Partnership by estoppel, dissolution and dissociation

Partnership by Estoppel and Defective Entity Status: The Entity That Others See

Partnership by estoppel is not actual partnership formation. It is reliance-based liability. Ask four questions in order:

Did the person, by words or conduct, purport to be a partner or consent to another’s representation?
Was the representation made to the claimant, or publicly in a manner on which the claimant could rely?
Did the claimant actually rely on it?
Did the claimant enter a transaction with the actual or purported partnership because of that reliance?

If yes, the represented person can be liable on that transaction as though the representation were true. A person who merely appears on someone else’s unauthorized statement, without consent or conduct creating the appearance, is not liable under this doctrine. Reliance also matters: a creditor who knew the person was not a partner, or who extended credit for an unrelated reason, has not established estoppel.

The consequence is narrower than actual partner status. Estoppel can make the represented person answer for the relying claimant’s transaction; it does not automatically give that person management rights, profits, inspection rights, or the full fiduciary position of an actual partner. A representation to the public need not be delivered directly to the claimant if the claimant relied on the public representation.

Defective entity analysis asks a different question: not whether an individual should be liable because of a representation, but whether the business should be treated as an entity. The traditional de facto corporation requirements are:

a statute authorizing the type of corporation;
a good-faith, colorable attempt to comply with formation requirements; and
exercise of corporate powers.

If those requirements are met, a court may treat the corporation as existing in a private dispute, even though a filing or another formation step was defective. The doctrine generally does not prevent the state from attacking the entity’s existence. It also does not rescue an organization that made no meaningful attempt to incorporate, acted fraudulently, or lacked any applicable incorporation statute.

Modern statutes make the filing question especially important. Under MBCA § 2.03, corporate existence begins when the articles are filed. Under ULLCA (2013) § 201, an LLC is formed when its certificate of organization is filed. Thus, a filing defect may be cured or made legally insignificant by the statute, while a complete failure to file may require equitable de facto analysis. A court may extend de facto treatment to a defective LLC under similar reasoning, but do not assume that every informal business is an LLC.

The near-miss is decisive: estoppel focuses on a claimant’s reasonable reliance on a person’s representation; de facto treatment focuses on a good-faith attempt to create and operate an entity. Estoppel usually produces liability for the represented person. De facto treatment usually preserves entity status against private challengers.

This topic is not starred: legal resources may be supplied when it is tested, and where they are not, you need only demonstrate recognition that the topic is at issue.

The Exit That Does Not End the Firm: Dissociation, Dissolution, and Duration

Dissociation is a change in the relationship between a partner and the partnership. It can occur through a partner’s notice of express withdrawal, an agreed event, expulsion under the agreement, judicial expulsion, death, bankruptcy-related events, or other statutory events. The dissociated person generally stops being a partner and loses the partner’s ongoing authority, but the partnership may continue and the person may retain an economic interest subject to the applicable buyout rules.

Dissolution is the event that begins the partnership’s winding-up process. It does not mean that every asset is instantly sold or that every obligation disappears; it means the business has entered the legally distinct process of finishing affairs. Here, the crucial question is whether the partner’s departure merely causes dissociation or also triggers dissolution.

The most tested connection is the partnership’s duration.

A partnership at will has no agreed definite term and no agreed particular undertaking that fixes its duration. A partner’s express will to withdraw ordinarily causes dissolution, even if the partner is not acting wrongfully.
A partnership for a definite term lasts until the stated period expires. A partnership for a particular undertaking lasts until the project is completed. A partner may dissociate before that point, but the dissociation may be wrongful and may create damages; it does not, merely by occurring, dissolve the partnership.
A term partnership can still dissolve earlier if another statutory or agreement-based dissolution event occurs, such as the partners’ agreement, an agreed event, illegality, judicial dissolution, or another applicable statutory trigger.

The fact separating “at will” from “definite term” is not the partners’ expectation that they will work together for a long time. It is an agreed duration or undertaking. “We hope to operate indefinitely” is ordinarily at will. “We will operate for five years” is a definite term. “We will build and sell this building” is a particular undertaking, even without a calendar end date.

