When two or more people carry on a business for profit, the law recognizes the existence of a general partnership. Unlike corporations, limited liability companies, limited partnerships, and limited liability partnerships, owners of a business do not need to follow specific formalities to form a general partnership. At the same time, however, partners are not protected from liability for the business’ debts. Sole proprietorship’s and general partnerships are considered the “default” forms of business when an individual or more than one individual establish a business, since one form of business entity or the other is generally established if the parties do not choose an alternate form.
Partnerships are governed in the vast majority of states by one of the versions of the Uniform Partnership Act (UPA), which was originally drafted by the Uniform Law Commissioners in 1914. Prior to 1994, every state, with the exception of Louisiana, adopted the UPA. The National Conference of Commissioners on Uniform State Laws significantly revised the UPA in 1994, with subsequent modifications in 1995, 1996, and 1997. The majority of states have adopted the 1997 version of the act, which is generally referred to as the Revised Uniform Partnership Act (RUPA). The RUPA revised the UPA in several key areas, though many of the basic rules governing partnerships did not change from the older law to the new law.
The UPA and RUPA, in many ways, provide “default” rules that govern general partnerships. That is, the rules in the UPA and RUPA govern the partnership, unless the partners agree otherwise. Thus, each partner generally has a right to manage the partnership that is equal to the rights of other partners. Similarly, partners can agree how they will share profits, how they will contribute to pay for losses, how they will divide the labor, and how the partnership will dissolve when the partnership ends. Parties cannot, however, agree to shield personal liability from one or more of the partners. If a partner or partners want to avoid personal liability for the debts of the partnership, they will need to form one of the business entities that provide limited liability.