Partnership Agreements in Tennessee: What the Default Rules Do When Nothing Is in Writing

Two people can be partners under Tennessee law without ever signing a partnership agreement. When that happens, the partnership statute supplies the terms they did not write down.

A partnership does not need a signed document

Tennessee's partnership statute, the Uniform Partnership Act in title 61, chapter 1 of the Tennessee Code (§ 61-1-1202), provides that the association of two or more persons to carry on as co-owners of a business for profit forms a partnership, whether or not the persons intend to form a partnership (Tenn. Code Ann. § 61-1-202(a)). 'Business' includes holding or owning property for profit (§ 61-1-101(1)). Co-ownership of property, or sharing gross returns, does not by itself establish a partnership. A person who receives a share of the profits is presumed to be a partner, unless the profits were received as payment of a debt, wages or independent contractor pay, rent, loan interest, certain retirement benefits, or the price of goodwill or other property (§ 61-1-202(c)).

The Tennessee Supreme Court has said it is not essential that the parties actually intend to become partners, and that a partnership may be implied where people have entered into a business relationship for profit, combining their property, labor, skill, experience, or money (Bass v. Bass, 814 S.W.2d 38, 41 (Tenn. 1991)). In Swecker v. Swecker, 360 S.W.3d 422, 427 (Tenn. Ct. App. 2011), the Court of Appeals affirmed a finding that a father and son were partners in a dairy with a joint bank account, milk checks issued in both names, and a herd registered to both.

The proof burden cuts the other way too. The Court of Appeals has said that a person claiming an unwritten partnership must prove it by clear and convincing evidence (Bowman v. Benouttas, 519 S.W.3d 586, 600 (Tenn. Ct. App. 2016); Tanner v. Whiteco, L.P., 337 S.W.3d 792, 798 (Tenn. Ct. App. 2010)).

What an agreement controls, and what it cannot change

The partnership agreement governs relations among the partners, and the statute applies only where the agreement does not provide otherwise (§ 61-1-103(a)). The agreement can be written, oral, or implied (§ 61-1-101(10)).

Some rules cannot be contracted away. The agreement may not unreasonably restrict access to books and records, eliminate the duty of loyalty, unreasonably reduce the duty of care, eliminate the obligation of good faith and fair dealing, or vary a partner's power to dissociate, except to require written notice of withdrawal (§ 61-1-103(b)). It may identify specific types of activities that do not violate the duty of loyalty, if not manifestly unreasonable, and all the partners, or a number or percentage the agreement specifies, may approve a specific transaction after full disclosure of all material facts (§ 61-1-103(b)(3)).

Default rules on money and management

Where the partners have not agreed otherwise, § 61-1-401 supplies these terms:

• Each partner is entitled to an equal share of the profits and is charged with losses in proportion to that share (§ 61-1-401(b)). Contributions are credited to each partner's account (§ 61-1-401(a)), which matters when accounts are settled at the end (§ 61-1-807(b)).
• Each partner has equal rights in management (§ 61-1-401(f)).
• Ordinary-course matters may be decided by a majority of the partners. An act outside the ordinary course, or an amendment to the partnership agreement, requires the consent of all partners (§ 61-1-401(j)).
• New partners require the consent of all partners (§ 61-1-401(i)).
• A partner is not entitled to pay for services, except reasonable compensation for winding up (§ 61-1-401(h)). A partner's ordinary-course payments, and advances beyond agreed capital, are reimbursed as loans that accrue interest (§ 61-1-401(c)-(e)).

Put together, a partner who works full time and a partner who only put in cash split profits equally, and neither draws a salary, unless they agreed otherwise.

Who can sign for the partnership

Each partner is an agent of the partnership. A partner's act for apparently carrying on the business in the ordinary course binds the partnership, unless the partner lacked authority and the other party knew or had received a notification of that (§ 61-1-301(1)). An act outside the apparent ordinary course binds the partnership only if the other partners authorized it (§ 61-1-301(2)).

