THE IMPORTANCE OF PARTNERSHIP LAW.—There is a very common impression that partnership law is not as important now as formerly5. This undoubtedly6 is true, as more and more large business enterprises are being conducted in the corporation form; but there is still a large amount of business done in the partnership form. What is most important, however, is the very informality of the type of business conducted under the partnership arrangement. Whether, in a given case, a partnership exists, becomes a vital question. Two friends, A and B, in an informal way, go into a business venture. The enterprise fails and A and B owe many debts. A has some property of his own; B has nothing. You are a creditor7, but all your dealings have been with B. One simple point will show you whether your claim is worthless. If A and B were partners, you may hold A. If they[Pg 164] were not partners, your claim probably never will be worth anything to you. The question, then, whether or not a certain relationship constitutes a partnership is a most important one, in the field of commercial law.
PARTNERSHIP DEFINED.—We shall have occasion, in the chapters on bills and notes, and personal property, to refer to the movement to codify9 certain branches of the law. This movement was begun by the Commissioners10 on Uniform Laws proposing the Uniform Negotiable Instruments Act, which has now been adopted in all of the States except Georgia. One of the most recent codifications is the Uniform Partnership Act which has been adopted in a number of the States, and which will undoubtedly follow the same course as the other acts drawn11 by the same Commissioners. We shall make frequent reference to the Uniform Partnership Act in this chapter. Although some of the writers on the law of partnership state that no satisfactory definition of the term partnership can be given, the Uniform Act defines it as follows: "A partnership is an association of two or more persons to carry on as co-owners a business for profit." It is undoubtedly true that even with this definition, a considerable amount of further explanation will be necessary to determine with any degree of certainty, just what is meant by partnership.
THE DIFFERENCE BETWEEN A PARTNERSHIP AND A CORPORATION.—While we may be anticipating our chapter on corporations, it[Pg 165] is well, at the very outset, to understand the fundamental differences between a partnership and a corporation. We may mention six differences:
(1) When a partner dies, the partnership is automatically dissolved. If a partner sells or transfers his interest in the business, this works a dissolution of the firm. On the other hand, the situation is precisely12 the opposite in the case of a corporation. The death of a shareholder13 has no effect upon the corporation. In fact, if all of the shareholders15 of the United States Steel Corporation should die at once, the corporation would still exist. So also the transfer of stock from one owner to another has no effect upon the corporation's existence. Many thousand shares are dealt with on the exchange each day without the slightest effect upon any corporation.
(2) The doctrine16 of individual liability for the debts of a firm is a fundamental characteristic of partnership law. Each member of the firm is absolutely liable for all the debts of the firm. Thus, if the firm consists of A, B, and C, and the firm goes into bankruptcy17 and owes $50,000, and B and C are both individually worthless, and A has his own private fortune, A will be obliged to pay all of the debts, although, according to the arrangements that the partners made when forming the partnership, each was to share the profits and losses equally. Theoretically, A has the right to contribution from his fellow partners, and should they later acquire property, he will be able to enforce this right in a court of equity18. In a corporation, a shareholder is liable only for the[Pg 166] value of his share. If he subscribes19 to a share of stock, par2 value $100, and has paid only $50 on his subscription20, and the corporation goes into bankruptcy, its receiver can compel him to pay the balance of his subscription, $50, but that would be the extent of his loss. If I buy a share of United States Steel Common, at $79, on the exchange, and the company goes into bankruptcy, my loss will be only $79. I would not be obliged to make up to the receiver the other twenty-one dollars. The only noteworthy exception to this rule as to the liability of a stockholder is in the case of a shareholder in a National bank, (this is true of some of the State banking21 laws also), where a shareholder is liable to an extra assessment22 equal to the par value of the stock he owns.
(3) In a partnership each member of the firm is a general agent for the partnership, and his acts bind23 the firm. In the case of a corporation, a shareholder, by virtue24 of the fact that he is a shareholder, has no power to bind the corporation. The position of a shareholder is very similar to that of a voter. The corporation is run by its board of directors. They are elected by the shareholders just as we elect a governor or president. If we are dissatisfied with the conduct of a governor or president, all we can do is to vote him out of office at the next election, except in unusual cases where a governor or president might be impeached25. The same is true in the case of a board of directors.
(4) A partnership may be created by a formal contract, or a simple contract, in writing or by word[Pg 167] of mouth; in fact it may be created in almost any way. A corporation, in order to do business, must comply with the corporation laws of the State in which it is incorporated. A regular formality must be observed. A certificate of incorporation26 must be filed, generally with the Secretary of State, and with the county clerk of the county in which the corporation's principal place of business is located in the State.
