Case study of organizational partnerships

Santa Rita Bank & Bank of Money Lawsuit Against Romulus Partnership and Parties.

Under California's Revised Uniform Partnership Act

, a partnership is an "association of two or more persons to carry on as co-owners of a business for profit."

It is a legal entity that is distinct from tis individual partners. Therefore, as a general rule, there can be no partnership where the parties in question have not by their agreement created one. Furthermore, each partner is, in general, personally and directly responsible for all the debts of the partnership. With this being said, we can evaluate what the parties liabilities are.

(a) The Liabilities of Jack and Mari

The status of partner provides the authority to bind the partnership by acts "which are apparently within the usual course of the particular business" of the partnership.

As a result, each general partner are personally liable for all debts and obligations the partnership occurs.

In this case, Jack and Mari are the general partners of "Romulus Bakery and Pastry Partnership." Both contributed an equal amount of capital to the venture, that being $50,000, and both contractually agreed to manage and split the profits of the partnership equally. Since the debt in question was obtained by both general partners, for the purposes of the business venture, both Santa Rita Bank and Bank of Money can recover from Jack and Mari.

(b) The Liabilities of Rob

In order for an association to rise to the level needed for a partnership to be found, there must be an intent manifested by the parties to "carry on as business owners."

To be a partner, specific intent is not required, for intent can be implied through actions of the parities.

Under Corp. Code § 16202(c)(3)(B), a person who receives a share of the profits is presumed to be a partner in the business, unless the profits were received ... In payment for services as an independent contractor or of wages or other compensation to an employee."

Here Rob entered into an arrangement to become the pastry chef at Romulus Bakery. His compensation consisted of hourly wages and 10% of any profits the bakery earned during his shift. Since Rob's entitlement to profits derived from his compensation for employment, his relationship is that of employee/employer, rather than co-owner. Since no partnership was formed, Rob is not liable for the debt.

(c) Liabilities of Ned

The essential elements of a partnership are a community of interest an agreement to share profits or losses resulting from the enterprise.

In order to classify Ned's $50,000 loan as capital contribution, the transaction as a whole must reflect the desire of Ned to participate as an owner. Here, the parties expressly stated that Ned's $50,000 capital was a loan and not capital contribution. Furthermore, Ned's ability to only partake in the profits but not the losses of the business venture tends to support this assessment. For this reason, Ned is not a general partner and therefore Santa Rosa Bank and Bank of Money cannot recover from him

(d) Liabilities of Mr. Money Bags

The Uniform Partnership Act declares "when a person, by words spoke or written .. .or consents to another representing him to any one as a partner in an existing partnership ... he is liable to any such persons to whom such representations has been made, who has, on the faith of such representations, given credit to the actual partnership."