Question re Partnerships

From a student:

I understand that partnership is “An agreement b/w two or more persons to carry on a business TOGETHER for a profit.” I also understand that within the meaning of the word “persons” in the partnership definition it includes that person can be “persons, corporations, LLC’s, etc.” Thus, this indicates that when we have a corporation issue on a hypothetical, it means that we may also have a discussion of partnership.

What is confusing me though is the fact that partners are liable for partnership debts and I cannot understand how this fact about partners being liable for partnership debts would go on a discussion about corp and partnership. So, who is liable for the partnership debt in a corp/partnership hybrid question?

Answer:  Suppose two corps decide to do business together, perhaps to run a food truck, or build a building or develop software.  At that point there are three entities, the two corps and the partnership.  Any debts that arise in the course of running the food truck etc would be a liability of the partnership; the partners of the partnership would be liable for the debts.  

The partnership could be composed of some individual and a corp or another partnership for that matter.  Two persons or entities promised each other they would operate the business together.   It could be an agreement between a corp, an LLC, two individuals, and another partnership, i.e., five partners.  The five persons/entities have created, by their agreement, a new entity, which is now operating a business.

When an individual loans money to a corp and, as part of the loan, the individual is given lots of management rights over the business, the courts sometimes say a partnership has been created.  Lets say the business is a carnival owned by a corp.   Fred loans money to the corp and gets the right to make most important decisions after that about the operation of the business.  The corp still owns the carnival but a new entity has been created.  IT is now operating the business, pursuant to the agreement, and any debts incurred in operating the business after the partnership has been created would be a partnership debt.  The partnership might be to operate part of the carnival – maybe just in Kansas.  whatever the deal is, that’s the partnership.

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