(5) A partnership may do anything that is legal and which the members decide to do. A corporation exists by virtue of a charter, granted by the State. The sum total of the powers given in that charter gives the total of all of the activities the corporation may undertake. Engagement in activities not authorized27 in the charter may result in the forfeiture28 of the charter by the State.
(6) In legal theory, a corporation is looked upon as a separate entity29. Most States require at least three persons to incorporate. A, B and C form a corporation under the laws of the State of New York. There are then four legal persons in existence: A, B, and C, and this separate person, or legal entity, the Green Corporation, if that is the name given the company. In the case of a partnership, the law does not, as a rule, consider the partnership as an entity distinct and separate from the members who make up the firm. Of course, the business man does, in a way, look upon the partnership as a separate commercial entity. The very fact that the members of the firm are all general agents for the firm, and that the members are individually liable for all of the debts of the[Pg 168] firm, shows that the law does not carry the entity theory into practice in partnerships30 as it does in corporations.
DIFFERENT KINDS OF PARTNERSHIP.—What we have said applies to the ordinary partnership. There are certain forms of partnership which we can only mention. One of them is the limited partnership. Limited partnerships are created under the law of the State in which the business is to be conducted and in a general way, these limited partnerships are a combination of the principles underlying31 ordinary partnerships and corporations. The members may limit their liability to a certain amount, and in that sense, the limited partnership is like a corporation. On the other hand, the general principles of partnership, as we shall discuss them, apply with almost equal force to the acts of a limited partnership. A person should not undertake to give an opinion as to a legal problem relating to a limited partnership until the law of the State in which the limited partnership is organized has been consulted.
JOINT32 STOCK COMPANIES.—Occasionally we meet with organizations—joint stock companies—which occupy a sort of "No-man's land" between partnerships and corporations. The joint stock company issues shares of stock the same as a corporation. These shares are listed on the stock exchange, as for example, the Adams Express Company. The joint stock company, however, carries with it the individual liability of the shareholders for the debts of the company, which is technically33 a partnership attribute.[Pg 169] The New York Court of Appeals in People ex rel. Winchester v. Coleman, 133 N. Y. 279, has put it this way: "More or less, they crowd upon and overlap34 each other, but without losing their identity, and so, while we cannot say that a joint stock company is a corporation, we can say * * * that the joint stock company is a partnership with some of the powers of a corporation."
HOW TO DETERMINE WHETHER A PARTNERSHIP EXISTS.—In a case, not tried in court, the facts were: A Gloucester cod-fishing vessel35 made an unsuccessful fishing voyage. The sailors were to secure a certain portion of the profits of the voyage as their wages. When the ship returned to port, an attempt was made to collect bills incurred37 on the trip and to hold the seamen38 liable along with the owners of the vessel, as partners. It was contended that sharing in the profits made them partners. While this is true generally, this particular custom, whereby a laborer39 receives a certain portion of the profits of an undertaking40 as his wages, does not of itself constitute him a partner with the person operating the vessel. This point has been decided41 several times. Such questions as these arise and cause great difficulty in determining whether a partnership exists. At times it is very important, as in the case of the seamen, to know whether or not they can be made to assume the obligations pertaining42 to the partnership relations. While we cannot go into these relations in detail, the framers of the Uniform Partnership Act have laid down, with the utmost care, the[Pg 170] rules which are to be used in determining whether a partnership exists or not. But, you say, why cannot the parties avoid all this difficulty by making a written agreement clearing up the entire matter? They could. It is the simplest matter in the world. But the trouble comes because a partnership arrangement is so easy to enter into, and requires so little formality, that it is taken for granted that it will come out satisfactorily, and the precautions which should be taken are sometimes forgotten. Hence, we have to have rules of interpretation43 to help us when the parties themselves have not taken the necessary precautions to make matters clear. These rules of interpretation are very clearly and very definitely laid down in the Uniform Partnership Act, in the following language:
(1) Except as provided by Section 16, persons who are not partners as to each other are not partners as to third persons.
(2) Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not of itself establish a partnership, whether such co-owners do or do not share any profits made by the use of the property.
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived44.
