What Are the Legal Rights and Obligations Afforded by a Partnership?

While state statutes will prescribe certain rights and obligations that apply to every partnership formed in the state, partnership agreements can dictate additional rights and obligations that the partners agree upon. This allows partners to determine how their business will be run and set particular expectations for how profits, losses, and duties will be shared.  

A partnership is a legal relationship between two or more people who agree to share ownership and profits of the business. While a partnership can be created without a formal partnership agreement in place, it is best to have one in place for your protection. The partnership agreement will also outline the legal rights and responsibilities of each partner.

What Are the Various Rights of a New Partner?

There are various rights that all partners in a partnership share, as defined by state law and the partnership agreement. Some of the most common legal rights given to partners, old and new, include: 

  • The right to contribute to the planning and decision-making process for the business
  • The right to participate in the operation and management of the business
  • The right to examine the business’s financial accounts
  • The right to share in the business’s profits and losses in an amount that is proportional to their contributions
  • The right to be reimbursed for expenditures made for the business
  • The right to end the partnership at any time

What Are the Rights of an Outgoing Partner?

Outgoing partners generally have the same rights as any partner until they have entirely left the partnership. The specific rights of partners to withdraw from the business will be dictated by the partnership agreement.  

A comprehensive partnership agreement will describe what will occur if one partner wants to exit the business, including the process a partner needs to follow when departing, the method for calculating the purchase price of the partner’s interest, and any adjustments to the way the business operates that will take place if a partner withdraws. In addition, outgoing partners generally have the right to be fairly compensated for their interest in the partnership. 

How Do I Legally Leave a Business Partnership?

The ways you can legally leave a business partnership will be determined by the partnership agreement. However, the two most common methods for withdrawing from a partnership include (1) the exiting partner selling their interest to a successor and (2) the partnership buying out the departing partner’s interest.

Partners can often leave a business partnership is by transferring their interest to another person, usually through a sale. The purchaser will assume the rights and obligations of the exiting partner. However, partnership agreements can require that the remaining partners be given the “right of first refusal,” which means they must be provided a chance to buy an outgoing partner’s interest before it can be sold to a third party. 

In some situations, the partnership might buy out an exiting partner’s interest in the company. If this occurs, the partnership will acquire the outgoing partner’s stake in the business by distributing cash or other assets in exchange for their interest. 

If your partnership doesn’t have a written agreement or your partnership agreement doesn’t include terms about how a partner can leave, you might be required to dissolve the partnership for a partner to leave. A partnership will automatically be dissolved in most states if a partner leaves unless the partnership agreement includes other provisions. Once the partnership is dissolved, the remaining partners can form a new partnership without the exiting partner.

Have Questions?


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