Legal Forms: Partnership

Partnership
Definition: An association of two or more persons who agree to do business together. In order to be licensed as a brokerage, there must be at least one general partner who has a broker’s license. The other partners may be licensed salespersons or may be unlicensed persons.

Key Points:

  • The partnership is a separate legal entity; it can sue and be sued.
  • The partners are co-owners of the business who contribute money, property or services in exchange for an ownership interest.
  • The rights and obligations of the partners are governed by state statutes and the partnership agreement.
  • Types of partnerships that can be licensed as a brokerage:
    • General partnerships – all partners have a voice in the administration, operation and management of the partnership and are personally liable for the debts of the partnership.
    • Limited partnership – the business is administered and managed by one or more general partners but also has one or more limited partners who are passive investors. The limited partners are liable only to the extent of their investment. To be licensed, at least one of the general partners must be a licensed broker.

Advantages of a partnership

  • Allows a broker to package his resources with those of others to establish a business – he does not have to use only his personal assets.
  • Management responsibility and financial risk are shared with other partners.
  • Additional operating capital can be raised by adding partners.
  • Depending on the terms of the partnership agreement and assuming there is more than one broker, the partnership can continue in the event of the death of one of the brokers, or the suspension of his license.

Disadvantages of a partnership

  • Partners in a partnership are personally liable for the debts of the partnership.
  • If there is only one licensed broker affiliated with the brokerage, the business will terminate in the event that broker withdraws from the partnership, he dies or his license is suspended.
  • A partnership relationship can be very difficult to dissolve if a partnership agreement is not carefully drafted.