A partnership may file a statement of partnership authority with the Secretary of State, naming the partners authorized to transfer real property held in the partnership's name (§§ 61-1-105(a), 61-1-303(a)). Once a certified copy is recorded with the register of deeds where the property sits, that grant of authority is conclusive in favor of a person who gives value without knowledge to the contrary, unless a limitation is also of record there (§ 61-1-303(c)(2)). A filed statement is canceled by operation of law five years after it, or its most recent amendment, was filed (§ 61-1-303(f)). Property acquired in the partnership's name belongs to the partnership, property bought with partnership assets is presumed to be partnership property, and property titled to a partner without partnership funds or any reference to the partnership is presumed separate (§§ 61-1-203, 61-1-204).

Personal liability for partnership debts

Unless the claimant agrees otherwise or the law provides otherwise, all partners are liable jointly and severally for all partnership obligations (§ 61-1-306(a)). Some limits apply:

• A new partner is not personally liable for obligations incurred before admission (§ 61-1-306(b)).
• A judgment against the partnership is not by itself a judgment against a partner. To reach a partner's own assets, a creditor needs a judgment against the partner too, plus a statutory condition such as an unsatisfied execution against the partnership (§ 61-1-307(c), (d)).
• A partner who leaves remains liable for obligations incurred before leaving (§ 61-1-703(a)).

Fiduciary duties, and how far an agreement can narrow them

The only fiduciary duties a partner owes are loyalty and care (§ 61-1-404(a)). Loyalty means accounting for profits and partnership opportunities, not dealing with the partnership on behalf of an adverse party, and not competing with the partnership before dissolution (§ 61-1-404(b)). Care is limited to refraining from grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law (§ 61-1-404(c)). Partners must also act consistently with good faith and fair dealing (§ 61-1-404(d)).

A written agreement can define these duties within § 61-1-103(b), for example by listing side businesses that do not violate loyalty. Tennessee's nonwaivable list protects the duties to account and to avoid adverse dealing (§ 61-1-404(b)(1), (2)) but does not list the duty not to compete (§ 61-1-404(b)(3)). The statute uses 'manifestly unreasonable' and 'unreasonably reduce' without defining them, and I have not found a Tennessee appellate decision applying those limits to a partnership agreement. In an LLC case under similar language, the Court of Appeals rejected a blanket waiver covering 'business ventures of every nature and description' (Mulloy v. Mulloy, No. M2017-01949-COA-R3-CV (Tenn. Ct. App. Oct. 10, 2019)).

When a partner leaves

A partner always has the power to dissociate by giving notice of the partner's express will to withdraw (§§ 61-1-601(1), 61-1-602(a)). Expulsion under the agreement, bankruptcy, and death are also dissociation events (§ 61-1-601). Dissociation is wrongful only if it breaches an express provision of the agreement or, in a partnership for a definite term or particular undertaking, comes early in listed ways, and the partner is liable for the resulting damages (§ 61-1-602(b), (c)).

If the business continues, the partnership must buy out the departing partner (§ 61-1-701(a)). The default price is what that partner would have received if, on the dissociation date, the assets were sold at the greater of liquidation value or going-concern value without that partner, plus interest, less any damages and other amounts the partner owes (§ 61-1-701(b), (c)). If no agreement is reached within 120 days after a written demand, the partnership must pay its estimate in cash (§ 61-1-701(e)). A partner who wrongfully leaves before a term or undertaking ends is generally not paid until it ends (§ 61-1-701(h)).

In Moran v. Willensky, 339 S.W.3d 651, 654, 660-61 (Tenn. Ct. App. 2010), two people agreed, without a writing, to renovate and sell a house, one financing it and the other providing the labor. The Court of Appeals affirmed findings that the labor partner breached the agreement and wrongfully dissociated when he left the unfinished project, and that the remaining partner could wind up and recover her costs.

