The Illinois Partnership Act defines “partnership” as an association of two or more persons to carry on as co-owners a business for profit. The existence of an Illinois partnership is dependent on the relationship between the parties. A partnership arises when the parties come together to carry on a venture for their common benefit, each contributing property or services and having a community of interest in the profits of the business venture. A partnership exists if certain conditions are met – regardless of the parties’ intent to join a partnership. For instance, if a husband and wife are jointly operating a business, unless it is clear from their financial records that one of them is the true owner and the other is simply an employee (in which case the business entity would be a sole proprietorship), the business is classified as a partnership and both husband and wife are considered partners and owners of the business.
Like sole proprietorships, an Illinois partnership does not insulate the general partners from the debts and liabilities incurred by the business – they are joint and severally liable. This partnership entity does, however, provide the advantage of a pass-through taxation (partnership tax structure) and provides the partners with control to establish their relationships with great flexibility. On the other hand, due to liability exposure of each partner, a major disadvantage is that there is the potential for a judgment enforced directly against the partners.
Case law has determined that the substance and not the form of a business relationship determines whether the relationship qualifies as a partnership. Moreover, the Illinois Code of Civil Procedure provides that (a) a partnership may sue or be sued in the names of the partners as individuals doing business as the partnership, of in the firm name, or both; and (b) an unsatisfied judgement against a partnership in the firm name does not bar an action to enforce the individual liability of any partner. Furthermore, as stated above, all partners of an Illinois partnership are jointly and severally liable for the wrongful acts of any other partner.