The same notice can have different consequences. In an at-will partnership, “I withdraw immediately” is both a dissociation event and a dissolution trigger. In a term partnership, the same words ordinarily establish dissociation, but not dissolution by themselves. Do not convert a wrongful withdrawal into an automatic termination of the firm.

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A partner’s death or expulsion illustrates another near miss. Those events may cause dissociation, but they do not automatically dissolve every partnership. The agreement, the partnership’s duration, the statutory event, and the partners’ subsequent decision must be examined. Conversely, an agreed event may cause dissolution without any partner voluntarily dissociating.

Read a supplied rule by separating its operative language from its limiting language. In a provision saying “in a partnership at will,” that phrase is a gate, not background description. In a provision saying “express will ... to withdraw,” a partner’s general complaint or temporary absence is not enough. Then map each fact to the gate, the operative event, and any exception.

The Supplied Text in Action: Two Liability Paths and One Wrong Duration

In the following provision, “purports” or “consents” identifies the representation; “liable” states the consequence; “relying” and “enters into a transaction” establish causation; and subsection (b) removes the requirement of direct communication when the representation was public.

RUPA § 308 - Liability of Purported Partner

(a) If a person, by words or conduct, purports to be a partner, or consents to being represented by another as a partner, in an enterprise or with one or more persons not partners, the person is liable to a person to whom the representation is made if that person, relying on the representation, enters into a transaction with the actual or purported partnership.

(b) If the representation is made in a public manner, the person is liable to a person who relies on the representation, even if the representation is not made directly to that person.

RUPA § 801(1) - Dissolution

A partnership is dissolved, and its business must be wound up, in a partnership at will upon the express will of any partner to withdraw.

The item below supplies the governing language. Apply the provisions rather than importing a broader rule from memory.

Priya and Quinn sign an agreement to operate a catering business for four years. The agreement does not list any earlier withdrawal event. After one year, Priya sends Quinn a written notice stating, “I withdraw immediately,” and stops working in the business. The business continues under Quinn’s management. Before Priya’s departure, Malik, who was not a partner, consented to being described on the business’s public website as a “partner”; a lender saw the website and, relying on that description, loaned money to the business.

Select two answers.

Practice

Which two statements are best supported by the supplied provisions and these facts?

	(A) Priya’s notice makes the partnership a partnership at will because she chose to withdraw before the four-year period ended.	(B) Priya’s notice automatically dissolved the partnership under RUPA § 801(1).	(C) Priya dissociated, but her notice alone did not dissolve this definite-term partnership.	(D) Malik became an actual partner when the website described him as one.	(E) Malik may be liable to the lender under RUPA § 308 because he consented to the public representation and the lender relied on it in making the loan.	(F) The lender cannot rely on the website because RUPA § 308 requires the representation to be made directly to the lender.
Your answers

Three Short Tests: The Fact That Controls the Result

Practice

A catering company has no written partnership agreement. Jordan repeatedly tells a supplier that Casey is a partner, and Casey knowingly allows the supplier to believe it. The supplier relies on that representation and sells equipment on credit to the company. Casey later denies being a partner; what is the supplier’s strongest theory?

Lee and Morgan agree in writing to operate a restaurant for three years. After six months, Lee gives notice that Lee is leaving, but no other dissolution event occurs and Morgan continues operating the restaurant. What is the best result?

Organizers choose a state statute authorizing corporations, make a good-faith attempt to file articles, and begin operating under the corporate name, but the filing is rejected for a correctable defect. A private supplier sues on a contract and argues that no corporation existed. What is the strongest response?

High-Yield Points - ⚡ Biggest Takeaways

Estoppel requires a representation, reliance, and a transaction; it does not create actual partner status. Dissociation changes the partner relationship; dissolution begins winding up. A withdrawal dissolves an at-will partnership, but not ordinarily a partnership for a definite term.

