How Partnerships Are Formed
( Originally Published 1918 )
All persons who are legally competent to do business for themselves may enter into partner-ship.
A partnership may be formed by a mere verbal agreement and stand in law, but a written agreement is the only safe one, and he who neglects it will doubtless have reason to regret it later.
The parties may agree as they please as to sharing profits or losses, but in the absence of writing to prove the contrary the law will assume that partners share profits and losses equally.
The articles of agreement should be drawn up with special care in writing the details of conditions, liabilities and proportionate share of profits or loss fully stated.
How Soon a Partnership Is in Force: It is presumed that a partnership commenced at the time the articles of copartnership are drawn unless otherwise stated.
Use of Name in Partnership.—When a partner withdraws from a firm, but allows his name to be used as before, or if one lends his name to a firm, in either case he is held responsible to third persons as a partner provided such third person has given credit on the faith thereof.
Suing Partners.—It is generally supposed that one partner cannot sue another. This is not wholly true. A partner can sue for a balance due him after settlement of general accounts or for a balance due him on some specific accounts or for a balance due him on some specific account. It is, however, best to appeal to a court of equity, for that court can do for partnership what the law cannot do.
Dissolution of Partnership
A partnership may be dissolved by mutual con-sent, by expiration of predetermined time, by death of one of the partners, by insanity, by the bankruptcy of either partner, or by the court for any good cause, such as dishonesty of one partner against the rest, or incapacity caused by habitual drunkenness or conviction of any crime.
A partner may withdraw at any time if no time for the continuation of the partnership is mentioned in the articles of agreement, but he must give due notice of his intention to the other partners.
If the time for the continuance of the partner-ship is mentioned, a partner can nevertheless withdraw at any time, but he is responsible to the firm for damages caused by the breach of his promise.
If a partner dies the surviving partners alone have the right to settle up the business. To his heirs and legal representatives they need only render an account of the business.
Notice to Be Given.—Upon the dissolution of a partnership by mutual consent it should be indorsed on the articles of copartnership and a notice given in some prominent newspaper. Special notice should also be sent to each one of the creditors of the firm and to those firms or per-sons with whom the partnership has had dealings.
Authority of Partners.—As a general rule the whole firm and each member of it is bound by the acts and contracts of one partner, because in the eye of the law the act or contract of one is regarded as the act of all. Each is regarded as the agent of all without any express authority being given. Thus, loans, purchases, sales, assignments, pledges, or chattel mortgages effected by one partner on the partnership account, and with good faith in the third party, are binding on all the firm; but not assignments for the benefit of creditors.
So also is release by one a release by all; notice to one is notice to all; demand of one is demand of all. In matters, however, not connected with the partnership, but intended for his own personal interests, the firm is not bound.
Liability of the Several Partners.—For the payment of partnership debts the property of the firm, both real and personal, as also that of each individual partner, is held responsible for amount of the unpaid partnership debt. This is a rigid rule and cannot be evaded.
Individual Debts of Partners.—If a partner has individual debts, then his interest in the firm is held responsible for them, after the debts of the firm have been paid. The liabilities of the firm, however, always have the first claim upon its own property.
Liabilities of a New Partner.—A new partner is not responsible for debts of the firm contracted by the same previous to his admission.
Selling of a Partner's Interest. No partner can sell his interest to an outside party, in order to have him take his place, without the consent of the other partner.
Authority of Partners After the Partnership Is Dissolved.—After dissolution each partner has the right to settle up the business, unless the partners agree otherwise and give due notice thereof. He can, however, create no new obligations, but only settle up the old ones. The statute law of the state should be carefully complied with in this respect.
The following forms will serve as models for drawing up articles of copartnership:
Articles of Copartnership
ARTICLES OF AGREEMENT made and concluded this first day of January, in the year A. D. one thousand nine hundred and eighteen, between Henry R. Raymer, of the first part, and Charles B. Werner, of the second part, both of the City of Cincinnati, County of Hamilton, State of Ohio.
The said parties have agreed to associate themselves as copartners for the purpose of carrying on the General Dry Goods Business at No. 450 Cleveland Avenue, in the City of Cincinnati.
1. The name, title, and style of such partnership shall be Raymer & Werner, and it shall continue three years from date hereof, except in case of the death of either of the said partners within the said term.
2. That the said Henry Raymer contributes Six Thousand Dollars ($6,000) and the said Chas. Werner Two Thousand Dollars ($2,000).
3. All the net profits arising out of the business shall be divided in the following proportions : Three fourths to the said Raymer and one-fourth to the said Werner.
4. That books of account shall be kept, in which shall be entered a full and exact account of all purchases, sales, transactions, and accounts of said firm, and which shall always be open to the inspection of both parties and their legal representatives respectively.
5. That the said Henry Raymer shall have exclusive charge of all the buying for the firm.
6. Each partner shall devote all his time to the said business and will use his best efforts to make the business successful and promote the interests of the firm in every way.
7. Neither party shall assume any obligation or liability in the name of the firm for the accommodation of any other person or persons whatsoever without the consent of the other party; nor shall either party lend any of the funds of the firm without the consent of the other partner.
And it is further agreed that if either party violates any of the aforesaid articles of agreement the other shall have the right to dissolve this copartnership immediately upon becoming informed of such violation.
In Witness Whereof, we have hereunto set our hands and seals the day and year above written.
HENRY R. RAYMER, [SEAL]
CHARLES B. WERNER. [SEAL]
Executed and delivered in the presence of
H. R. BURROWS,
Articles of Limited Partnership
ARTICLES OF PARTNERSHIP agreed upon this first day of May, A. D. 19-, between Henry R. Raymer of the first part, and Charles B. Werner, of the second part.
The parties hereto agree to form a limited partnership, under the law providing for limited partnerships, under the style of Henry R. Raymer, as retail dealer in dry goods, to be conducted in the City of Cincinnati, County of Hamilton, State of Ohio, to commence this day and continue three years.