In Colorado a partnership is an association of two or more persons to carry on, as co-owners, a business for profit and includes, without limitation, a limited liability partnership. General principals of partnership law is set forth in this summary. The status of a partner, as both principal and agent of the partnership, serves as complete authority with respect to acts which are apparently within the usual course of the partnership’s particular business, unless the other party knows that he has no such authority. This obviates the necessity of a specific written authorization from the other partners. When acting in furtherance of the objects and business of the firm and within the scope of its business, one partner is clothed with the full powers of all the partners and is authorized to bind the firm in all transactions, for the very nature and purposes of a partnership association necessarily constitute each active partner a general agent of the firm.
A partnership is a for-profit business association of two or more persons. Because the business component is defined broadly by state laws and because “persons” can include individuals, groups of individuals, companies, and corporations, partnerships are highly adaptable in form and vary in complexity. Each partner shares directly in the organization’s profits and shares control of the business operation. The consequence of this profit sharing is that partners are jointly and independently liable for the partnership’s debts.
Creation, organization, and dissolution of partnerships are governed by state law. Colorado has adopted the Uniform Partnership Act at CRS 7-60-101 et seq. A partner relationship is generally the result of a contract either express or implied with no formal requirements (such as a signed document). A partnership is formed when an agreement is entered into which clearly embodies every element necessary for the formation and creation of a partnership and when it is executed by the parties nothing further remains to be done to legally bring about a partnership relation. An express agreement is not required to create a partnership; a partnership may be formed by the conduct of the parties.
To determine whether a partnership exists courts look at: (1) intention of the parties, (2) sharing of profits and losses (3) joint administration and control of business operation, (4) capital investment by each partner, and (5) common ownership of property.
Under state agency law partners are personally liable for torts committed by the partnership and its agents. (This is not the case of a limited partnership where one or more general partners manage business operations and assume personally liable for partnership debts while other contributing/profit sharing partners take no part in running the business and incur no liability beyond contribution obligations.) Limited partnerships are governed in many states by the Uniform Limited Partnership Act. State property law also impacts partnerships by defining ownership in a partnership and determining how the death of a partner changes the partnership structure.
For state and federal tax purposes, a partnership is not a taxable entity. Partnership income is taxable to the partners in proportion to their share in the company’s profits.