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Practice Questions: Partnership by estoppel, dissolution and dissociation

1. Two architects orally agreed to operate a design studio as co-owners, share profits equally, and participate equally in management. They did not form a limited-liability entity. One architect, acting without consulting the other, signed a three-year office lease in the studio's name. Leasing suitable office space was ordinary for an architectural practice, and the landlord had no notice of any restriction on the architect's authority. The studio occupied the space for eight months but then stopped paying rent. The landlord sued the studio and both architects for the unpaid rent. The nonsigning architect argues that she cannot be personally liable because she neither signed nor approved the lease. Under generally accepted partnership principles, which of the following is the strongest conclusion?

A. Only the partner who signed the lease is liable because the other partner did not participate in the transaction.
B. Neither partner is liable because the partnership, rather than its partners, is exclusively responsible for partnership obligations.
C. Both partners are liable only if the landlord first obtains and unsuccessfully executes a judgment against the partnership.
D. Both partners are personally liable because the lease is a partnership obligation incurred in the ordinary course of its business.

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Answer: D. Both partners are personally liable because the lease is a partnership obligation incurred in the ordinary course of its business.

Both partners are personally liable because the lease is a partnership obligation incurred in the ordinary course of its business. - Operating the studio as co-owners for profit created a general partnership, even though the architects made only an oral agreement. - Leasing suitable office space was ordinary for the practice, so the signing partner bound the partnership; both partners are personally liable for its unpaid rent. Only the partner who signed the lease is liable because the other partner did not participate in the transaction. - A partner’s personal liability for a partnership obligation does not depend on signing or approving the contract. - The landlord had no notice of an authority restriction, and the office lease was an ordinary-course transaction that bound the partnership. Neither partner is liable because the partnership, rather than its partners, is exclusively responsible for partnership obligations. - A general partnership does not give its partners the liability shield associated with a limited-liability entity. - Because the studio incurred the rent obligation, both architects are personally liable for it. Both partners are liable only if the landlord first obtains and unsuccessfully executes a judgment against the partnership. - Prior unsuccessful execution is not a condition of personal liability: both partners are liable for the partnership’s lease obligation. - Rules governing when a creditor may collect from a partner’s assets are distinct from whether that partner owes the debt.

2. Two architects operated a design business as equal general partners under a written agreement. The agreement required both partners' approval before the firm borrowed more than $50,000. Without the other partner's approval, one partner obtained a $70,000 loan in the partnership's name from a bank to purchase ordinary design equipment. The bank had previously made smaller equipment loans to that partner on the firm's behalf, but it had received a copy of the partnership agreement before making this loan. The partnership used the equipment but defaulted on the loan. The bank sued the partnership and both partners. Which of the following is the strongest conclusion?

A. The partnership and both partners are liable because every partner can bind the partnership despite a third party's knowledge of an authority restriction.
B. The partnership is not bound because the bank knew that the partner lacked authority for this loan, although adoption could create liability.
C. Only the borrowing partner is liable because general partners have limited liability for obligations incurred in the partnership's name.
D. Only the partnership is liable because partners are not personally liable for contractual debts arising from ordinary partnership business.

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Answer: B. The partnership is not bound because the bank knew that the partner lacked authority for this loan, although adoption could create liability.

The partnership is not bound because the bank knew that the partner lacked authority for this loan, although adoption could create liability. - The $70,000 loan exceeded the agreement’s $50,000 limit, and the bank had received the agreement before lending, so the partner’s ordinary-course authority does not bind the partnership on these facts. - The partnership’s use of the equipment does not by itself establish that it knowingly adopted the unauthorized loan, though adoption could make it liable. The partnership and both partners are liable because every partner can bind the partnership despite a third party's knowledge of an authority restriction. - A partner generally can bind the firm in ordinary business, but that rule does not override the bank’s knowledge of the agreement’s approval requirement. - The bank’s earlier, smaller equipment loans do not supply authority for this loan above $50,000. Only the borrowing partner is liable because general partners have limited liability for obligations incurred in the partnership's name. - General partners do not have limited liability merely because an obligation was incurred in the partnership’s name. - Whether the non-borrowing partner owes this contractual debt depends first on whether the partnership became bound. Only the partnership is liable because partners are not personally liable for contractual debts arising from ordinary partnership business. - General partners can be personally liable for partnership contractual obligations, including debts incurred in ordinary business. - Here, the threshold issue is the bank’s knowledge of the restriction on a loan exceeding $50,000, not an exemption for the partners.

