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Consent and the Partnership Agreement

As noted above, forming a partnership requires few specific formalities, such as a written agreement or registration with a state agency. Nevertheless, all parties that are considered partners must consent to be such. The consent may be express, such as signing a written partnership agreement or implied by the conduct of the parties. Parties do not need to agree specifically to form a “partnership;” rather, their agreement or conduct must be such that they agree to run a business for profit. Even if the parties agree that their business will not be labeled a partnership, the business may be found to be one if it meets the definition of a partnership.

If two or more individuals enter a partnership without a partnership agreement, problems are likely to arise. The default rules found in the UPA and the RUPA may not be sufficient for the parties based on their wants and needs when they formed the business. Similarly, the rules in the UPA and RUPA may not reflect the understanding of the parties when they entered into the business. Since all partners are liable for the debts of the partnership, if a partnership is formed inadvertently, it may cause significant problems for the partner who was not aware of the legal consequences of his or her decision. Should an individual wish to enter into a business that has not been registered as a limited liability entity, he or she should be sure to demand the drafting of a written partnership agreement so that the understanding and agreement of the parties can be reflected more clearly in a document.

Inside Consent and the Partnership Agreement