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Simple English definitions for legal terms
entity theory of partnership
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A quick definition of entity theory of partnership:
The entity theory of partnership is the idea that a partnership is like a separate person with its own legal existence, separate from the people who are in the partnership. This means that the partnership can enter into contracts, own property, and be sued, just like a person can. This theory is recognized by the Uniform Partnership Act, which is a law that helps regulate partnerships.
A more thorough explanation:
The entity theory of partnership is the belief that a partnership is a separate legal entity from the individuals who make it up. This means that the partnership can enter into contracts, own property, and sue or be sued in its own name.
For example, if two people start a business together as a partnership, the partnership itself is considered a separate entity from the two individuals. This means that the partnership can take out a loan or sign a lease in its own name, rather than in the names of the partners.
Another example would be if a partnership is sued for breach of contract. The lawsuit would be filed against the partnership, not against the individual partners. This protects the personal assets of the partners from being seized to satisfy the judgment.
The entity theory of partnership is recognized under the Uniform Partnership Act, which is a set of laws that govern partnerships in the United States.