Upon graduating from dental school, Davinder Laroia (“Laroia”) was hired by Paul Reuben (“Reuben”) to work in his dental practice. Laroia was paid $125 per day upon commencement of his employment. After being employed by Reuben for a few months, Laroia’s salary was increased because Reuben was satisfied with his performance. Further, Reuben also said he planned to make Laroia a partner in the practice.
Several months later, when Reuben failed to take the necessary steps to make Laroia a partner, Laroia advised Reuben that he would be leaving the practice if he was not made a partner. In response, Reuben confirmed he would enter into a partnership agreement with Laroia and stated that Laroia would not be required to make a capital contribution to the partnership that Laroia’s capital contribution would be in the form of services rendered.
Thereafter, the parties opened a joint checking account, over which both parties had signatory power. All receivables were deposited into the joint checking account and the practice obtained malpractice insurance in the names of “Drs. Reuben and Laroia Prtsp.” Laroia was given increased responsibility at the practice, was paid one half of all profits, received with additional benefits, and was referred to by Reuben as “his partner.”
A few years later, Reuben asked Laroia to leave the practice. Laroia brought suit, alleging a partnership existed and that he was entitled to one half of the partnership’s assets. Reuben argued that there was no written agreement and, therefore, a partnership could not exist. Laroia conceded that there was no formal written agreement, but argued an oral partnership existed based upon Reuben’s representations and actions.
Under the Uniform Partnership Act (which is applicable in Illinois), a partnership is defined as an association of two or more persons to carry on as co-owners in a business for profit. In the absence of a written agreement, the existence of a partnership is a question of intent to be inferred from the acts and conduct of the parties. Thus, Illinois courts have held that a written agreement is not necessary for the formation of a partnership.
In determining whether a partnership exists, the courts look at the following facts: (i) the manner in which the parties have dealt with each other; (ii) the mode in which each has, with the knowledge of the other, dealt with persons in a partnership capacity; (iii) whether the alleged partnership has advertised using the firm name; and (iv) whether the alleged partners shared the profits. The burden of proving the existence of a partnership rests on the party asserting a partnership exists.
After reviewing the relevant facts in this case, the court determined that there was substantial evidence the parties intended to form a partnership. Specifically, the court noted the parties’ agreement to split fees and the use of a joint checking account, as well as Reuben’s continued reference to Laroia as his partner.
Of course, a written agreement is always preferable to an oral one. Please do not hesitate to call us if you have any questions regarding preparation of a partnership agreement or any partnership issue.