions. Provided there are at least two others wishing to form a partnership, the partnership may still exist without that person unless steps are taken to dissolve it. 

A partnership formed to achieve an illegal purpose is void, and unless otherwise agreed upon, no one can become a partner without the express or implied consent of all other partners.