A partnership may be defined to be a contract between two or more persons, by which their labor, skill or property is joined in an enterprise for common profit, and in which each partner may act as principal. The principal features of a partnership are, the right of each partner to act as principal for the other partner, and the individual liability of each partner for the acts of the partnership. A and B agree to combine their efforts in operating a tea and coffee store. Each may bind the other by contract, made within the scope of the business, and each is liable individually to pay the debts incurred by the partnership.
67. How a Partnership is Created. A partnership is created by a contract. This contract may be oral, express or implied. Many partnerships are created by carefully drawn, written instruments, in which the rights and duties of each party are set forth in detail; while others are made by oral agreement. Any contract of importance should, for the purpose of having a record of the exact understanding of the parties, be made in writing. As between themselves, parties cannot be partners except such was their intention. Sometimes, parties are considered partners as to third persons, with whom they deal, and are liable as partners, where there is no intent to form a partnership, and when none exists as between themselves. This relationship, called partnership by estoppel, is based on equitable reasons and is discussed more at length under a separate section. As between the partners themselves, to constitute a partnership, there must be a contract to that effect. This requires an assent on the part of all the parties, based upon a valid consideration. Parties may enter into an agreement to enter into a partnership at a future time. In this event, the partnership does not exist as such until the time provided for in the contract arrives, and until the conditions of the executory agreement have been complied with.
A partnership may be created for any lawful purpose. If the partnership contract is procured through fraud or misrepresentation, it may be avoided by reason thereof.
68. Who May be Partners. Any person competent to contract on his own behalf may enter into a contract. (See "Competency of Parties," chapter on Contracts.) An infant, or person under legal age, may enter into a partnership contract the same as he may enter into any other contract. The law does not prohibit it. But contracts by infants are voidable. They may be renounced by the infant at his pleasure. For example, if A, of legal age, enters into a partnership contract with B, seventeen years of age, B may renounce his obligation to A at any time he pleases, before he has reached legal age. A, however, cannot renounce his partnership contract on account of the infancy of B. B may ratify his contract after becoming of legal age. If B, after becoming of legal age, refuses to continue the partnership, and refuses to carry out his partnership agreement, he is deemed in law to have renounced his partnership, and is not liable for the obligation of the partnership. If, however, after reaching legal age, B continues the partnership relationship for an appreciable length of time, he is deemed in law to have ratified the agreement, and is thereafter liable thereon. B may not only renounce the partnership agreement as to his partner, A but also as to third persons dealing with the partnership. A, however, is responsible individually upon the partnership contracts with third persons, and cannot take advantage of B's infancy. It is no defense for him.
Drunken persons, insane persons, and idiots cannot enter into partnership agreements. A married woman could not enter into contracts at common law, but by statute is now permitted to make contracts, with a few minor limitations, such as acting as surety for her husband, or making contracts with her husband.
69. Partnership Name. The members of a partnership may use any name they desire, so long as the name does not interfere with the fixed rights of others. The members of a partnership may use the name of one of the partners, or the combined names of all, or of a part of the partners, or a name separate and distinct from the names of any of the partners. For example, if A, B, and C form a partnership, they may use as a partnership name, "The A Co.," "The A, B, Co.," "The A, B, C Co.," "The X Co.," or any fictitious name they may determine upon. Some states provide by statute, that a partnership using a name not revealing the individual members of a partnership, must, in order to sue in the partnership name, file with a county official the names of the members composing the firm. Other states by statute prohibit the use of fictitious names.
A partnership cannot be bound by any other name than its own. Where a partnership has adopted a firm name, contracts made in the name of one of the individual members do not bind the partnership. A partnership may change its firm name. This may be done by agreement, express or implied. If the members of a partnership do not expressly agree to change the name, but a new name is used by one or more of the members, and the change is acquiesced in by the other members, they are deemed in law to have agreed to the new name. A partnership may use two firm names. This sometimes occurs when a firm has branches. One name is used for one branch and another for the second branch. In this event the partners are liable for contracts made in either name.
70. Names Applied to Different Kinds of Partners. Depending upon the nature of their relationship to the partnership, partners are said to be secret, silent, ostensible, nominal, or dormant.
A secret partner is one who keeps the fact of his membership in the partnership from the public. This does not enable him to escape liability as a partner. He is in the position of an undisclosed principal. (See "Undisclosed Principal," chapter on Agency.) So long as a secret partner keeps the fact of his membership from the public, of course he will not be sued as a member. But his liability exists in spite of this secret, and when discovered his liability may be enforced.