THE LAW OF PARTNERSHIPS. PART I. GENERAL NATURE AND FORMATION OF CHAPTER 1. THE GENERAL NATURE OF PARTNERSHIP. Sec. 1. DEFINITION. “A partnership is an association of two or more persons to carry on, as co-owners, a business for profit.”1 We may obtain an adequate idea of the legal theory of a partnership by first thinking of one person owning an unincorporated business. Debts arising out of such a business are his individual debts, as much so as those incurred for his household expenses. Claims against others are his personal claims. Upon his business books, 1. Uniform Partnership Act, Sec. 6. If an agreement is to share in profits but not in losses, there have been statements that the arrangement is not a partnership. But clearly a provision of that character, where debts are incurred in the regular way could not avail to limit liability. As between the parties their actual agreement would of course prevail at the time of settlement. If nothing is said about sharing losses it is to be implied that losses are to be shared in the same proportion that profits are to be divided. Whitcomb v. Converse, 119 Mass. 38. if he keeps them as he should, he distinguishes sharply between the capital belonging to the business, and his other capital; between the transactions of that business and other transactions; but he cannot thereby limit his liability to others to the amount of his contributed capital. To accomplish a legal separation of the business from his other affairs he must incorporate (or at least form a statutory limited partnership). Now suppose that carrying on a business in this individual fashion, he deems it advisable to obtain additional capital or personal service, or both. Various avenues are open. He may borrow money. He may employ help. He may incorporate and sell shares. Or he may simply associate another, or others, with him as co-adventurers in the business, who shall have so much right to say that they own it, as he does. They shall become part owners or more briefly, partners in the business that was before owned by one. And in becoming such part owners, or partners, some may bring in additional capital, some may merely give services, as may be agreed upon. As so associated, they may employ clerks or agents, who do not share in the partnership just as a sole proprietor may employ assistants without giving them a share in the business. Now, in the organization of several co-owners, there has been nothing further accomplished by way of legal separation of the business from the affairs of those who own it than was so under the sole proprietorship. Where before one owned, now several own, but the debts of the business are their debts, the credits of the business are their credits. Plurality of ownership has risen out of a contract which the law will recognize and enforce, which indeed creates a relationship of very accentuated legal significance, but not a separate entity, as a corporation is. It is a concern composed of A, B and C, trading, say, as A and Company. Upon the books ought to be a very definite capital account, with the business affairs kept, of course, strictly separate from personal or other business affairs, but just as in the sole proprietorship, creditors may go beyond the business assets, and A, B and C's liability is not limited by their contributions. What are the mutual rights, powers and duties of those who have so associated themselves? What are the rights of third persons against them? What are their rights against others? How do they form their association? What will dissolve it? These are the questions to be answered in these chapters. Sec. 2. THE PARTNERSHIP NOT AN ENTITY. From a legal standpoint a partnership is not an entity, but an association of co-owners. The entity idea of partnership, is that the partnership is an organization which has a separate legal existence as such distinct from the legal existence of its members, so that those dealing with it would have to look to it and to the assets belonging to it, much as in the case of a corporation. This is sometimes said to be the mercantile view, from a belief that merchants look upon a partnership in that light.2 But this, not being the legal view, is not, of course, a justified mercantile view, although ground for possible argument that it ought to be the legal view. But the better thought at present (exemplified in the Uniform Partnership Act) is that of an association, rather than an entity. And it is by no means clear that merchants generally do look upon a partnership in any other light than the law does (except in the matter of keeping its accounts), but on the other hand, the legal 2. E. J. Dupont de Nemours Powder Co. v. Jones Bros., 200 Fed. 638. view is probably the crystallization of the generally accepted mercantile view.s Sec. 3. PARTNERS CO-OWNERS. In a partnership, the members are co-owners of the business. In the cases already given in our definition of partnership we notice that the members are co-owners. One is just as much an owner as the other. To have a partnership we must have a co-ownership. If one works for a proprietor he is not a partner with him, but an employee. We must distinguish between a co-ownership, and any arrangement in which the participants are not co-owners. Subsequent sections will elaborate this fact. Sec. 4. ASSOCIATION MUST BE FOR FINANCIAL PROFIT. Where parties combine for purposes other than financial profit, there is no partnership; but joint interest in profits of a business does not result in partnership unless there is also co-ownership. A partnership is a business venture. It must be for profit. Any arrangement that is not for profit is not a partnership. Thus, unincorporated pleasure clubs, labor unions, organizations for research or societies of any 3. "Since Cory on Accounts was made famous by Lindley on Partnership, the notion that a firm is an entity distinct from its members has grown in popularity, and the notion has been confirmed by recent speculations as to the nature of corporations and the oneness of any somewhat permaneatly combined group without the aid of law. But the fact remains as true as ever that partnership debts are debts of the members of the firm, and that the individual liability of the members is not collateral like that of a surety, but primary and direct. Mr. Justice Holmes in Fran * * * cis v. McNeal, 228 U. S. 695 at p. 699. |