What does it mean to be at-will partners?
As previously noted, a general partnership may arise simply through an intent to undertake mutual activity for a profit. That is, parties who do not intend to be partners may, nonetheless, be deemed a general partnership “at-will”. The “at-will” characteristic means that there is no formal agreement in place delineating the time during which the individuals will remain partners. Any partner may leave the partnership at any time.
In determining whether the activity of individuals forms a partnership, a court will look at the totality of the circumstances. This means that the court will examine any evidence of the activity or relationship between the individuals to see if they meet the state law characteristics or requirements of a partnership. The circumstances may obviously indicate that some other type of relationship exists, such as an employer-employee relationship exists. In this case the individuals will avoid the classification of partners and all of the default rules and obligations that accompany such designation.
Characteristics of an At-Will Partnership
Equal Ownership of Partnership – The default rule is that partners of an at-will partnership share equally in the ownership of the business. It does not matter if the partners contribute at different levels to the partnership, either through assets of labor.
Equal Authority in Management Functions – The default is that each partner has the authority to take part in the management of the firm. Likewise, the partner has the inherent authority to act on behalf and bind the firm in agreements.
Decision Making Authority – The default rule allows partners to participate in management decisions. Generally, routine, operational decisions may be made by a majority of partners. Major decisions affecting the business must achieve unanimous support of the partners.
Unlimited Personal Liability – As in any general partnership, partners in an at-will arrangement have unlimited personal liability in tort for the actions of other partners. Likewise, the partners are personally liable for the debts or obligations of the partnership. This may include situations where other partners bind the partnership without the actual authority to do so.
Fiduciary Duty – Partners share a common fiduciary duty to act in the best interest of the partnership. At times, this duty has been construed as a duty to act in the best interest of other partners. The fiduciary duty is generally to avoid self-dealing and not appropriate business opportunity for one’s personal benefit or to the exclusion of other partners.