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he[Pg 171] is a partner in the business, but no such inference shall be drawn if such profits were received in payment:
(a) As a debt by installments45 or otherwise,
(b) As wages of an employee or rent to a landlord,
(c) As an annuity46 to a widow or representative of a deceased partner,
(d) As interest on a loan, though the amount of payment vary with the profits of the business,
(e) As the consideration for the sale of the good-will of a business or other property by installments or otherwise.
Section 16.—(Partner by estoppel.)—(1) When a person by words spoken or written or by conduct, represents himself, or consents to another representing him to any one, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such person to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner, he is liable to such person, whether the representation has or has not been made or communicated to such person * * *.
FOR WHAT PURPOSES MAY A PARTNERSHIP BE CREATED.—A partnership may be created to carry on any lawful47 business, and whatever the individuals may do lawfully48 as such, two or more may do together in a group as a partnership. Professional[Pg 172] occupations may be carried on in the partnership form advantageously. This is one case where a partnership has an advantage over a corporation. A group of lawyers may form a partnership and do business under a partnership name. But a group of lawyers seldom or never form corporations to practice law. The reason for this is that the corporation is a separate entity, and the corporation as such cannot pass a bar examination and be admitted to the bar. In fact, in a few States, there are statutes50 prohibiting a corporation from practicing law. There is, therefore, very little advantage in creating a corporation which cannot itself do the thing for which it was created.
ILLEGAL OBJECT.—A partnership which is formed to carry on any illegal purpose is, of course, not recognized by law. Thus, if A, B, and C form a partnership to engage in the gambling51 business and they elect C as treasurer52 and have a successful business so that they have a large amount of money on hand, A and B may not be able to reap the profits of the venture. C has the money. The agreement was that all were to share equally, but C insists on keeping it all. The law will allow him to do so, because it is beneath the dignity of the court to order an accounting53 in a transaction where all parties are equally guilty. The maxim54 is "in pari delicto, condicio defendentis potior est", that is, where the parties are in equal fault, the position of the defendant55 is the stronger. C, the guilty party, has the money; he is the defendant, therefore, he keeps it.[Pg 173]
WHO MAY BE PARTNERS.—At common law, a married woman was incapable56 of becoming a member of a partnership because of her general incapacity to enter a contract. Statutes removing the disability of married women have been passed in practically all the States, and a married woman is generally free to become a partner, except, and this is true in many States still, husband and wife may not become partners. An infant may be a member of a firm on the same general principles as applied57 to ordinary infant's contracts. His entering the partnership agreement is not void, but voidable. When he becomes of age, if he affirms the contract of partnership, he will be liable the same as an adult. He has, however, the right to disaffirm his partnership agreement within a reasonable time after becoming of age, and if he does so, he will be absolved58 from all personal liability for the debts of the firm. It is very generally held that a corporation may not enter into a copartnership with another corporation or an individual. The reason for this is a general rule of public policy that in a partnership the corporation would be bound by the acts of persons who are not its duly appointed agents and officers. There may be any number of members in a firm, such matters being left to the choice and wisdom of those operating the business.
DELECTUS PERSONARUM.—While the foregoing is true, one must not reach the conclusion that an objectionable person may be forced into a firm. I am a member of a firm of three persons. I[Pg 174] decide to withdraw, and tell my two fellow partners that I have transferred all my interest in the firm to John Jones. He will take my place. My two fellow partners believe Jones to be a crook59, and do not wish to be in partnership with him. They would not be obliged to accept him. In other words, the doctrine of delectus personarum, or the choice of the person, is strictly60 applied in partnership, because a partnership relation is a very confidential61 relationship. Ordinarily the business cannot be conducted satisfactorily unless all of the partners have the confidence of each other. It is for this reason, that we have the rule, heretofore referred to, that the sale by a partner of his interest in the business works a dissolution of the partnership. John Jones, who purchased my rights in the firm, could not compel the other members to take him in, but the firm would have to be wound up and he would simply be able to recover what my share of the assets was. It is true that Section 27 of the Act does read that a sale by a partner of his interest does not of itself work a dissolution, but the doctrine of delectus personarum is fully49 preserved. That section reads: (1) A conveyance62 by a partner of his interest in the partnership does not of itself dissolve the partnership, nor, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere63 in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee[Pg 175] to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled.
(2) In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may require an account from the date only of the last account agreed to by all the partners.
