N.Y. Partnership Law § 11

Profit is prima facie evidence: N.Y. Partnership Law § 11

Receiving business profits is prima facie evidence of a partnership in New York, unless paid as wages, rent, debt, interest, annuity, or goodwill.

Official text N.Y. Partnership Law § 11 — New York

§ 11. Rules for determining the existence of a partnership. In determining whether a partnership exists, these rules shall apply:

  • 1. Except as provided by section twenty-seven persons who are not partners as to each other are not partners as to third persons.
  • 2. Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not of itself establish a partnership, whether such co-owners do or do not share any profits made by the use of the property.
  • 3. The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived.
  • 4. The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment:
  • (a) As a debt by installments or otherwise,
  • (b) As wages of an employee or rent to a landlord,
  • (c) As an annuity to a surviving spouse or representative of a deceased partner,
  • (d) As interest on a loan, though the amount of payment vary with the profits of the business,
  • (e) As the consideration for the sale of the good-will of a business or other property by installments or otherwise.

Text as published in the 2026 snapshot of the code.

Source: Vaquill Open US Law, compiled from official state publishers (huggingface.co), reproduced under license CC BY 4.0.

Read this provision at the official source →

What it actually says

There is no registration requirement for a general partnership in New York, so whether one exists is a question of fact decided by this section's four rules. Rule 1: except as provided by § 27, persons who are not partners as to each other are not partners as to third persons. Rule 2: joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property or part ownership does not of itself establish a partnership, whether or not the co-owners share profits made by use of the property. Owning something together is not being in business together. Rule 3: sharing gross returns does not of itself establish a partnership, whether or not the people sharing them have a joint or common interest in the property producing them.

Rule 4 is the one most cases turn on. The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business. Net profits, not gross returns - the distinction between rules 3 and 4 is deliberate, and a share of the takings is not the same as a share of what is left after expenses.

The rule then lists five payments from which no such inference is drawn: profits received as a debt by installments or otherwise; as wages of an employee or rent to a landlord; as an annuity to a surviving spouse or representative of a deceased partner; as interest on a loan, even where the amount varies with the profits; and as consideration for the sale of the goodwill of a business or other property, by installments or otherwise. Those five cover most of the arrangements that look like partnership and are not - the profit-sharing employee, the landlord on a turnover rent, the lender paid out of profits, the seller taking an earn-out.

When it applies

  • Two people have run a business together for years with nothing in writing and now disagree about what it was.
  • An employee paid a share of profits claims to have been a partner all along.
  • A lender repaid out of the profits of a venture is said by creditors to be a partner in it.
  • Co-owners of a rented property are alleged to be partners in a business.
  • A seller taking payments tied to profits is treated as a continuing participant in the business.

What this section does not say

  • It does not say what a partnership is. That definition is in § 10.
  • It does not require anything in writing. A partnership can exist without any document at all, which is why this section is needed.
  • It does not make a profit share conclusive. The inference is prima facie and the five listed exceptions defeat it.
  • It does not decide liability to outsiders where someone has held themselves out as a partner - that is § 27, expressly excepted in rule 1.
  • It does not apply to limited partnerships, limited liability partnerships or limited liability companies, which are formed by filing.

Worked examples

Invented situations, written to show how the wording bites. They are not real cases, not judgments and not precedent, and nothing here predicts what would happen in yours.

Illustrative example

Two friends ran a market stall together for six years, splitting whatever was left at the end of each month, and never wrote a word down. When one of them wants out, the other says the business was always his and the monthly split was really a wage.

How the wording applies

Rule 4 makes receipt of a share of the profits of a business prima facie evidence of being a partner, so the monthly split cuts one way. But the inference is not drawn where the money was received as wages of an employee, which is one of the five listed exceptions. It turns on whether what was shared was net profits or a payment measured by them - and on what happened in the months the stall lost money.

How the parties settled it

They agree the stall is wound up rather than owned by either of them, split the stock and the pitch deposit equally, and sign a short note closing the six years on those terms.

Illustrative example

A manager paid a fixed salary plus ten per cent of the yearly profits is let go after a decade and claims to have been a partner all along, entitled to a share of the value of the business.

How the wording applies

A share of the profits is prima facie evidence of partnership, and rule 4 then lists the payments from which no such inference is drawn, including profits received as wages of an employee. So it turns on the substance rather than the label: whether the manager also shared losses, could bind the firm and had a say in its management, or only ever received a slice of the surplus.

How the parties settled it

They agree a severance figure built on the profit share for the part-year actually worked, and both confirm in writing that no ownership interest passes in either direction.

Illustrative example

Someone lends a new venture money on terms under which the repayments rise and fall with its profits. The venture fails, and its trade creditors say the lender was really a partner and should meet the debts.

How the wording applies

Rule 4 excludes the inference where profits were received as interest on a loan, even though the amount of payment varies with the profits of the business. The fact that decides it is whether the advance was a loan repayable in any event or a stake in the business with no repayment obligation standing behind it.

How the parties settled it

The lender agrees to stand behind the outstanding stock bill in exchange for a written acknowledgment from all sides that the advance was a loan, so the point does not have to be argued twice.

How courts have read it

Decisions construing this provision. The question and the summary are ours; the quoted sentence is the court's own words, taken from the published opinion. These are the decisions in our corpus, not every decision there is, and nothing here predicts any other case. Reported 2003 to 2017.

Joachim v. Flanzig, 3 Misc. 3d 371 (2004)

trial courts

What the court had to decide

Whether the statutory inference under Partnership Law § 11(4) that receipt of profits is prima facie evidence of partnership applies when there is a written partnership agreement.

What it held

The statutory inference under § 11(4) does not apply when the parties have a clear written partnership agreement; the written agreement controls.

In the court's words
Such an inference is unnecessary in this case since the parties have a written partnership agreement establishing Frommer’s 10% equity interest in the firm.

Source: Caselaw Access Project, CC0 1.0 Universal (public domain dedication).

Related sections

N.Y. Partnership Law § 26 Partners Liable Unless LLP | N.Y. Partnership Law § 26 N.Y. Partnership Law § 40 Equal profits, no salary: N.Y. Partnership Law § 40 N.Y. Partnership Law § 43 Partnership Law § 43: a partner must account for any private benefit N.Y. Partnership Law § 44 Partnership Law § 44: a partner's right to a formal account N.Y. Partnership Law § 73 Retiring partner share value: N.Y. Partnership Law § 73

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We copy this text from the official publisher and re-check it against that source on every page load, but we cannot guarantee it is complete, current or free of error, and we accept no liability for any reliance on it. An amendment can take effect before a consolidation catches up. The publisher's own copy is linked below; where the two differ, it is the official one that counts.

This page reproduces the text of N.Y. Partnership Law § 11 in force at the date shown and explains it in general terms. It is not legal advice and takes no account of the circumstances of your case, which can change the answer completely. For a live dispute, for limitation periods, and before taking any step in court, consult a qualified lawyer in New York.

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