Comment

(This is Section 401 of the Uniform Partnership Act (1997).)

1. Section 401 is drawn substantially from UPA Section 18. It establishes many of the default rules that govern the relations among partners. All of these rules are, however, subject to contrary agreement of the partners as provided in Section 103.

2. Subsection (a) provides that each partner is deemed to have an account that is credited with the partner's contributions and share of the partnership profits and charged with distributions to the partner and the partner's share of partnership losses. In the absence of another system of partnership accounts, these rules establish a rudimentary system of accounts for the partnership. The rules regarding the settlement of the partners' accounts upon the dissolution and winding up of the partnership business are found in Section 807.

3. Subsection (b) establishes the default rules for the sharing of partnership profits and losses. The UPA Section 18(a) rules that profits are shared equally and that losses, whether capital or operating, are shared in proportion to each partner's share of the profits are continued. Thus, under the default rule, partners share profits per capita and not in proportion to capital contribution as do corporate shareholders or partners in limited partnerships. Compare RULPA Section 504. With respect to losses, the qualifying phrase, "whether capital or operating," has been deleted as inconsistent with contemporary partnership accounting practice and terminology; no substantive change is intended.

If partners agree to share profits other than equally, losses will be shared similarly to profits, absent agreement to do otherwise. That rule, carried over from the UPA, is predicated on the assumption that partners would likely agree to share losses on the same basis as profits, but may fail to say so. Of course, by agreement, they may share losses on a different basis from profits.

The default rules apply, as does UPA Section 18(a), where one or more of the partners contribute no capital, although there is case law to the contrary. See, e.g., Kovacik v. Reed, 49 Cal. 2d 166, 315 P.2d 314 (1957); Becker v. Killarney, 177 Ill. App. 3d 793, 523 N.E.2d 467 (1988). It may seem unfair that the