ARTICLES OF PARTNERSHIP.—We have learned that parties need not expressly declare themselves partners, or enter into an express contract, in order to become partners. So the framing of written partnership articles—a written contract of partnership—is not essential, though it is the ordinary and advisable course. We may note here a few rules governing the use and construction of such articles where they have been adopted. They should, of course, provide for as many contingencies64 as can be foreseen, such as the nature, name and place of business, when the relation is to commence and when to terminate, what capital shall be contributed by each, what the share of each in the profits and losses shall be, what the powers of the partners as between themselves shall be, whether the business shall be continued after the death of one or more of the partners and how it shall be wound up. But the important thing to note is, that if provision be not made, the general law, and particularly that part governing the powers and duties of partners to each other and to third persons, applies. In other words, the partners may, by their contract, determine what their rights as between themselves shall be; but if they do not, the rules of[Pg 176] law will determine them. Thus they may determine that of two partners one shall have two-thirds and the other one-third of the profits; in the absence of such a clause the law determines the profits shall be divided equally. When articles have been once adopted they can be changed only by the consent of all the partners; this consent need not be formally expressed in words, but it may be implied from a long-continued course of conduct. The law provides no means to force a partner to live up to his contract except in a very few cases; the most it gives is a right of action for the breach65 caused by his failure to do as agreed.
FIRM NAME.—The adoption66 of a firm name is not an essential to a partnership, but is customary and advisable. The names of the partners may be combined, or a single name used, or a fictitious67 name, or any name, so long as the rights of other persons are not violated. In some States, notably68 New York, the use of the name of a person not a partner is forbidden, as is also the use of the expression "& Co.," unless a partner is represented by it. Ordinarily, contracts may be made in the firm name and by one partner, but contracts under seal should be made in the names of the partners "doing business as," etc., and cannot be made by one partner without authority from the others. Conveyances69 of real property should be made to or by the individual partners "doing business as," etc., for the law does not generally recognize the firm as a separate person or entity sufficiently70 to enable it as such to take or give a conveyance. If the deed[Pg 177] ran to "John Doe & Co.," the title would be in John Doe only, though he would be said to hold it in trust for the firm, for if the partnership name is given as the grantee, the title goes only to those whose names appear, and if the partnership were doing business under a fictitious name, the deed would convey to no one. Whether land, the title to which is in the name of one partner, is held in trust by him as partnership property, is a question of intention, and that question is determined71 by asking with what money was the land bought, what use has it been put to, has it been carried on the books of the firm, with what money have the taxes, insurance, and other charges been paid, etc. If found to have been treated as partnership property, the fact that the title is in one person counts for little, as he will be said to hold it in trust for the firm; but the careful business man will avoid trouble by having the property conveyed to the firm in the manner indicated, if it is actually partnership property.
THE POWERS OF A PARTNER.—As a general agent, a partner has almost unlimited72 authority to bind the firm. Because of this, we have here one reason for not recommending the partnership form of doing business unless all the members of the firm have the utmost confidence in each other. These powers of the partners are so general that it is impossible for us to go into them in any detail. They are summarized in the most compact form in the Uniform Partnership Act. Sections 9 to 17 of that act are as follows:[Pg 178]
9. (1) Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently73 carrying on in the usual way the business of the partnership of which he is a member, binds74 the partnership, unless the partner so acting75 has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing8 has knowledge of the fact that he has no such authority.
(2) An act of a partner, which is not apparently for the carrying on of the business of the partnership in the usual way, does not bind the partnership unless authorized by the other partners.
(3) Unless authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to:
(a) Assign the partnership property in trust for creditors76 or on the assignee's promise to pay the debts of the partnership,
(b) Dispose of the good-will of the business,
(c) Do any other act which would make it impossible to carry on the ordinary business of the partnership,
(d) Confess a judgment77,
(e) Submit a partnership claim or liability to arbitration78 or reference.
(4) No act of a partner in contravention of a restriction79 on his authority shall bind the partnership to persons having knowledge of the restriction.[Pg 179]
10. (1) Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance executed in the partnership name; but the partnership may recover such property unless the partner's act binds the partnership under the provisions of paragraph (1) of Section 9, or unless such property has been conveyed by the grantee, or a person claiming through such grantee to a holder14 for value without knowledge that the partner, in making the conveyance, has exceeded his authority.
(2) Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his own name, passes the equitable80 interest of the partnership, provided the act is one within the authority of the partner under the provisions of paragraph (1) of Section 9.
(3) Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover such property if the partners' act does not bind the partnership under the provisions of paragraph (1) of Section 9, unless the purchaser or his assignee, is a holder for value, without knowledge.
(4) Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the partnership,[Pg 180] provided the act is one within the authority of the partner under the provisions of paragraph (1) of Section 9.
