Partnership III

In a simple partnership, each partner makes an equal contribution of time and effort, each partner makes an equal contribution of capital, shares equally in the losses and the profits, and shares equally in decision making. These principles apply, unless the partners have a different agreement. Often, a partnership is formed among persons who bring different kinds or levels of contributions to the partnership. For example, one partner might have business skills and the other capital. The partners might agree that one will supply capital as needed, but furnish no services to the partnership, while the other might work full-time but supply no capital. In a simple partnership, each partner supplies labor to the partnership without direct remuneration for his time and services. In other words, a partner does not get a wage or salary from a partnership: the reward comes from sharing in the profits.

If partners intend to vary from the standard rules, they may do so, but it is wise to create a written agreement. Partners may agree that one partner will manage the firm. They may agree that certain services will be compensated for in addition to the profits. They may agree that partners will make different contributions to capital, or that they will share differently in the profits and losses. They may agree that certain decisions will be made unanimously, or give certain members vetoes over certain decisions. To some extent they may allocate the tax benefits of the partnership.

Here is the central RUPA provision:

(a) Each partner is deemed to have an account that is: (1) credited with an amount equal to the money plus the value of any other property, net of the amount of any liabilities, the partner contributes to the partnership and the partner's share of the partnership profits; and (2) charged with an amount equal to the money plus the value of any other property, net of the amount of any liabilities, distributed by the partnership to the partner and the partner's share of the partnership losses.
(b) Each partner is entitled to an equal share of the partnership profits and is chargeable with a share of the partnership losses in proportion to the partner's share of the profits.
(c) A partnership shall reimburse a partner for payments made and indemnify a partner for liabilities incurred by the partner in the ordinary course of the business of the partnership or for the preservation of its business or property.
(d) A partnership shall reimburse a partner for an advance to the partnership beyond the amount of capital the partner agreed to contribute.
(e) A payment or advance made by a partner which gives rise to a partnership obligation under subsection (c) or (d) constitutes a loan to the partnership which accrues interest from the date of the payment or advance.
(f) Each partner has equal rights in the management and conduct of the partnership business.
(g) A partner may use or possess partnership property only on behalf of the partnership.
(h) A partner is not entitled to remuneration for services performed for the partnership, except for reasonable compensation for services rendered in winding up the business of the partnership. (i) A person may become a partner only with the consent of all of the partners.
(j) A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertaken only with the consent of all of the partners.
(k) This section does not affect the obligations of a partnership to other persons under section 323A.3-01.

As we stated above, the partnership agreement may change many of these basic rules.

RUPA contains codification of the basic rules governing partners right to information and their duty to other partners. Partners are fiduciaries. That is, they have trust obligations to the partnership and other partners. They do not deal with each other as adversaries, or at arms length. They must be scrupulously honest . Here are the RUPA provisions governing general standards of partner's conduct:

(a) The only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care set forth in subsections (b) and (c).
(b) A partner's duty of loyalty to the partnership and the other partners is limited to the following:

(1) to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity;
(2) to refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership; and
(3) to refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership.

(c) A partner's duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.
(d) A partner shall discharge the duties to the partnership and the other partners under this chapter or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.
(e) A partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the partner's conduct furthers the partner's own interest.
(f) A partner may lend money to and transact other business with the partnership, and as to each loan or transaction the rights and obligations of the partner are the same as those of a person who is not a partner, subject to other applicable law.
(g) This section applies to a person winding up the partnership business as the personal or legal representative of the last surviving partner as if the person were a partner.