risky business
Whether it’s your personal or professional life, chances are you’ve started or sought to start a partnership at some point. For some, it provides a sense of security; for others, a drink at dinner led to a friendly discussion about an idea they had and WHAM, they’re going to move forward on that idea together, as partners, or; for those timid types, perhaps he gravitated toward a partnership because he simply wanted half the responsibility, half the risk, and half the potential blame.
Well, whatever your cause and whatever your (personal) purpose, you could save yourself a lot of time, frustration, and money by knowing in advance what kind of partnership you’re getting involved with.
While some people use ‘partnership’ more as an artistic term (i.e. owners of corporations may call themselves ‘partners’, but that doesn’t necessarily mean that they do), there are, in fact, a variety of legally owned partnerships. recognized. They are: (1) General Partnerships; (2) limited partnerships; (3) Limited Liability Companies; (4) Limited Liability Companies and; (5) Joint ventures.
And of these different types of companies – some governed by corporate law and others governed even more by contract law – the one that is of particular interest in this article is that of the “General Partnership”.
Lawyers are often surprised to find the staggering number of parties involved in general partnerships who believe they are afforded certain advantages of corporate law. Let’s take a moment to address some of the confusion.
A general partnership is like a sole proprietorship, except there are two (2) or more people doing business under one name. Unlike Limited Liability Companies, for example, no articles need to be filed with the Secretary of State, nor does the company even need to enter into a written partnership agreement (although it has been considered a terrible idea not to).
A significant difference between formally established partnerships (ie LLCs, LLPs, etc.) and a general partnership is that each partner in a general partnership is jointly and severally liable for the actions and debts of the partnership. Since any partner can bind the partnership, the other partners can be liable for actions, contracts and/or debts that they did not even know existed. Go one step further: partners can even be held personally liable for the acts of agents or employees who had apparent authority to bind the partnership.
Therefore, for those of you who do not wish to formally establish a partnership at the state level and whether or not you are willing to consider and execute a partnership agreement, you may wish to better understand the risky business you could be in. entering. in, or may already be involved, as a partner in a general partnership.