(5) Where the title to real property is in the names of all the partners, a conveyance executed by all the partners passes all their rights in such property.
11. An admission or representation made by any partner concerning partnership affairs within the scope of his authority as conferred by this act is evidence against the partnership.
12. Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of a fraud on the partnership committed by or with the consent of that partner.
13. Where, by any wrongful act or omission81 of any partner acting in the ordinary course of the business of the partnership, or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act.
14. The partnership is bound to make good the loss:
[Pg 181]
(a) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and
(b) Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody82 of the partnership.
15. All partners are liable
(a) Jointly83 and severally for everything chargeable to the partnership under Sections 13 and 14.
(b) Jointly for all other debts and obligations of the partnership; but any partner may enter into a separate obligation to perform a partnership contract.
16. (1) When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him to any one, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such person to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner, he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made.
[Pg 182]
(a) When a partnership liability results, he is liable as though he were an actual member of the partnership.
(b) When no partnership liability results, he is liable jointly with the other persons, if any, so consenting to the contract or representation as to incur36 liability, otherwise separately.
(2) When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. Where all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the person consenting to the representation.
17. A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, except that this liability shall be satisfied only out of partnership property.
POWERS OF A MAJORITY OF PARTNERS.—If partners disagree, then a majority of them have power to decide what shall be done; but there are limits even to the power of a majority. They can only carry on the business of the firm, and any vote of the majority, or action of the majority, to change the character of the business for which the firm was[Pg 183] organized, or to make any fundamental change in the original articles of the partnership, would be invalid84.
RELATION OF PARTNERS TO ONE ANOTHER.—The rules determining the rights and duties of partners in relation to the partnership are concisely85 but fully set forth86 in the Act as follows:
18. The rights and duties of the partners in relation to the partnership shall be determined, subject to any agreement between them, by the following rules:
(a) Each partner shall be repaid his contributions, whether by way of capital or advances to the partnership property and share equally in the profits and surplus remaining after all liabilities, including those to partners, are satisfied; and must contribute towards the losses, whether of capital or otherwise, sustained by the partnership according to his share in the profits.
(b) The partnership must indemnify every partner in respect of payment made and personal liabilities reasonably incurred by him in the ordinary and proper conduct of its business, or for the preservation87 of its business or property.
(c) A partner who, in aid of the partnership, makes any payment or advance beyond the amount of capital which he agreed to contribute, shall be paid interest from the date of the payment or advance.
(d) A partner shall receive interest on the capital contributed by him only from the date when repayment88 should be made.[Pg 184]
(e) All partners have equal rights in the management and conduct of the partnership business.
(f) No partner is entitled to remuneration for acting in the partnership business, except that a surviving partner is entitled to reasonable compensation for his services in winding89 up the partnership affairs.
(g) No person can become a member of a partnership without the consent of all the partners.
(h) Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners; but no act in contravention of any agreement between the partners may be done rightly without the consent of all the partners.
19. The partnership books shall be kept, subject to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at all times have access to and may inspect and copy any of them.
20. Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or partner under legal disability.
21. (1) Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation90 of the partnership or from any use by him of its property.
(2) This section applies also to the representatives[Pg 185] of a deceased partner engaged in the liquidation of the affairs of the partnership as the personal representatives of the last surviving partner.
22. Any partner shall have the right to a formal account as to partnership affairs:
(a) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners.
(b) If the right exists under the terms of any agreement.
(c) As provided by Section 21.
(d) Whenever other circumstances renders it just and reasonable.
TERMINATION OF THE PARTNERSHIP.—A partnership is terminated either by act of the partners, or by law. Under the first heading, we may mention such things as the partnership being terminated by the accomplishment91 of the object for which the same was formed, or by the termination of the time during which the partnership was to exist, or by mutual92 consent of all parties concerned. Under the head of termination by operation of law, we have such topics as the death of a partner, the insanity93 of a partner, or the bankruptcy of a partner, and a dissolution by a court, as for example, where it is absolutely certain, in the opinion of the court, that the business cannot be successfully continued longer. In such a case, although some of the partners may not wish to wind up the affairs of the business, the court may order it done in the interest of all parties concerned.[Pg 186]
OWNERSHIP OF FIRM PROPERTY AND CREDITORS' RIGHTS.—The firm property is owned by all the partners jointly, but the interest of each individual partner is not an interest in each piece of firm property, but a right to have an accounting and to receive on the accounting such share of the assets as belong to him when all debts due from him to the firm and all liabilities to the outside world are settled. Consequently, a creditor of an individual partner cannot seize or attach or levy94 on firm property, because that firm property does not belong, nor does any part of it belong, to his debtor95. The creditor must file a bill in equity asking that the partner's share be determined, and that on an accounting so much as is found due to the debtor partner be applied to discharge that partner's indebtedness.
