Creation & Proof of Partnerships

With all subjects on the bar exam, you should have a solid foundation of the basics. This is because without that foundation it'll be tough to follow the more complex aspects of the subject. Everything is built from the basics.

For example, for Partnerships you should know well how partnerships are created and how it's determined whether a partnership exists. This post will expand upon those topics:

As soon as two or more people associate to carry on as co-owners of a business, a partnership is formed. Because that's all that's required, it's also true that no formal written or oral agreement is necessary to create a partnership. Although no formal writing is needed, the Statute of Frauds should always be considered. For example, if partners wish to have an enforceable agreement to remain partners for more than 1 year, a writing to reflect that agreement may be required. 

Anyone who is capable of entering into a contract may be a partner. Unless otherwise agreed, no one can become a partner without the express or implied consent of all other partners. A partnership may choose to file a statement of partnership authority with the secretary of state which will then provide constructive notice to others of the existence of the partnership. Unlike in other business arrangements, though, this statement is not required. 

If more formalities were required to create a partnership, it would be relatively easy to determine the existence of a partnership. But because there are few formalities, it's not as easy. To determine whether a partnership exists, courts will often look to the intent of the parties. This can be a bit tricky; the partners don't actually have to intend to become partners; rather, they just have to intend to carry on a business as co-owners. Stated otherwise, the fact that partners did not intend to create a partnership is not conclusive evidence that a partnership does not exist. 

As in other areas of laws, intent might not be so clear. When intent to carry on as co-owners of a business is uncertain, the courts will look elsewhere in determining whether a partnership exists. Sharing of profits raises a presumption of partnership, though this presumption can be rebutted by proof that the share was received as payment of a debt, rent payment, as an annuity or other retirement benefit, etc. 

Although sharing of profits raises a presumption of partnership existence, other factors (although not rising to the level of a presumption) may provide additional evidence that a partnership has been formed. The following are such factors to consider when determining whether a partnership exists: title to property is held in joint tenancy or in common; the parties designate their relationship as a partnership (though, again, not conclusive); the venture undertaken by the parties requires extensive activity; and the sharing of gross returns.

These factors are especially important because an essay question may leave open whether a partnership exists and the remainder of the analysis will depend upon getting that determination right.