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California Revised Uniform Partnership Act: what you need to know

The California Revised Uniform Partnership Act (RUPA) is the state adopted version of the national Revised Uniform Partnership Act that has been adopted by many states across the country. The RUPA governs business partnerships that are formed in California and can have a significant impact on your business if you are considering starting a company in the state. Talk to an experienced business law attorney in California to learn more about how this Act could affect your upcoming business plans and read on to learn more about what you need to know about this law.

Partnership Law Before and After RUPA

The California adoption of RUPA happened in 1997, which established an entirely new framework for business partnership law in the state. Prior to RUPA, California took an aggregate approach to business partnerships. This meant that a business was seen as a combination of partners, and if one partner left, was kicked out, or died, the partnership was dissolved in absence of documentation stating otherwise. If other partners wanted to continue the partnership, new business partnership paperwork had to be drawn up.

Under the new partnership laws of RUPA, a business partnership is now seen as a separate entity that exists outside of the partners. RUPA allows for a partner in the business to leave and still maintain the survival of the company. Instead of dissolving the partnership business, the partner that leaves is dissociating from the partnership itself, which leaves the business intact.

Types of Business Partnerships Under RUPA

There are three main types of business partnerships that are governed under California’s RUPA laws. The first is a general partnership, which is a company run by two or more people that does not need an official written agreement. General partnerships are the least expensive, fastest, and most adaptable of the types of business partnerships, but they also leave the partners most at risk for liability. In a general partnership, each partner shares in the profits and losses equally, and each partner can actively control the business, which includes making operational and legal decisions for the business.

The second type of partnership is a limited partnership, which can include both limited and general partners. A partnership agreement is required for this type of partnership under RUPA, which specifies which partners are which type. A limited partnership does not assume the debts of the partnership but also lacks operational control over the business. A limited partnership must contain at least one general partner who controls the company and operates the day-to-day affairs.

The third type of partnership governed under RUPA is a limited liability partnership, in which all partners receive limited liability protection and can take control in managing the affairs of the company. Profit and loss sharing is detailed in the partnership agreement. Under California RUPA law, limited liability partnerships can only be created by people licensed to practice architecture, law, or public accounting.

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