A general partnership is a legal form of business with two or more owners called as “general partners” who equally share the right to manage the business. These general partners also have equal levels of legal rights and duties in their general partnership.
Legal rights of partners in a general partnership
1. Rights in partnership property: Whatever properties contributed to the partnership by the general partners, or whatever the partnership has acquired throughout the operation of the business partnership, belong to the general partnership as a whole. The general partners have no right to individually own or use any specific asset of the partnership property. These are for the sole use of the partnership business only and not by individual partners.
However, this rights in partnership property has several limitations:
- Cannot be assigned or used as a mortgage by an individual partner: No partner can assign or transfer his or her rights in a specific item of partnership property. Furthermore, No partner can mortgage the partnership property without securing an authority from the entire general partnership or all general partners.
- Cannot be attached to the personal credits or personal liabilities of an individual partner: Any creditor of an individual partner has no right to run after the partnership property to settle the obligation of an individual partner. Furthermore, partnership property is not also subject to liability for alimony of an individual partner. Remember that a partner has no right to individual own or use any specific asset of the partnership property.
- Cannot be passed on estate upon death of individual partner: When an individual partner dies, his or her rights in a specific partner property are given to the surviving or remaining partners of the general partnership. His or her rights on partnership property cannot be pass on to his or her estate.
2. Rights in partnership interest: Every individual partner has a personal property interest in the general partnership. This interest consists of his or her right to his or her share of the profit and surplus. Below are further details of these rights in partnership interest:
- Partner can assign partnership interest: The personal property interest or the rights to the share of the profit and surplus are the personal property of an individual partner. This means that his or her interest in profits and surplus is transferable or assignable. Upon assignment of interest in the partnership by an individual partner, the assignee acquires the rights to the profit and surplus originally owned by the assignor. However, the assignee has no management rights because the transfer of interest in general partnership does not confer managerial rights and duties owned by the individual partner or assignor. The assignee can only obtain such rights if he or she becomes a partner upon approval of all partners. The assignee may ask the court for the dissolution of the general partnership and its activities, if the need arises, but with the consent and willingness of the general partnership as a whole, or the term of the partnership has expired.
- Creditor may go after partnership interest: The partnership interest can be attached to the personal credits or personal liabilities of an individual partner or even an interest assignee. This works when a creditor of an individual partner obtains from a court a “charging order” for obligation settlement using the share of profit or surplus. Take note that a charging order will not result in the dissolution of the general partnership and will not make a creditor a partner or provide him or her with managerial rights and duties.
- Rights of heirs to partnership interest: Upon the death of a partner, his or her heirs have the right to the share of profit and surplus. However, it is important to note that the right to partnership property is vested on the remaining or surviving partners of the general partnership.
3. Rights to indemnification and contribution: The general partnership shall indemnify or protect every partner for whatever expenses incurred on behalf of the partnership. If a partner pays more than his or proportionate share of the debts of the partnership, he or she has the right to reimbursement from other partners.
4. Rights to inspect books and records: Having investments on the general partnership business, each partner has the right to inspect and have a copy of the books and records. If there are anomalies found in the books of accounts and even in the records involving the partnership, each one has the right to raise concerns or confront any partner involved in the anomalous activities.
5. Right to bring legal action against the partnership: The Revised Uniform Partnership Act grants partners to bring legal actions against their partnerships if ever there are any anomalies committed by any partner or the partnership as a whole. Take note that the old partnership act prohibits partners from suing their partnership except under limited circumstances. In cases of disagreements due to anomaly, partners typically resorted to dissolving the general partnership.
Legal duties of partners in a general partnership
1. Fiduciary duties to other partners: A general partner has a fiduciary duty to the entire general partnership. This means that he or she has a legal duty to act solely in the interest of the organisation and of his or her partners. The general partner should use the partnership property to benefit everyone.
2. Individual personal liability for all partnership obligations
- Personal liability for all acts of other partners: General partners are personally liable for all contracts entered into and all torts committed by other partners within the scope of the entire general partnership. The partners can also be held personally liable for fraud or breach of trust committed by a partner within the scope of the general partnership.
- Liability of each general partner is joint and several: The liability of all general partners are both joint and several regardless if this liability or legal obligation emerges from a contract or a tort. Joint and several liability means that each general partner is personally and individually liable for the entire amount incurred by the general partnership.