Partnerships - Formation

Front 1

How are partnerships formed?

Back 1

Formed at common law regardless of intent. Must meet following definition (§323A.0202): "The association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership."

Front 2

In what circumstances is the receipt of a business' profit presumed to not give rise to a partnership?

Back 2

Where profit is received in payment (§323A.0202):
(i) of a debt;
(ii) for services as an independent contractor, or wages or compensation to an employee;
(iii) of rent;
(iv) of an annuity or other benefit to beneficiary, representative or designee of a deceased/retired partner;
(v) of interest or other charge on a loan; and
(vi) for the sale of the goodwill of a business.

Front 3

When representing two or more prospective co-owners seeking to form a partnership, does an attorney represent the interests of the individual parties or those of the partnership?

Back 3

The attorney represents the interests of the individual parties until the partnership has been formed, and thus must be wary of conflicts of interest.

The attorney must inform the parties of potential risks and conflicts in the representation. Where the parties have irreconcilably adverse interests, the attorney may have to withdraw from the representation.

The attorney must provide balanced suggestions as to how the partnership will be structured. It is for the parties to decide on how divide responsibilities; the attorney should not do so on their behalf.

Front 4

Is a partnership considered to be a separate legal entity from the individual partners?

Back 4

Yes.