3. Two architects formed a general partnership to operate a design practice, sharing profits and losses equally. Their partnership agreement was silent on outside business activities. While working on a joint project, one architect was approached by a wealthy client seeking a lucrative commission for a museum expansion, a matter closely related to the partnership's ongoing work. Without disclosing the opportunity to her partner, she accepted the commission for herself and completed it using her own time and resources, keeping all the fees. When her partner discovered this, he demanded that she turn over the profits from the museum project to the partnership. She refused, arguing that she completed the project on her own time and that the partnership agreement did not restrict outside business activities. Is the partner likely to prevail in requiring her to account for the profits?

A. Yes, because a partner owes a duty of loyalty to account to the partnership for any property, profit, or benefit derived from an opportunity related to the partnership's business, even without an express agreement.
B. No, because a partner may pursue any business opportunity that arises outside partnership office hours.
C. No, because the partnership agreement did not expressly prohibit outside business activities.
D. Yes, but only if the partner can show that partnership funds or resources were used to secure the commission.

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Answer: A. Yes, because a partner owes a duty of loyalty to account to the partnership for any property, profit, or benefit derived from an opportunity related to the partnership's business, even without an express agreement.

Yes, because a partner owes a duty of loyalty to account to the partnership for any property, profit, or benefit derived from an opportunity related to the partnership's business, even without an express agreement. - The museum expansion was closely related to the architects’ ongoing partnership work, so taking the commission without disclosure implicated the partner’s duty of loyalty. - That duty applies even though the agreement is silent on outside work, and she must account to the partnership for the fees from this opportunity. No, because a partner may pursue any business opportunity that arises outside partnership office hours. - Completing the museum project on her own time does not make a partnership-related opportunity hers to keep. - The relevant facts are how the commission arose and its connection to the practice, not the hours she spent completing it. No, because the partnership agreement did not expressly prohibit outside business activities. - A partner’s duty of loyalty applies by default; the agreement need not expressly forbid outside commissions. - Silence about outside work did not authorize her to take this closely related commission without disclosing it to her partner. Yes, but only if the partner can show that partnership funds or resources were used to secure the commission. - Using partnership funds or resources is not required when a partner appropriates an opportunity connected to the partnership’s business. - Her use of personal resources to complete the museum project therefore does not defeat the demand that she account for its profits.

4. Before a corporation was formed, its promoter signed a six-month equipment lease that expressly stated, “Landlord agrees to look solely to the corporation, once formed, for performance of this lease, and Jordan Lee shall have no personal liability.” After articles of incorporation were filed, the board learned all material terms of the lease, approved use of the equipment, and authorized corporate payments of rent. The corporation used the equipment and paid rent for three months before becoming insolvent. The landlord now seeks the remaining rent from both the corporation and the promoter. No later agreement altered the lease's disclaimer language. Under generally accepted rules governing preformation contracts, which of the following best states the parties' liability?

A. The promoter remains liable despite the disclaimer because filing the articles does not automatically release him from a preformation contract.
B. Only the corporation is liable because the lease's express disclaimer of personal liability relieved the promoter once the corporation adopted the contract.
C. Neither party is liable because a clause disclaiming the promoter's personal liability voids the entire preformation contract.
D. Only the promoter is liable because a corporation cannot be bound by a contract that predates its existence, even with adoption.

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Answer: B. Only the corporation is liable because the lease's express disclaimer of personal liability relieved the promoter once the corporation adopted the contract.

