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PARTNERSHIPFORMATIONA partnership can beformed in one of threeways. What is the mosteffective way to forma general partnership?Figure 27.2FormPartnership by contractPartnership by proofof existencePartnership by estoppelDefinitionPartnership FormationExpress agreement drawn up by partnersArticles of partnershipIndividuals form partnership because of their method ofdoing businessSharing of profits is prima facie evidenceThird party led to believe a partnership existsNo true partnership createdBy Proof of Existence Drawing up the articles of partnership is notthe only way to form a partnership (see Figure 27.2). Sometimes a partnershipcan be formed because of the way that two or more people conducttheir business together. Such a partnership, which forms regardlessof the label given to the enterprise or the intent of the parties involved,is termed a partnership by proof of existence . The UPA provides alist of characteristics to determine whether a partnership actually exists.The sharing of profits is at the top of this list. If two or more peopleshare the profits of a business venture, it will be difficult for them todeny that a partnership exists. However, there are exceptions to the rule.A person may share profits and not be able to claim partnership statusif the share that is paid is one of the following:l Repayment of a debtl Wages to an employee or rent to a landlordl An annuity to the widow or the widower of a deceased partnerl Interest on a loanl Consideration for the sale of a businessExample 2. Patrick Tyler opened Planetary Videos, a video rentalstore. At first, he worked in the day-to-day operation of the business.However, he gradually became interested in other venturesand hired Molly Petro to take care of the details of the business.Most of the time, Petro was in charge. Tyler showed up on Fridaysto collect his 60-percent share of the profits. Each week Petrowould draw her 40-percent share of the profits according to theagreement with Tyler. This arrangement went on for five years.Then the state government took the video store by eminentdomain for a new highway project. Petro claimed that, as a partner,she was entitled to a share of this money. Tyler disagreed,and Petro sued. The court held that she was a partner because590 Unit 6: Starting a Business