THE DIVISION OF ASSETS.—Upon final dissolution, the question of division of assets comes up, and the Uniform Partnership Act gives us the general rule as to how the firm's assets are divided. Section 40 of the Act reads:
In settling accounts between the parties after dissolution, the following rules shall be observed, subject to any agreement to the contrary:
(a) The assets of the partnership are:
I. The partnership property,
II. The contributions of the partners necessary for the payment of all the liabilities specified96 in clause (b) of this paragraph.
(b) The liabilities of the partnership shall rank in order of payment, as follows:[Pg 187]
I. Those owing to creditors other than partners,
II. Those owing to partners other than for capital and profits,
III. Those owing to partners in respect of capital,
IV. Those owing to partners in respect of profits.
(c) The assets shall be applied in the order of their declaration in clause (a) of this paragraph to the satisfaction of the liabilities.
(d) The partners shall contribute, as provided by Section 18 (a) the amount necessary to satisfy the liabilities; but if any, but not all, of the partners are insolvent97, or, not being subject to process, refuse to contribute, the other partners shall contribute their share of the liabilities, and, in the relative proportions in which they share the profits, the additional amount necessary to pay the liabilities.
(e) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in clause (d) of this paragraph.
(f) Any partner or his legal representative shall have the right to enforce the contributions specified in clause (d) of this paragraph, to the extent of the amount which he has paid in excess of his share of the liability.
(g) The individual property of a deceased partner shall be liable for the contributions specified in clause (d) of this paragraph.[Pg 188]
(h) When partnership property and the individual properties of the partners are in the possession of a court for distribution, partnership creditors shall have priority on partnership property, and separate creditors on individual property, saving the rights of lien99 or secured creditors as heretofore.
(i) Where a partner has become bankrupt or his estate is insolvent, the claims against his separate property shall rank in the following order:
I. Those owing to separate creditors,
II. Those owing to partnership creditors,
III. Those owing to partners by way of contribution.
LIQUIDATION OF PARTNERSHIP.—When a partnership is dissolved, it is common for the business to require liquidation, and frequently one or more of the partners are what are called liquidating100 partners. If a partnership is dissolved by death, for instance, the surviving partners have a right to be liquidating partners and liquidate101 the business. That means they may carry on existing contracts; they may dispose of the stock on hand to the best advantage. If this requires incidental purchases of new goods, they may be made, but in general, new business cannot be undertaken. The function of a liquidating partner is to satisfy existing contracts, reduce the property of the firm to cash, and then distribute it to those who are entitled to receive it.
LIMITED PARTNERSHIP.—Statutes, as we have learned, in many States permit the formation of limited partnerships, the object of which is to[Pg 189] enable one or more partners to avoid unlimited liability for debts. Partners in a general partnership are each liable, individually, for the full amount of the firm's indebtedness. If one partner is thus compelled to pay more than his share, he may seek redress102 by demanding contribution from his fellow partners, and if they are not solvent98, he will not be able to secure reimbursement103. If there is one solvent partner, for instance, and two other partners, both of whom become insolvent, the result will be that the first partner will have to pay the debts of the firm and will have no redress except such as he may be able to get from the insolvent estates of his two partners. Now, in a limited partnership a limited partner does not stand to lose any more than the amount of money he actually puts in the firm. In order to create a limited partnership it is necessary to sign a certificate prepared for the purpose and stating the facts, file it in the office of the Secretary of State or other official, and also publish it so that the public may be informed of the circumstances and credit may not be given by the world at large to the firm on the assumption that the limited partner is a general partner. He puts a specified amount of money in the firm and that money may be reached by creditors of the firm, but they cannot hold him further liable. A good definition of a limited partnership follows: A limited partnership is one which consists of one or more persons called general partners and also one or more persons called special partners. Every general partner is an agent for the partnership in the transaction[Pg 190] of its business and has authority to do whatever is necessary to carry on such business in the ordinary manner. Every general partner is liable to third persons, jointly and severally, with his general co-partners for all of the obligations of the partnership. A special partner may only advise as to the management of the partnership and he is liable for the obligations of the partnership only to the amount of capital invested by him therein.