Only the corporation is liable because the lease's express disclaimer of personal liability relieved the promoter once the corporation adopted the contract. - The corporation adopted the lease when its board, knowing the material terms, approved use of the equipment and authorized rent payments; the corporation then used the equipment and paid rent. - The lease expressly directs the landlord to look solely to the corporation and states that Jordan Lee has no personal liability, so the landlord cannot recover the remaining rent from him. The promoter remains liable despite the disclaimer because filing the articles does not automatically release him from a preformation contract. - Filing articles alone does not release a promoter from the usual personal liability on a preformation contract. - Here, however, the lease’s express disclaimer removes Jordan Lee’s personal liability; the conclusion does not rest on incorporation alone. Neither party is liable because a clause disclaiming the promoter's personal liability voids the entire preformation contract. - The disclaimer addresses who is liable, not whether the lease is valid. - The corporation became liable by adopting the lease through informed board approval, equipment use, and rent payments. Only the promoter is liable because a corporation cannot be bound by a contract that predates its existence, even with adoption. - A corporation can become bound by adopting a preformation contract after it is formed. - The board’s approval and the corporation’s performance established adoption, while the lease expressly excluded Jordan Lee’s personal liability.

5. Two architects agreed orally to operate a design business as co-owners, divide profits equally, and share project decisions. They did not form another entity or address authority in their agreement. One architect, without consulting the other, signed a contract in the firm's name to purchase standard drafting software used in its projects. The vendor knew the signer was one of the firm's two co-owners but did not know of any disagreement between them. When the other architect learned of the purchase, she objected and told the vendor that the firm would not pay. The vendor seeks payment from the business and both architects. Which of the following is the vendor's strongest argument?

A. The purchase binds the partnership because a partner ordinarily may bind it through an apparently ordinary-course transaction.
B. The purchase binds only the signing architect because every partnership decision requires advance approval from all partners.
C. The purchase binds the partnership only if the objecting architect later ratifies the contract with full knowledge of its terms.
D. The purchase binds neither architect because an oral agreement cannot create a partnership with authority to contract.

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Answer: A. The purchase binds the partnership because a partner ordinarily may bind it through an apparently ordinary-course transaction.

The purchase binds the partnership because a partner ordinarily may bind it through an apparently ordinary-course transaction. - Operating the design business as co-owners for profit created a general partnership, and each architect is ordinarily its agent for business transactions. - Standard drafting software used in the firm’s projects is an ordinary-course purchase; the vendor had no notice of a restriction on the signer’s authority, so the partnership and its partners are liable. The purchase binds only the signing architect because every partnership decision requires advance approval from all partners. - Sharing project decisions does not mean every contract needs both architects’ advance approval. - Even if the architects disagreed internally, the vendor had no notice of a restriction when the partner signed an ordinary-course purchase contract. The purchase binds the partnership only if the objecting architect later ratifies the contract with full knowledge of its terms. - Ratification is unnecessary when a partner’s ordinary-course authority already binds the partnership at signing. - The other architect’s later objection does not undo the contract with a vendor that lacked notice of any authority dispute. The purchase binds neither architect because an oral agreement cannot create a partnership with authority to contract. - A written agreement is ordinarily unnecessary to form a general partnership; the architects’ co-ownership and profit sharing support one here. - Because the oral agreement formed a partnership, its partner could bind it by purchasing standard software for its projects.

6. An architect owned a design studio as a sole proprietor. She hired a marketing consultant under a one-year agreement stating, “Consultant is an independent contractor and receives 8% of the studio’s monthly gross revenue.” The consultant could recommend advertising strategies but could not sign contracts, hire workers, set project prices, access bank accounts, or bind the studio. The architect retained all final decision-making authority and bore all business losses. After the studio failed to pay a supplier, the supplier argued that the consultant was a general partner and therefore personally liable for the studio’s debt. No partnership filing had been made. The supplier has no evidence that the consultant represented himself as a partner. Which of the following is the consultant’s strongest argument that no general partnership existed?

A. The consultant was not a partner because the parties never filed a partnership certificate.
B. The consultant was a partner because participating in management necessarily creates a partnership.
C. The consultant was not a partner because receiving gross-revenue compensation alone does not establish co-ownership.
D. The consultant was a partner because any compensation tied to business revenue is treated as profit sharing.

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Answer: C. The consultant was not a partner because receiving gross-revenue compensation alone does not establish co-ownership.

