This blog, written by Thomas E. Rutledge, focuses primarily on business entity law in Kentucky. Postings on contract law, contractual and statutory construction, and the entity law of other jurisdictions appear as well. There may as well be some random discussions of classical, medieval and renaissance history.
Tuesday, November 4, 2014
The Elements of a Partnership
The Elements of a Partnership
A recent decision
from the North Carolina business
law court considered whether
had been formed. Finding that the partners had never contributed assets
to the venture for the purposes of coownership, and as well not engage in other activities that
would be expected of a partnership including the filing of tax returns and the opening of bank accounts, the court found no partnership
to come into existence. La Familia
Cosmovision, Inc. v. The Inspiration Networks, 2014 NCBC 51, 2014 WL
5342583 (Sup. Ct. N.C. Oct. 20, 2014).
The parties had entered into a written letter of intent outlining
the terms of a partnership that
in part that “nothing in this agreement
shall be construed to constitute a joint venture.” That LOI wasrepeatedly amended, and ultimately included
a revenue sharing agreement
pursuant to which certain
up to a particular threshold would
be for the benefit of one of the two parties, while subscription income
above that amount would be shared between the
parties. When one side withdrew from the LOI, the other brought suit after the withdrawing
a venture similar to that anticipated
by the LOI.
Under the North
of the Uniform
Partnership Act, as elaborated by
Court in Johnson v. Gill, 235 N.C. 40, 44-45 (1952):
To make a partnership, two or more persons should
property, effects, labor, or skill in a common business
or venture, and under an agreement to share the profits and losses in equal or specified proportions, and constituting each
member an agent of the others in matters appertaining to
within the scope of its business.
In other cases, the courts have:
[C]onsidered a variety of circumstances as
a partnership, including, among other things, the filing of a joint tax return, establishment
of a partnership bank
account, obtaining state
a partnership, and capital contribution
by members of the alleged partnership.
In re Brokers, Inc., 363 B.R. 458, 469 (M.D. N.C. 2007).
North Carolina courts
as an “indispensable”
of a partnership the
“co-ownership of the business.”, McGurk v. Moore, 234
N.C. 248, 252 (1951), and the sharing of the actual profits. Wilder v. Hobson, 101 N.C. App. 199, 202
instance, the LOI outlined a transaction in
would go to one or other of the partners. Parsing the various components
of these agreements, the court found that they did not constitute
but rather a mere profit splitting
respect to a particular venture.
to the question of co-ownership of property, in that neither party contributed
to the venture, the argument that a partnership existed failed
as “[T]here is no evidence that the parties ever combined assets
or co-owned partnership
property or any common legal entity.”
“casual” references amongst the parties to one another
as partners as evidencing a
the court noted as well:
[T]he absence of a variety of traditional indicia
a partnership. For example, there is no allegation that
the parties ever filed a partnership tax return or established
In that there was no partnership, the court dismissed
the claim for an accounting.