Forming a General Partnership in Tennessee
What is a Statement of Partnership Authority?
In Tennessee, most types of business entities require specific documents to be filed with the Secretary of State in order to be recognized as a legitimate legal entity. One major exception exists for general partnerships, however, which can exist with no formal documentation.
Under the Revised Uniform Partnership Act (the “RUPA”), a “partnership” is “an association of two (2) or more persons to carry on as co-owners of a business or other undertaking for profit.” Tenn. Code Ann. § 61-1-101 (7). By this definition, individuals carrying on a business together may form a partnership without intending to, or even being aware that they are partners. See In re Copeland, 291 B.R. 740 (2003) (“under Tennessee law, there is no requirement that the parties actually intended to become partners”). In situations where it is unclear whether a partnership has formed, courts will consider the totality of all relevant facts and circumstances, and will find that a partnership exists when individuals have combined their property, labor, skill, experience, or money in a business relationship for profit, whether the parties intended to become “partners” or not. In Re Copeland, 291 B.R. 740 (2003).
Although not required to form a partnership, the RUPA provides that a partnership may file a statement of partnership authority with the Tennessee Secretary of State specifying the names of the partners authorized to execute instruments in the name of the partnership and granting or limiting the authority of the partners. See Tenn. Code Ann. § 61-1-303. The Secretary of State has promulgated a form statement of partnership authority, which can be accessed on its website as Form SS-4514.
Pursuant to the RUPA, “The most important goal of the statement of authority is to facilitate the transfer of real property held in the name of the partnership.” Id. at cmt. 2. With a few limitations, a filed statement operates as conclusive evidence of a partner’s authority to transfer real property held in the name of the partnership, provided the statement has been recorded with the register of deeds in the county in which the real property is located. Id. at (d)(2). Additionally, third parties are deemed to know of a recorded limitation on the authority of a partner to transfer real property held in the partnership’s name. Id. at (e).
Although a statement of partnership authority may be a useful tool in designating a partner’s authority to third persons, it is limited in scope and does not govern the relationship and authority among the partners. Id. at cmt. 4. A more useful alternative for establishing the terms of a partnership is through a written partnership agreement. Written partnership agreements provide partners with flexibility to bargain for the specific terms of their partnership. For example, partners may designate the authority of individual partners, whether the partnership is a partnership for a term or a partnership at will, the procedure for allocation of profits, and how dissolution of the partnership should be handled. Situations that are not contemplated and provided for in a written partnership agreement are governed by the statutory provisions of the RUPA. See Young v. Cooper, 203 S.W.2d 376, 385 (Tenn. Ct. App. 1947). A carefully drafted partnership agreement provides business partners with a much greater degree of freedom in how the partnership is run and how it is ultimately dealt with once it has run its course.