Creation and Operation of a Partnership
(part D)
by
Charles Lamson
Nature of Partnership Liabilities
The partners have joint liability on all partnership contractual liabilities unless the contract stipulates otherwise. They have joint and several liability on all tort liabilities. For joint liabilities, the partners must be sued jointly. If the firm does not have adequate assets to pay the debts or liabilities of the firm, the general partners, of course, have individual liability for the full amount of debts or liabilities. If all the partners but one are insolvent, the remaining solvent partner must pay all the debts even though the judgment is against all of them. The partner who pays the debt has a right of contribution from the other partners but as a practical matter, may be unable to collect from the other partners.
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Withdrawing partners have liability for all partnership debts incurred up to the time they withdraw unless the creditors expressly release these partners from liability. Under the Uniform Partnership Act, incoming partners have liability for all debts as fully as if they had been partners when the debt was incurred, except that this liability for old debts is limited to their investment in the partnership. Withdrawing partners may contract with incoming partners to pay all old debts, but this does not bind creditors.
Authority of a Partner
A partner has authority expressly given by the partnership agreement, by the partnership, and by law. By virtue of the existence of the partnership, each partner has the authority to enter into binding contracts on behalf of the partnership, as long as they are within the scope of the partnership business. Thus, each partner can, and often does, act as an agent of the partnership. This right can be limited by agreement as long as there is notice given of the limitation.
In addition, a partner has all the powers that it is customary for partners to exercise in that kind of business in that particular community. As in the case of an agent, any limitation on the authority the partner would customarily possess does not bind a third person unless made known. The firm, however, has a right to Indemnity from the partner who causes the firm loss through violation of the limitation placed on the authority.
Customary or Implied Authority
Each partner in an ordinary trading partnership has the following customary or implied authority:
Sharing of Profits and Losses
The partnership agreement usually specifies the basis upon which the profits and the losses are to be shared. This proportion cannot be changed by a majority of the members of the firm. If the partnership agreement does not fix the ratio of sharing the profits and the losses, they will be shared equally, not in proportion to the contribution to the capital. If designated partners fix the ratio, it must be done fairly and in good faith. In the absence of a provision in the partnership agreement to the contrary, the majority of the partners may order a division of the profits at any time.
INTERNET RESOURCES FOR BUSINESS LAW 
*SOURCE: LAW FOR BUSINESS, 15TH ED., 2005, JANET E. ASHCROFT, J.D., PGS. 394-396,398*
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