A partnership may be formed whether or not the parties intend to form one, and its existence does not depend on a formal written agreement. Once a partnership is formed, then, it is important for you to know what your rights are in relation to the partnership accounts, recordkeeping, and partnership profits and losses.
The traditional “first step" in starting a partnership business requires a capital (usually cash) contribution by each of the partners into the partnership account. This contribution need not be equal, and the contribution itself is not necessarily required, as some partners may contribute their labor and skill to the partnership, rather than cash as capital. Regardless of the extent of capital contribution by each partner, the law deems each partner to have a “partner account" that is subject to several rules/limitations.
Partnership Profits and Losses
The initial partnership account is credited with the amount equal to the money and value of property contributed by the partner. As the partnership business progresses, the partner’s share of the partnership profits is added to this account. The division of profits (and losses) is left to the agreement of the parties.
Any partner that acts in the “ordinary course of the business of the partnership" by making payments or taking on liabilities is entitled to reimbursement by the partnership. A partner is also entitled to reimbursement for any advance to the partnership beyond the amount of capital the partner agreed to contribute.
No partnership agreement can unreasonably restrict a partner’s access to the books or records of the partnership. This right of access provides the partner, its agents, and attorneys an opportunity to inspect and copy these books and records.
Actions for Accounting
In order to enforce your rights under your partnership, a partner may maintain an action of “accounting" against the partnership or another partner. An action for an accounting forces the partners to account to the partnership for any benefit or profits derived from any transaction connected with the formation, conduct or termination of the partnership or from any use of partnership property.
Other than actions dealing with the end of a partnership or the withdrawal of a partnership, partners are given the right to a formal accounting when:
· The right exists under the partnership agreement;
· A partner is excluded from the business or possession of its property by copartners; and/or
· Any other circumstances that render it just and reasonable.
It is important to stay informed about your partnership’s profits, losses, and recordkeeping. Know your rights when a partnership dispute arises.