Formation Of A Partnership

Formation of a Partnership

A partnership is created when members of the partnership intentionally join together to carry on a business that is not incorporated. Members, or partners, may be individuals, trusts, estates, corporations, or other partnerships.

The intention of partners to form a partnership usually is expressed through a written partnership agreement. However, depending on the facts and circumstances of each case, an intention to form a partnership may be found in conduct of parties such as establishment of a joint bank account, contribution of cash or property to a business venture, or the sharing of profits or losses of a business venture.

Laws of the various states provide for the formation of partnerships. Each state except Louisiana has adopted provisions of either the Uniform Partnership Act or the Revised Uniform Partnership Act. Although these provisions by default provide details regarding the formation and terms of partnerships, parties may establish by written agreement partnerships that meet their particular requirements. Such agreements normally will specify the name of the partnership, what each partner contributes to the partnership, how each partner will share in losses and profits, the authority of partners to act on behalf of other partners, management and decision-making responsibilities of partners, and the handling of death or withdrawal of partners or dissolution of the partnership.

Profits and losses of partnerships are passed through to partners and are taxed at the partner level rather than at the partnership level. Existence of a partnership for federal taxation purposes depends upon evaluation of the following factors rather state laws:

The existence of a written agreement and adherence to that agreement;

The extent to which each party to the venture has contributed something of value to the venture;

How management and decision-making is shared among members of the venture;

Whether each of the members of the venture shares in the profits and losses of the venture;

Whether separate accounting is maintained for the venture;

Whether the venture is presented to the public as a partnership; and

Whether federal returns reflecting a partnership are filed.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

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