SILENT PARTNERS.—A silent partner must not be confused with a member of a limited partnership. A silent partner is a general partner who takes no part in the active management of the business and frequently is a secret partner. A member of a limited partnership can never be a secret partner, since the terms of a limited partnership must be published. A member of a limited partnership should take no part in the management of the business, or he may render himself liable as a general partner. The limited partnership law requires, moreover, that he must have exactly complied with the law by making out, filing and publishing a certificate. The statutes of the State should be consulted on this point and closely adhered to.
LIMITED.—We often see also in print, so and so "Ltd." This does not mean a limited partnership. The word "limited" is used in the name of an English or Canadian company organized under the English or Canadian statutes, but such companies are rather analogous to corporations than to limited partnerships. The liability in such companies is limited altogether[Pg 191] to the assets in the company's hands. There are no general partners. The liability of all stockholders is limited. The English and Canadian law requires that the word Limited be added to the name, so that the public may not be deceived into believing that the company is a partnership.
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1
analogous
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| adj.相似的；类似的 | |
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par
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| n.标准，票面价值，平均数量；adj.票面的，平常的，标准的 | |
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partnership
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| n.合作关系，伙伴关系 | |
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administrators
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| n.管理者( administrator的名词复数 )；有管理（或行政）才能的人；（由遗嘱检验法庭指定的）遗产管理人；奉派暂管主教教区的牧师 | |
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formerly
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| adv.从前，以前 | |
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undoubtedly
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| adv.确实地，无疑地 | |
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creditor
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| n.债仅人，债主，贷方 | |
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dealing
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| n.经商方法，待人态度 | |
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codify
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| v.将法律、法规等编成法典 | |
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commissioners
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| n.专员( commissioner的名词复数 )；长官；委员；政府部门的长官 | |
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drawn
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| v.拖，拉，拔出；adj.憔悴的，紧张的 | |
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precisely
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| adv.恰好，正好，精确地，细致地 | |
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shareholder
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| n.股东，股票持有人 | |
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holder
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| n.持有者，占有者；(台，架等)支持物 | |
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shareholders
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| n.股东( shareholder的名词复数 ) | |
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16
doctrine
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| n.教义；主义；学说 | |
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bankruptcy
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| n.破产；无偿付能力 | |
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18
equity
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| n.公正，公平，（无固定利息的）股票 | |
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19
subscribes
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| v.捐助( subscribe的第三人称单数 )；签署，题词；订阅；同意 | |
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subscription
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| n.预订，预订费，亲笔签名，调配法，下标（处方） | |
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banking
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| n.银行业，银行学，金融业 | |
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22
assessment
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| n.评价；评估；对财产的估价，被估定的金额 | |
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bind
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| vt.捆，包扎；装订；约束；使凝固；vi.变硬 | |
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24
virtue
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| n.德行，美德；贞操；优点；功效，效力 | |
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impeached
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| v.控告（某人）犯罪( impeach的过去式和过去分词 )；弹劾；对（某事物）怀疑；提出异议 | |
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incorporation
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| n.设立，合并，法人组织 | |
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authorized
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| a.委任的，许可的 | |
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28
forfeiture
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| n.（名誉等）丧失 | |
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entity
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| n.实体，独立存在体，实际存在物 | |
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partnerships
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| n.伙伴关系( partnership的名词复数 )；合伙人身份；合作关系 | |
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underlying
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| adj.在下面的，含蓄的，潜在的 | |
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joint
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| adj.联合的，共同的；n.关节，接合处；v.连接，贴合 | |
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technically
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| adv.专门地，技术上地 | |
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overlap
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| v.重叠，与…交叠；n.重叠 | |
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vessel
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| n.船舶；容器，器皿；管，导管，血管 | |
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incur
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| vt.招致，蒙受，遭遇 | |
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incurred
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| [医]招致的，遭受的； incur的过去式 | |
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seamen
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| n.海员 | |
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laborer
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| n.劳动者，劳工 | |
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undertaking
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| n.保证，许诺，事业 | |
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decided
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| adj.决定了的，坚决的；明显的，明确的 | |
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42
pertaining
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| 与…有关系的，附属…的，为…固有的(to) | |
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interpretation
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| n.解释，说明，描述；艺术处理 | |
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44
derived
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| vi.起源；由来；衍生；导出v.得到( derive的过去式和过去分词 )；（从…中）得到获得；源于；（从…中）提取 | |
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installments
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| 部分( installment的名词复数 ) | |
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46
annuity
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| n.年金；养老金 | |
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47
lawful
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| adj.法律许可的，守法的，合法的 | |