The consultant was not a partner because receiving gross-revenue compensation alone does not establish co-ownership. - A general partnership requires carrying on a business as co-owners, and the consultant’s 8% of monthly gross revenue was compensation for marketing services. - The architect retained final decisions and bore all losses, while the consultant could only recommend strategies and could not bind the studio. The consultant was not a partner because the parties never filed a partnership certificate. - A general partnership can arise without a filing, so the absence of a certificate does not resolve whether the parties were co-owners. - The consultant’s limited authority and gross-revenue compensation, rather than the lack of paperwork, support his argument. The consultant was a partner because participating in management necessarily creates a partnership. - Recommending advertising strategies is advisory, not necessarily participation as a co-owner in managing the studio. - The architect kept final authority, and the consultant could not set prices, hire workers, or bind the studio. The consultant was a partner because any compensation tied to business revenue is treated as profit sharing. - A percentage of gross revenue is not a share of profits, which account for expenses. - Even profit sharing is not conclusive of partnership, and this consultant received revenue-based compensation without bearing business losses.

7. Two architects formed a general partnership without filing any organizational document. Acting within the partnership's ordinary business, both partners signed a five-year lease for studio space. One year later, the partners unanimously admitted a third architect as a partner. The third architect contributed cash, began voting on partnership matters, and received an equal share of profits. The third architect did not sign the lease or agree to assume existing partnership debts. Six months after the admission, the partnership stopped paying rent because it lost a major client. The landlord obtained a judgment against the partnership and now seeks to collect the unpaid rent directly from the third architect's personal assets. The jurisdiction follows the generally accepted rule governing an incoming general partner's liability for obligations incurred before admission. Is the landlord likely to succeed against the third architect personally?

A. The new partner is personally liable because every partner is personally liable for all partnership obligations whenever enforcement occurs.
B. The new partner is personally liable because admission as a partner constitutes an implied assumption of the partnership's existing debts.
C. The new partner is personally liable because participating in management eliminates the liability protection otherwise available to incoming partners.
D. The new partner is not personally liable because the lease obligation arose before that partner's admission to the partnership.

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Answer: D. The new partner is not personally liable because the lease obligation arose before that partner's admission to the partnership.

The new partner is not personally liable because the lease obligation arose before that partner's admission to the partnership. - The original partners signed the five-year lease before admission, so the lease obligation was incurred before the third architect became a partner, even though rent went unpaid later. - Under the rule for incoming general partners, the landlord cannot collect that prior obligation from the third architect’s personal assets without a separate assumption of liability. The new partner is personally liable because every partner is personally liable for all partnership obligations whenever enforcement occurs. - General partners ordinarily face personal liability for partnership obligations, but the rule for an incoming partner excludes obligations incurred before admission. - The landlord’s later judgment and the timing of enforcement do not change when the lease obligation arose. The new partner is personally liable because admission as a partner constitutes an implied assumption of the partnership's existing debts. - Admission, a cash contribution, and an equal profit share establish the architect’s partner status, not an assumption of existing debts. - The third architect neither signed the lease nor agreed to assume it. The new partner is personally liable because participating in management eliminates the liability protection otherwise available to incoming partners. - Voting on partnership matters confirms the architect participated as a partner, but management participation does not remove the protection for pre-admission obligations. - The controlling fact is that the lease was signed before the third architect joined.

8. A manufacturing company appointed an employee as purchasing manager and informed a longtime supplier that the manager would handle equipment purchases. During the next year, the manager placed several orders of up to $80,000, which the company accepted and paid. The company then privately instructed the manager not to place any order exceeding $25,000 without the president's approval, but it did not notify the supplier. One week later, the manager ordered a $60,000 machine from the supplier using the same company email account and purchase-order form used for prior orders. The supplier had no notice of the private limitation. The president promptly rejected the machine when it arrived. Which of the following is the supplier's strongest argument that the company is bound?

A. The company is not bound because the purchasing manager lacked actual authority for orders exceeding $25,000.
B. The company is bound because the purchasing manager's own assurances established authority to place the order.
C. The company is not bound because apparent authority cannot continue after actual authority has been privately limited.
D. The company is bound because its communications and prior conduct reasonably indicated continuing authority to the supplier.