A 2024 amendment added rules for a 'family partnership,' which requires a written agreement entered into, or amended with all partners' consent, on or after July 1, 2024, with members of the same family holding at least 50 percent of the profits or capital interests (§ 61-1-101(5)). In that kind of partnership, withdrawal, death, and several other dissociation events do not cause winding up, and do not require a buyout unless a written partnership agreement provides otherwise; the departing partner's interest is treated as a transferee's interest in profits, losses, and distributions (§ 61-1-603(a)(2)). I have not found a Tennessee appellate decision interpreting these provisions.

How a partnership ends

A partnership is dissolved, and its business must be wound up, only upon events listed in § 61-1-801, including:

• In a partnership at will, notice from a partner of that partner's express will to withdraw (§ 61-1-801(1)). A partnership is at will unless the partners agreed to a definite term or particular undertaking (§ 61-1-101(11)).
• In a partnership for a term or undertaking, its expiration or completion, or the express will of all partners (§ 61-1-801(2)).
• An event the agreement says results in winding up (§ 61-1-801(3)).
• A court determination on a partner's application, for example that it is not reasonably practicable to carry on the business in conformity with the agreement (§ 61-1-801(5)).

So in a partnership with no agreed term, one partner's notice of withdrawal can, by default, require winding up. Before winding up is complete, all of the partners, including a partner who withdrew rightfully but not one who withdrew wrongfully, may waive it and continue (§ 61-1-802(b)). In winding up, creditors are paid first, and a partner whose account shows more charges than credits must contribute the difference (§ 61-1-807(a), (b)).

Registered LLPs and limited partnerships

A partnership can register with the Secretary of State as a registered limited liability partnership, with approval of a majority of the partners unless the agreement provides otherwise (§ 61-1-1001(b)). Obligations incurred while registered are solely the partnership's, but a partner remains liable for the partner's own negligence, wrongful acts, misconduct, or malpractice, and that of people under the partner's direct supervision and control (§ 61-1-306(c), (d)). Partners remain liable for obligations incurred before registration (§ 61-1-1001(l)), and registration can lapse if the annual fee is not paid (§ 61-1-1001(e), (f)(2)).

A limited partnership is formed under the Tennessee Uniform Limited Partnership Act of 1988 (§ 61-2-1202) by filing a certificate of limited partnership with the Secretary of State (§ 61-2-201). Toward outsiders, a general partner has the liabilities of a partner in a partnership without limited partners (§ 61-2-403(b)). A limited partner is not liable for the partnership's obligations unless also a general partner or participating in control of the business, and even then only to people who reasonably believed, based on the limited partner's conduct, that the limited partner was a general partner (§ 61-2-302(a)).

The Department of Revenue's Franchise and Excise Tax Manual (June 2026) states that general partnerships are not subject to franchise and excise tax because they do not offer their owners limited liability protection. The statute's list of taxpayers includes registered limited liability partnerships and limited partnerships, but not general partnerships, subject to statutory exemptions (Tenn. Code Ann. §§ 67-4-2004(36), 67-4-2008). Your CPA can explain what that means for a particular structure.

What a written agreement usually addresses

A written agreement usually covers capital contributions, the profit split and any pay for working partners, which decisions need everyone, who may sign and transfer real estate, permitted side activities, and exit terms: whether the partnership is at will or for a term, what triggers a buyout, and how the price is set and paid. A buy-sell agreement covers similar exit ground.

When co-owners are already at odds, owner dispute warning signs and deadlock in a closely held business may help, although the Tennessee cases in the deadlock article involve LLCs rather than partnerships.

If you are in business with someone in Tennessee and nothing is in writing, or the writing no longer matches how the business runs, my office can draft or review a partnership agreement. If a disagreement between partners has already started, my office also handles business partnership disputes.

Educational disclaimer: This article provides general Tennessee educational information only and is not legal or tax advice for any specific partnership, business, or transaction.