A general partnership is formed when two or more persons associate to carry on as co-owners a business for profit, whether or not they intend to form a partnership. No filing is required and no agreement is necessary.
Indicators. Sharing of profits, which raises a presumption in most statutes; sharing of losses; joint control over the business; contribution of capital or services; and holding out to third parties as partners.
Sharing profits is not conclusive where the payment is for a debt, wages, rent, an annuity, or the sale of goodwill.
Why it matters. Partners owe each other fiduciary duties, share management authority, and are jointly and severally liable for partnership obligations. Each partner is an agent of the partnership with authority to bind it in the ordinary course. A person who did not think they were in a partnership can be bound by their supposed partner’s contracts.
Where it happens. Joint ventures without an entity; informal business arrangements between friends or family; revenue-sharing arrangements that go beyond referral fees; and continued operation of a dissolved entity.
Partnership by estoppel binds a person who represents themselves as a partner, or consents to being represented as one, to third parties who extend credit in reliance.
Prevention. Use an entity, or a written agreement that expressly disclaims partnership and defines the relationship.