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Answer: D. The company is bound because its communications and prior conduct reasonably indicated continuing authority to the supplier.

The company is bound because its communications and prior conduct reasonably indicated continuing authority to the supplier. - The company identified the employee as purchasing manager to the supplier and accepted and paid for prior orders of up to $80,000, creating apparent authority for the $60,000 order. - The supplier had no notice of the new $25,000 limit, and the manager used the same company email account and purchase-order form as before. The company is not bound because the purchasing manager lacked actual authority for orders exceeding $25,000. - The private instruction removed actual authority to place the $60,000 order without the president’s approval. - It did not remove the manager’s apparent authority as to a supplier that had not been told of the limit. The company is bound because the purchasing manager's own assurances established authority to place the order. - An agent’s own assurances, standing alone, cannot establish apparent authority. - The supplier’s stronger basis is the company’s notice of the manager’s role and its payment of earlier, larger orders. The company is not bound because apparent authority cannot continue after actual authority has been privately limited. - Apparent authority can continue after a private restriction when the supplier has no notice of it. - The president’s rejection when the machine arrived does not undo the company’s earlier manifestations to the supplier.

Flashcards: Partnership by estoppel, dissolution and dissociation

1. What is partnership by estoppel?

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A person who represents, or consents to another representing, that the person is a partner may be liable to a third party who reasonably relies on the representation and extends credit or otherwise changes position. The person is liable as though a partner for that transaction, but does not thereby become an actual partner.

2. What events trigger dissolution of a general partnership under the majority RUPA rule?

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Dissolution occurs upon an agreed event, unanimous agreement to wind up, certain wrongful or judicially ordered events, or a partner’s express notice of withdrawal from a partnership at will. A partner’s dissociation from a term or undertaking partnership generally does not automatically dissolve it.

3. What is a general partnership, and how is it formed under the majority rule?

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A general partnership is an association of two or more persons to carry on a business as co-owners for profit. Under the majority RUPA rule, it is formed by agreement or conduct and requires no filing or written agreement.

4. What facts create a presumption that a partnership exists?

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A person’s receipt of a share of business profits creates a presumption of partnership, subject to exceptions such as payment of a debt, wages, rent, interest, or a sale-related payment. Profit sharing alone is not conclusive if the parties did not intend to co-own the business.

5. When is a partner’s dissociation wrongful?

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A dissociation is wrongful if it breaches an express term of the partnership agreement or, in a partnership at will, occurs before the expiration of the partnership term or completion of the undertaking after a partner has wrongfully withdrawn. A wrongful dissociating partner may owe damages to the partnership.

6. When is a partnership bound by a partner’s apparent authority?

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Under RUPA, an act apparently carrying on the partnership’s ordinary business binds the partnership unless the partner had no authority and the third party knew or had notice of that lack of authority. An act outside the ordinary course generally requires actual authority, such as authorization by all partners.

7. When does a partner have actual authority to bind the partnership?

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A partner has actual authority when the partnership agreement or the partners’ vote authorizes the act, or when the act is apparently authorized as part of the ordinary course of partnership business. The partnership is bound if the partner acts with actual authority, subject to limits in the agreement.

8. What are partners’ default rights to participate in management and vote?

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Each partner has equal rights in the management and conduct of the partnership business, regardless of capital contribution. Ordinary-course matters are decided by a majority of partners; acts outside the ordinary course require unanimous consent under RUPA.

9. How are partnership assets distributed during winding up?

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After partnership assets are collected and creditors are paid, remaining assets are distributed first to repay partner loans, then capital contributions, and then according to the partners’ profit-sharing percentages. Partners share losses in the same proportion as profits unless the agreement provides otherwise.

10. What events cause a partner’s dissociation under RUPA?

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Dissociation occurs when a partner gives express notice of withdrawal, an agreed event occurs, the partner’s death or bankruptcy occurs, or another statutory or court-ordered event applies. Dissociation ends the partner’s right to participate in management but does not necessarily dissolve the partnership.