Default General Partnership Rules in Tennessee

By Anna Assad

A general partnership in Tennessee must follow the state's default rules, found in the state's Revised Uniform Partnership Act of 2001. Any general partner may file a statement listing all partners in the Tennessee Secretary of State's office, but state law doesn't require it. If two or more people conducting business together in Tennessee meet the state's definition of a partnership, they are subject to general partnership laws even if they don't file a statement. Under state law, partners are co-business owners who share in the business's profits.

Agreement

Tennessee's default laws allow the general partnership agreement to manage and define the terms of the partnership but do include restrictions. For example, the agreement can't allow one partner to deny other partners access to business records or erase any partner's duty of loyalty to the business. The partners can list activities in the agreement and state those activities don't violate a duty of loyalty, as long as it's not unreasonable. The agreement can't remove a partner's right to leave the partnership or violate any Tennessee partnership laws.

Property

Any property the partnership receives belongs to the partnership and not the individual partners. Property may belong to the partnership even if the proof of property ownership, such as a real estate deed, doesn't name the partnership. If proof of ownership has at least one partner shown and suggests the property is meant for the partnership, the property belongs to the partnership. Any property bought with partnership assets belongs to the partnership. One partner alone may transfer partnership property in the partnership's name. If the property was received by one or more partners but the ownership proof didn't name the partners, the partners shown on the proof may transfer the property. A partnership can recover property if a partner transferred it without the authority to do so and if the transferee was aware that the partner didn't have the authority to transfer it.

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Partner Rights

All partners share in profits and liabilities equally under Tennessee general partnership laws. The partners have equal say in, and control over, the partnership's management and affairs. The partnership is liable to a partner who makes advances or investments for the partnership beyond the requirements in the agreement. However, partners are entitled to payment for general services performed for the partnership. A partner may assign his rights and powers as a partner to another party, but he remains a partner.

Liability and Judgments

All partners are personally and jointly liable for the debts of a general partnership, but a partner isn't responsible for any obligation the partnership already had before he joined. The general partnership itself is liable for losses or damage caused by a partner's behavior. Partnerships may sue and can be sued by other parties. If a judgment is entered against a partnership, it's not a judgment against the partners and can't be collected from the partners' private assets unless the creditor obtained a judgment against the individual partners as well.

Dissociation

Tennessee's dissociation rules for a general partnership set ways for a partner to be forced out of, or resign from, a partnership. A partner may leave voluntarily by notifying the other partners or be expelled by the method set out in the partnership agreement or by court order. State laws allow a partnership to obtain a court order to remove a partner for various reasons, including if the partner caused the business harm, the partner willfully or persistently committed a material breach of the partnership agreement, or if the partner filed bankruptcy. If the parties in a partnership believe carrying on business with a particular partner is illegal, they may vote to remove that partner, but the vote must be unanimous. The partnership can continue to use its name after a partner leaves or is forced out, but that partner is no longer liable for any partnership activity conducted after he leaves.

Dissolution

A general partnership may dissolve for any reason, but Tennessee rules set events that cause automatic dissolution. A partnership may be dissolved voluntarily by partners, by court order, if it's engaging in illegal activity or if a dissolution event stated in the partnership agreement occurs. The partnership is still considered a legal entity under state law until it winds up its business, unless its partners waive this right and ask for immediate termination. Any remaining partners or the legal representative of a sole surviving partner may participate in the winding up process. If the partnership filed a statement with the secretary of state, any remaining partner may file a statement of dissolution with the secretary of state. After 90 days have passed, the statement is considered official notice of the end of the partnership to all other parties besides the partners. The partners have a right to accounts of their contributions and the partnership's assets and liabilities; creditors must be paid first.

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Canceling a Partnership Agreement
 

References

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How to Sell a General Partnership Business

A general partnership is an extension of the partners; it is not a business that is a distinct entity separate from its owners. This means the partners generally have equal control of the business and are personally liable for all of the business’s debts. Also, because a partnership is not a separate, transferable entity, you cannot sell the business. You can only sell the business’s assets.

California General Partnership Law

The law defines a general partnership as an association of two or more persons who carry on business with the aim of making profit. The term “persons” generally includes not only individuals, but also other business entities. Most partners sign a formal partnership agreement, setting out their respective rights and obligations; however, this isn't necessary, as a partnership can operate on nothing more than a handshake. Title 2 of the California Corporations Code sets out the law relating to general partnerships in the state.

How to Set Up a Partnership in Tennessee

Like many other states, Tennessee does not require partnerships to officially register as a partnership. The agreement of two or more people to go into business together is sufficient to form a partnership, although having a written agreement in place is recommended. In Pennsylvania, the partnership may be required to file registration for a fictitious name. Under Tennessee state law, a general partnership has the option to voluntarily submit a Statement of Partnership authority with the Department of State, which must be filed by at least two partners. This statement describes which partners have the power to act on behalf of the partnership and gives other businesses greater confidence in the partnership.

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