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. 

Dissociation & Dissolution

If an Agency/Partnership essay appears on the UBE, the odds are reasonably high that the concepts of dissociation and dissolution will be included in that essay.

Here is some stuff to keep in mind:

A partner is dissociated from a partnership whenever the partnership has notice of the partner's intent to withdraw as a partner. A partner can dissociate at any time and the intent to withdraw (absent an agreement to the contrary) need not be in writing. If the partnership is at will and in dissociating no provision is breached in the partnership agreement, then the partner will have no further obligations towards other partners after dissociation. If, instead, the partnership is not at will, then wrongful dissociation might lead to liability on the part of the dissociating partner. 

Generally, when a partner dissociates from a partnership at will, dissolution of the partnership follows and the partnership must be wound up. But not always. Such dissolution can be rescinded by a vote of all remaining partners. Worth noting that the dissociating partner is no longer a partner and as such does not take part in that vote. 

If because of this vote the partnership is not dissolved, the dissociating partner is entitled to have the partner's interest purchased for a buyout price equal to that partner's interest in the value of the partnership. If the dissociated partner makes a written demand for payment and no agreement is reached within 120 days after demand, the partnership must make a payment equal to the amount it estimates as the buyout price plus any accrued interest. And if written demand is not made, the buyout price is still required to be paid to the dissociating partner but the 120 day limitation as to when payment must be paid does not apply. 

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.