MISCELLANEOUS BUSINESS ORGANIZATIONS
Sec. 119. Introduction. Most of our business is conducted by
individual proprietorships, partnerships, and corporations. A few
of the other types should, however, be given some consideration.
The most important of these are the limited partnership, the joint
stock company, and the business trust. In the sections which fol-
low, it is proposed to consider briefly their organization and the
extent to which the owners have personal responsibility for obliga-
tions which are incurred.
Sec. 120. Definition. A limited partnership is one which comes
into existence by virtue of an agreement. A limited partnership,
like a corporation, is authorized by statute. Limited partnerships
are so called because the liability of one or more of the partners,
but not of all, is limited to the amount of capital contributed at
the time of the creation of the partnership. It is similar to a cor-
poration in that its right to exist is accorded by statute, and that
the limited partners, like stockholders, are liable only to the extent
of their original investment.
Sec. 121. How formed; statutory requirements. A limited
partnership may be formed by two or more persons, having one or
more general partners and one or more limited partners. Under
the Uniform Limited Partnership Act, which has been adopted by
most of the states, with variations, two or more persons, to create
a limited partnership, must sign and swear to a certificate contain-
ing the following information: the name of the partnership; the
character of the business; the location; the name and place of resi-
dence of each member; those who are to be the general and those
who are to be the limited partners ; the term for which the partner-
ship is to exist; the amount of cash or the agreed value of property
to be contributed by each partner; the additional contributions, if
any, to be made from time to time by each partner ; the time that
any such contributions are to be returned to the limited partner;
the share of profit or compensation which each limited partner shall
receive; the right that a limited partner has to substitute an
assignee of his interest; the right to admit additional limited part-
306 MISCELLANEOUS BUSINESS ORGANIZATIONS
ners; the right given to one or more of the limited partners to
priority over other limited partners as to contributions, and com-
pensation by way of income ; the right of a limited partner to de-
mand property rather than cash in return for his contribution ; and
the right of the remaining general partners to continue the busi-
ness on death, retirement, or incapacity of other partners.
Sec. 122. Filing and publication of certificate. The certificate
must be recorded in the county where the partnership has its prin-
cipal place of business, and a copy must be filed in every community
where it conducts business or has a representative office. To de-
termine the requirements of recording, it is necessary to consult the
statutes of the various states.
In nearly all the states, it is required that the certificate be pub-
lished in some newspaper during a specified period of time before
the beginning of business. It is also required in some states that
proof of publication be made by affidavit of the publisher, and filed
with the certificate. If such certificate is not filed and recorded,
with the affidavit relative to publication, a limited partnership is
not considered as organized.
Upon the expiration of the partnership, a new certificate must be
filed in compliance with the statutory requirements for a new or-
ganization. Likewise, if there is any alteration in the original cer-
tificate, such as a change in the name of the partnership, the capital,
or other matters, a new certificate must be filed. If such certificate
is not filed and the partnership continues, the limited partners im-
mediately become liable as general partners.
Sec. 123. Name of partnership. The statutes of most states
require the partnership to conduct its business in a firm name which
does not include the name of any of the limited partners or the word
"Company." Some states specify that the word "Limited" shall
be added. In some jurisdictions no liability will attach to the
limited partners unless creditors are misled or injured by the failure
of the firm to use the word "Limited" or by the use of the word
"Company." Some states also provide that the partnership shall
post in some conspicuous place the name of the firm, including the
names of all the members therein.
Sec. 124. Liability of limited partner. A limited partner is
not liable beyond his contribution to creditors created by the part-
nership in the pursuit of the partnership business, unless the limited
partner participates in the management and control of the business.
Sec. 125. Dissolution. A limited partnership cannot be dis-
solved voluntarily before the time for its termination as stated in
the certificate, without the filing and publication of the notice of
the dissolution. Upon dissolution, the distribution of the assets
MISCELLANEOUS BUSINESS ORGANIZATIONS 307
of the firm are prescribed in the statute, and priority among part-
ners with respect to their share in the assets is controlled by the
statutory requirements in the several states which have adopted
the Uniform Limited Partnership Act.
Joint Stock Companies and Business Trusts
Sec. 126. Joint stock companies. A joint stock company is a
business arrangement which provides for the management of the
business to be placed in the hands of trustees or directors. Under
the constitution or by-laws of the organization, shares represented
by certificates are issued to the various members, who are joint
owners in the enterprise. These shareholders elect the board of
directors or trustees. The shares are transferable, the same as the
shares of a corporation, and such transfer does not cause dissolu-
tion. Likewise, the death of one of the shareholders does not dis-
solve the organization. It exists for the period of time designated
in the by-laws. Such an association is a partnership, even though
the primary purpose of such an arrangement is to secure many of
the advantages of a corporation. 1 Unlimited liability continues,
but in many other respects the features of a corporation are present.