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lawfully
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| adv.守法地，合法地；合理地 | |
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49
fully
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| adv.完全地，全部地，彻底地；充分地 | |
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50
statutes
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| 成文法( statute的名词复数 )； 法令； 法规； 章程 | |
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gambling
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| n.赌博；投机 | |
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52
treasurer
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| n.司库，财务主管 | |
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accounting
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| n.会计，会计学，借贷对照表 | |
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54
maxim
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| n.格言，箴言 | |
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55
defendant
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| n.被告；adj.处于被告地位的 | |
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56
incapable
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| adj.无能力的，不能做某事的 | |
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57
applied
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| adj.应用的；v.应用，适用 | |
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58
absolved
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| 宣告…无罪，赦免…的罪行，宽恕…的罪行( absolve的过去式和过去分词 )； 不受责难，免除责任 [义务] ,开脱（罪责） | |
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59
crook
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| v.使弯曲；n.小偷，骗子，贼；弯曲(处) | |
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60
strictly
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| adv.严厉地，严格地；严密地 | |
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61
confidential
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| adj.秘（机）密的，表示信任的，担任机密工作的 | |
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62
conveyance
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| n.(不动产等的)转让，让与；转让证书；传送；运送；表达；（正）运输工具 | |
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63
interfere
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| v.(in)干涉，干预；(with)妨碍，打扰 | |
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64
contingencies
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| n.偶然发生的事故，意外事故( contingency的名词复数 )；以备万一 | |
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65
breach
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| n.违反，不履行；破裂；vt.冲破，攻破 | |
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66
adoption
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| n.采用，采纳，通过；收养 | |
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67
fictitious
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| adj.虚构的，假设的；空头的 | |
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68
notably
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| adv.值得注意地，显著地，尤其地，特别地 | |
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conveyances
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| n.传送( conveyance的名词复数 )；运送；表达；运输工具 | |
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70
sufficiently
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| adv.足够地，充分地 | |
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71
determined
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| adj.坚定的；有决心的 | |
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72
unlimited
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| adj.无限的，不受控制的，无条件的 | |
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apparently
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| adv.显然地；表面上，似乎 | |
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74
binds
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| v.约束( bind的第三人称单数 )；装订；捆绑；（用长布条）缠绕 | |
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acting
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| n.演戏，行为，假装；adj.代理的，临时的，演出用的 | |
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creditors
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| n.债权人，债主( creditor的名词复数 ) | |
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judgment
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| n.审判；判断力，识别力，看法，意见 | |
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arbitration
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| n.调停，仲裁 | |
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restriction
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| n.限制，约束 | |
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equitable
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| adj.公平的；公正的 | |
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81
omission
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| n.省略，删节；遗漏或省略的事物，冗长 | |
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82
custody
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| n.监护，照看，羁押，拘留 | |
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83
jointly
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| ad.联合地，共同地 | |
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84
invalid
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| n.病人，伤残人；adj.有病的，伤残的；无效的 | |
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85
concisely
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| adv.简明地 | |
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86
forth
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| adv.向前；向外，往外 | |
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87
preservation
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| n.保护，维护，保存，保留，保持 | |
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88
repayment
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| n.偿还，偿还款；报酬 | |
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89
winding
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| n.绕，缠，绕组，线圈 | |
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90
liquidation
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| n.清算，停止营业 | |
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accomplishment
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| n.完成，成就，（pl.）造诣，技能 | |
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92
mutual
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| adj.相互的，彼此的；共同的，共有的 | |
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93
insanity
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| n.疯狂，精神错乱；极端的愚蠢，荒唐 | |
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94
levy
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| n.征收税或其他款项，征收额 | |
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debtor
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| n.借方，债务人 | |
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specified
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| adj.特定的 | |
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insolvent
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| adj.破产的，无偿还能力的 | |
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solvent
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| n.溶剂；adj.有偿付能力的 | |
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99
lien
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| n.扣押权，留置权 | |
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100
liquidating
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| v.清算( liquidate的现在分词 )；清除（某人）；清偿；变卖 | |
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101
liquidate
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| v.偿付，清算，扫除；整理，破产 | |
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102
redress
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| n.赔偿，救济，矫正；v.纠正，匡正，革除 | |
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103
reimbursement
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| n.偿还，退还 | |
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