## Facts

- Smith worked for an accounting firm operated by Kelley and Galloway, who were the firm’s established partners.
- Smith later left the firm and filed suit claiming that, during his employment, he had been made a partner and therefore was entitled to a partnership accounting and a share of profits.
- There was no written partnership agreement naming Smith as a partner.
- Smith did not contribute capital or other assets to the firm.
- Smith did not take part in firm management, did not have authority to hire or fire employees, and did not sign notes or other instruments for borrowed money on behalf of the firm.
- Smith was not shown to have assumed liability for partnership losses.
- Smith relied mainly on the fact that he was identified as a “partner” in at least one contract with a third party and was referred to as a partner on other forms or documents.
- The trial court dismissed Smith’s claim for an accounting, finding he failed to prove he was a partner, and Smith appealed to the Kentucky Court of Appeals.

## Issues

1. Whether Smith proved the existence of a partnership with Kelley and Galloway such that he was entitled to a partnership accounting and a share of partnership profits.
2. Whether describing Smith as a “partner” in third-party documents, without proof of an actual partnership agreement and partnership incidents (capital, control, risk of loss), established a partnership relationship among the parties.

## Decision

- The Kentucky Court of Appeals affirmed the dismissal of Smith’s claim for a partnership accounting.
- The court held that Smith did not establish that he was, in fact, a partner in the accounting firm.
- The court treated references to Smith as a “partner” in certain documents as insufficient, by themselves, to prove an agreement making him a partner where the overall relationship lacked the usual attributes of partnership.

## Legal Principles

- A partnership arises from the parties’ agreement and intent, shown by their conduct and the substance of their relationship, not simply by labels used in forms or contracts.
- Evidence commonly supporting a partnership includes contribution to capital, participation in management and control, sharing of profits (and exposure to losses), and mutual agency to bind the firm.
- The party asserting partnership status bears the burden of proving the partnership relationship.
- Calling someone a “partner” in a third-party document may have consequences in dealings with third parties, but it does not automatically create partnership rights between the parties in the absence of proof of an actual partnership arrangement.
- A plaintiff who fails to prove partner status is not entitled to a partnership accounting.

## Conclusion

The Kentucky Court of Appeals upheld the trial court’s dismissal because Smith failed to prove that he and the defendants had agreed to form a partnership or conducted themselves as partners in the ways that matter for internal partnership rights; therefore, Smith was not entitled to an accounting or a share of partnership profits based merely on being described as a “partner” in certain documents.


Smith v. Kelley, 465 S.W.2d 39 (1971)