Uniform Partnership Act: Everything You Need to Know
It also affords parameters in the governance of partnership dissolutions if a partner decides to leave a business.3 min read
2. UPA History
3. RUPA Basics
4. UPA Essentials
The Uniform Partnership Act (UPA) governs business relationships in various U.S. states. It also affords parameters in the governance of partnership dissolutions if a partner decides to leave a business. It’s also called a uniform act, and it functions in the same manner as a statute (a rule passed via a legislative body instead of a government agency or court).
The act has undergone various amendments since it was introduced in 1914 via the National Conference of Commissions on Uniform State laws. It was adopted by all states except for Louisiana, a state which has a history of establishing its own laws. The Uniform Partnership Act of 1997 is a modern form and was later adopted by all states except Louisiana.
Moreover, it creates a partnership as a distinct legal entity, and not simply as a collection of partners. The most recent amendments were introduced in 2011 and 2013 via the Harmonization of Business Entity Acts. Such amendments clarify the language of the UPA (1997) with language of other provisions in other uniform acts, while making additional updates to conform to modern times. The primary aim of the UPA is informal and small partnerships.
- Note: Large partnerships usually have agreements in place that address and modify many provisions of a contract.
Under certain state laws, a partnership can be dissolved if a member decides to leave. The basic goal of the UPA is to afford partnerships stability in cases where continuous agreements are in place. The UPA also stipulates that there are dissociations or departures that do not end up in dissolution. Certain issues pertaining the UPA include the following:
- Title regarding partnership property
- Partners’ joint and several liabilities
- Fiduciary duties of all partners
Benefits of UPA
The UPA permits that majority interests of remaining partners could agree to maintain a partnership within 90 days of the dissociation date. The UPA also saves partnerships from dissolution following partner dissociations. Also, it governs partnership creation, including partnership assets and fiduciary duties.
The UPA was first drafted in 1914, but it has undergone multiple revisions. It has also been amended and revised. Most notably, the 1994 revision was known as the Revised Uniform Partnership Act (RUPA), which has often caused some confusion with additional amendments in 1996 and 1997. Therefore, all changes are indicated by the years of its enactment. Around 37 states in the United States have adopted some version of the Act.
RUPA is a statute dictating how the partnerships should be organized and created, including the duties and rights of all partners involved. It has also been adopted by nearly all states. RUPA also gives partners more discretion in assessing how a partnership operates than the UPA by giving the partnership agreement in question to be the primary authority over all the partners.
RUPA allows default rules regarding provisions not included in a partnership agreement. RUPA also pertains to general partnerships and Limited Liability Partnerships (LLPs), but it does not include limited partnerships (LPs). LPs are not considered genuine partnerships under the RUPA, which is why they do not fall under the guidelines of RUPA. RUPA also made various changes to old rules that govern partnerships.
It also established what’s called partner dissociation, allowing partners to withdraw from a partnership without causing the dissolution of the partnership itself. RUPA states that a partnership agreement (unlike partnership law) establishes the duties and rights of partners.
The UPA was combined with the Limited Liability Partnership Amendments Act in 1996. One of the most notable changes occurred in the 1997 amendments pertaining to partnership disassociation that does not trigger a dissolution unless the person with a majority stake agrees to the dissolvement of the partnership.
The partnership will continue unless a partner acts to get rid of the partnership within 90 days of the dissociation date. The revised act also has the following attributes:
- It establishes partnership as entities between partner assets and partners and not aggregates. A partnership can sue or be sued under the name of a partnership and may obtain property in the partnership’s name.
- A partnership interest designated as separate liabilities and rights associated with the participation in a new partnership. This means that partners cannot have interests in certain properties of the partnership. The creditors of a partner may only go after the partner and not the property that the partnership owns.
- RUPA details the care and loyalties of the partners, including information about obligations and rights in regard to fair deals and good faith.
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