1. The firm's business form
A general partnership ordinarily arises when two or more persons carry on as co-owners a business for profit. No filing is normally required to create that status, and the parties need not consciously choose the partnership label. Sharing net profits creates an inference or statutory presumption of partnership, subject to exceptions for specified payments such as employee compensation. Actual ownership, control, and the overall arrangement remain central.
Andrew, Bob, and Christine jointly formed the practice, equally divide profits after expenses, and make all business and management decisions. Those facts show co-ownership of an ongoing enterprise rather than merely three employees receiving wages. The firm is a general partnership, and the founders are general partners.
A corporation or limited liability company ordinarily requires an organizational filing. No such filing occurred, and no facts establish corporate shares or LLC membership interests. Similarly, a law firm does not become a limited liability partnership solely because its members practice law; the required registration and statutory conditions must be met. The lack of filings therefore matters to the claimed limited-liability forms but does not prevent the ordinary general partnership from arising by conduct.
The founders' business remains subject to the special professional rules governing lawyers, but those rules do not convert the supplied compensation arrangements into an unformed corporation. Their management and net-profit rights explain partnership status on ordinary entity principles.
2. Associate attorneys
Associates receive fixed salaries plus twenty-five percent of gross billings for clients they bring to the firm. A share of gross receipts alone does not establish a partnership. Gross billings are not residual net profits after payment of the business's expenses, and a commission based on business originated is a familiar method of compensating an employee.
Nothing gives the associates joint management rights, ownership of firm assets, capital interests, or a share of losses. The founders retain the decision-making authority. In this context the salary and origination percentage are compensation for work and client development, not evidence that every associate owns part of the practice.
The associates therefore are employees on the supplied facts. They are not shareholders or LLC members because those entities have not been formed and no such ownership interests are described. A lawyer's professional independence in handling client work is not the same thing as co-ownership of the law firm's business.
3. Senior attorneys
Senior attorneys receive hourly compensation and potentially an equal share of a bonus pool funded by five percent of firm profits. A share of profits ordinarily raises a partnership presumption, but the employee-compensation exception is particularly important here. The bonus is conditioned on billing more than 2,000 hours and thus is tied directly to services and productivity.
The seniors do not make management decisions, and no capital, residual ownership, loss-sharing, or dissolution rights are described. The founders expressly intended a non-equity designation. Lack of management alone would not conclusively negate partner status, since partners can allocate management rights by agreement. Taken together with the limited compensation arrangement and lack of ownership indicators, however, it strongly supports employee status.
Calling the seniors non-equity partners internally and partners on business cards does not automatically alter their actual ownership rights. Entity status depends on the substance of the arrangement. The more persuasive classification is that the senior attorneys remain employees receiving a profit-based bonus, rather than actual equity partners. As with associates, they are not members or shareholders of an LLC or corporation.
The public title nevertheless has consequences. A person who is not actually a partner can be held out as one, and third parties may rely on that representation. Actual partner status and liability or authority arising from an external representation must therefore be analyzed separately.
4. Martha's authority and the written fee agreement
An agent has actual authority when the principal's manifestations reasonably authorize the agent to act. Actual authority may be express or implied, but cannot be derived merely from the agent's wish to bind the principal. Martha knew the firm maintained a strict no-discount policy. She therefore lacked actual authority to make this reduced-rate arrangement, even if she ordinarily could discuss prospective engagements.
Apparent authority instead looks to the third party's reasonable belief traceable to the principal's manifestations. Here the firm itself publishes senior attorneys as partners on its website and supplies business cards using that title. Martha handed Nancy such a card. This is stronger than an employee privately making an unsupported claim to be a partner: the representation is attributable to the founders who chose and circulated the title.
A partner in a law practice ordinarily appears able to accept client work and agree on engagement terms in the usual course of the firm's business. Nancy expressly asked whether Martha could agree as a partner, and the firm-created card supported that belief. A reduced hourly rate in exchange for anticipated future work is a normal kind of client-retention or business-development negotiation, not an obviously extraordinary transaction such as selling the entire firm. A written engagement signed by the apparent partner reinforces the outward appearance of authority.
The firm's internal restriction defeats actual authority but does not necessarily defeat apparent authority when the prospective client lacks notice. The facts say Martha knew the no-discount rule, not that Nancy knew it. Nancy's question shows she sought a person with authority; it does not itself establish awareness that the published partner title was misleading. Nothing indicates she knew the fee arrangement exceeded Martha's powers or participated in a scheme to evade them.
The firm can argue that Nancy should have requested confirmation from the founders or that changing standard rates exceeded an employee's usual authority. That is weakened by its own deliberate partner representation. It is reasonable for an ordinary client to infer that someone the firm identifies as a partner may negotiate rates. The law generally prevents a principal from creating that appearance and then relying on undisclosed instructions to defeat a good-faith transaction.
5. Holding out and result
Purported-partner or partnership-by-estoppel principles independently support protection of a third party who relies on a representation of partnership made or consented to by those sought to be bound. The founders consented to the titles, Nancy reviewed the card, and she expressly relied on the apparent partner's ability to make the engagement. Those facts connect the representation to the transaction rather than merely showing that the title appeared somewhere online.
This does not require declaring every senior attorney an actual co-owner for all internal purposes. It means the firm may be bound in its dealings with the relying client. Martha's possible internal responsibility for violating firm instructions is a separate matter and does not automatically eliminate Nancy's rights.
The firm therefore likely is bound by the written reduced-rate engagement through apparent authority and the related holding-out principles. The arrangement for current legal services supplies the immediate exchange of work for payment; an expectation of future business need not be treated as a guarantee that Nancy will surrender all future freedom to choose counsel. The central issue is the firm's outward grant of authority, not whether the undisclosed billing policy was sensible.