Duhaime's Law Dictionary


Partnership Definition:

An organization in which two or more persons carry on a business together.

Related Terms: Corporation, Association

In Smith v Anderson (1879), Justice James wrote:

"An ordinary partnership is ... composed of definite individuals bound together by contract between themselves to continue combined for some joint object, either during pleasure or during a limited time, and is essentially composed of the persons originally entering into the contract with one another."

In Pollock's book on partnerships, he defines the term as:

"Partnership is the relation which subsists between persons who have agreed to share profits of a business carried on by all or any of them on behalf of all of them."

In Continental Bank of Canada, Justice Bastarache wrote:

"The indicia of a partnership include the contribution by the parties of money, property, effort, knowledge, skill or other assets to a common undertaking, a joint property interest in the subject-matter of the adventure, the sharing of profits and losses, a mutual right of control or management of the enterprise, the filing of income tax returns as a partnership and joint bank accounts."

By definition, individual partnerships are not incorporated and therefore do not benefit from the limited liability of a corporation, although there are ways around that and some jurisdictions allow limited partnerships, while other jurisdictions will allow two or more partnerships to create a corporation.

Partners (but not limited partners) are each fully liable for all the debts of the enterprise but they also share the profits exclusively.

Davies wrote, in his 1997 book on company law:

"Partnership law ... is based on the law of agency, each partner becoming the agent of the others."

Many states have laws which regulate partnerships and may, for example, require some form of registration and allow partnership agreements.

Far more significant, many jurisdictions allow corporations to partnership together or in a combination with individuals. These permutations allow a savvy lawyer to tweak a business structure to fit the needs of a client.

One of the basic advantages of partnerships is that they tend to allow business losses to be deducted from personal income for tax purposes (see also limited partner).

Partnerships are sometimes referred to as firms.

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