Sec. 127. Business trusts. The business trust is an organiza-
tion formed by trustees under a contract, called a declaration of
trust, executed by the trustees. Under the agreement, the trustees
issue certificates of beneficial interest, which are sold to investors.
The trustees take the capital in compliance with the agreement
and operate the business, whatever it may be, as principals, for the
benefit of the shareholders. Such an organization has many of the
characteristics of a corporation, in that the trustees elect officers
from among themselves, and in some states the shareholders at
stated meetings, by virtue of the trust agreement, are permitted
to elect the trustees.
Such an organization avoids the statutory regulations of a cor-
poration, in that it is not a creature of the state, and seeks as well
to avoid partnership liability on the part of the investors. The
courts in most of the states, however, have held that if the investors
under the trust agreement have a right to exercise some control over
the management of the business, by way of election of trustees or
otherwise, such shareholders are liable as partners. 2 It is clear, on
the other hand, that if such shareholders have no control over, or no
right to interfere in any way with, the management of the business,
they are beneficiaries under a trust agreement and are not liable as
1 People ex rel. National Express Company v. Coleman et al, Tax Commissioners,
1892, 133 N.Y. 279, 31 N.E. 96; p. 725.
2 Simson et al. v. Klipstein, 1920, 262 Fed. 823; p. 726.
308 MISCELLANEOUS BUSINESS ORGANIZATIONS
partners. 3 This business organization has been called different
names, such as "Business Trust/' "Massachusetts Trust," and "The
Common Law Trust." As a substitute for a corporation, it has lost
many of its advantages, owing to statutory regulation by the vari-
ous states; as a method to avoid partnership liability, it is ineffec-
tive, in that a shareholder whose money is being risked in a business
venture naturally desires to have some control over the policy and
conduct of the business, and such reservations carry with them the
obligation of partnership.
The trustees are usually held to have unlimited liability for all
obligations of the business trust unless the contracts restrict the
rights of the creditors to the assets of the trust. It is customary for
business trusts to place this limiting clause in all contracts, particu-
larly if there is any possible question about the solvency of the trust.
Sec. 128. Nonprofit organizations. Nonprofit unincorporated
associations arise, like partnerships, out of a contract. 4 Such as-
sociations are organized for social, educational, philanthropic, and
fraternal purposes. These organizations have many of the char-
acteristics both of the corporation and of the partnership in that
they have by-laws, directors or trustees, and the usual officers,
namely, president, secretary, and treasurer. In their method of
functioning and their form they are much like corporations. To
the extent that they are less formally organized, it may be said that
such associations resemble partnerships. As a general rule, the
liability of the members in such associations does not rest upon
the theory of partnership but on the theory of principal and agent,
the officers of the association being the agents and the members the
principals. 5 Since no entity exists by either a partnership or cor-
porate organization, the officers are not agents of an entity, but
those members of the organization who approve of a particular con
tract are liable as principals.
Sec. 129. Joint adventure. A joint adventure is quite similar
to a partnership but falls short of being one because its activities
do not go far enough to be called a business. It is usually limited
to one transaction or a series of transactions relating to a particular
property. If two people buy a specific piece of real property for
the purpose of resale at a profit, they become parties to a joint ad-
The law controlling their individual relationship is essentially
the same as found in the partnership. They have a fiduciary rela-
3 Williams et al. v. Inhabitants of Milton, 1913, 15 Mass. 1, 102 N.E. 355; p. 728.
4 Chicago Grain Trimmers' Assn. v. Murphy, 1945, 389 111. 102, 58 NJ3.(2) 906;
5 Stone v. Guth, 1937, (Mo. App.) 102 S.W.(2d) 738; p. 730.
MISCELLANEOUS BUSINESS ORGANIZATIONS 309
tionship and share profits or losses as is done in a partnership.
They have much the same relation to third parties as partners have,
particularly when the limited nature of the undertaking is con-
Review Questions and Problems
1. What is a limited partnership? May all of the partners be limited?
2. What part do limited partners take in the management and conduct
of the firm's business? Should their names appear in the firm name?
3. What makes possible limited partnerships? Must notice of the
same be filed with the county recorder?
4. What features of joint stock associations are like those of a corpo-
5. A, B, and C invest money in a joint enterprise and place this money
in the hands of certain trustees. From time to time they offer sugges-
tions to the trustees and at times they elect new trustees. What are the
liabilities of the investors?
6. A, B, C, D, E, F, G, and H form a reading club. H, the secretary,
orders twenty books from a certain bookstore and charges them to the
club. Under what conditions may the bookstore recover from the mem-
bers of the club?