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Ohio’s New Partnership Statute

A new statute, modeled after the Revised Uniform Partnership Act of 1997 (RUPA) and codified as chapter 1776 of the Ohio Revised Code, governs any new Ohio general partnerships formed since the beginning of this year. The new statute resolves the uncertainty of the previous partnership statute by setting explicit rules and acting as a default for matters that are not covered in the partnership agreement. Furthermore, it provides mandatory rules that override conflicting provisions in the partnership agreement.

Starting January 1, 2010, the new statute will cover not only newly formed partnerships, but also previously formed partnership. However, existing partnerships do have the option to be governed by the new statute prior to the 2010 date.

The sponsor of Bill that adopted the Act, Senator Mark Wagoner, stated that the legislation “streamlines the fundamentals of partnership law to reflect modern business practices” through five principle goals. Sen. Wagoner, House Civil and Commercial Law (First Hearing, Oct. 17, 2007). The five principal goals are:

1. To create a more flexible structure for Ohio partnerships;

2. To allow partners to change partnership rules by agreement under certain basic standards set forth in the Act;

3. To classify a partnership as an entity, not as an aggregate of separate persons;

4. To spell out the clear authority for property transfers; and

5. To change the law on dissolution and continuity of partnerships.
In order to achieve the first two principal goals, the statute now allows partners to define their relationships to each other and to the partnership itself in the partnership agreement.

With regard to the third principal goal, the provision is intended to put Ohio’s partnership law more in alignment with RUPA. As an entity separate from the individual partners, the partnership has the capacity to sue and be sued in its own name. Also, as an entity, the partnership owns the partnership property. The partners do not personally own the partnership property.

The statute also sets forth rules for the transfer of partnership property. The statute provides that an instrument executed by the person that currently “holds” the property may transfer property of the partnership. This applies to partnership property “held” either in the name of the partnership, one or more partners, or by a non-partner.

The fifth principal goal is to change the law on dissolution and continuity of partnerships.

A partnership-at-will may be dissolved upon any partner’s notice of dissociation. Partnerships for a definite term or a particular undertaking will dissolve (1) within 90 days of the death of a partner or the wrongful dissociation or the agreement of half of the partners to dissolve; (2) upon unanimous consent of the partners; (3) the term has expired or the undertaking is complete; (4) if it is unlawful for the business of the partnership to continue; and (5) by court order under certain circumstances.

When a partnership is intended to continue until the happening of an event or for a specific duration, it is not automatically dissolved upon the occurrence of the event or time limit. Instead, the partnership continues as a partnership-at-will until the occurrence of a dissolution event. The partnership
will even continue beyond the dissolution event in order to wind up the partnership’s affairs. The partnership is terminated only when its business is completed.

The partnership can continue, however, if a partner dissociates from the partnership. Any partner may dissociate from a partnership-at-will by either giving notice to the partnership or on the occurrence of an agreed event. Under certain conditions, a partner may be dissociated by unanimous vote of the partners or by court order.

Although partnerships are recommended less frequently than other entities for new businesses, it is important to be aware of the changes if you are involved in a partnership or are thinking of forming a business entity.

© 2008 Ott & Associates Co., LPA

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