Whether pertaining to your personal or professional life, chances are you have entered into, or sought to enter into a partnership at some point. For some, it provides a sense of security; for others, a dinner drink led to a friendly discussion about an idea you had and WHAM, you’re going to move on that idea together – as partners, or; for those timid-hearted types, perhaps you gravitated toward a partnership because you simply wanted half the responsibility, half the risk, and half the potential blame.
Well, whatever your cause, and whatever your (personal) purpose, you could stand to save yourself a lot of time, frustration and money by knowing up front what sort of partnership you’re actually getting into.
Whereas some people use ‘partnership’ more as a term of art (i.e., corporation owners may call themselves ‘partners’, but that does not necessarily make it so), there are, in fact, a variety of legally recognized partnerships. They are: (1) General Partnerships; (2) Limited Partnerships; (3) Limited Liability Partnerships; (4) Limited Liability Companies and; (5) Joint Ventures.
And of these different types of partnerships – some governed by corporate law and still others governed more by contract law – the one that is of particular interest in this article is that of the “General Partnership”.
Attorneys are often surprised to find the staggering number of parties involved in general partnerships who believe they are being afforded certain corporate law advantages. Let’s take a moment to touch upon a bit of the confusion.
A General Partnership is like a sole proprietorship except that there are two (2) or more persons conducting business under one name. Unlike Limited Liability Companies, for example, no articles need to be filed with the Secretary of State, nor does the partnership 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 (i.e., LLC’s, LLP’s, etc.) and that of 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 may bind the partnership, the other partners may be held liable for actions, contracts and/or debts in which they didn’t even know existed. Take that one step further — partners can even be held personally liable for the acts of agents or employees that had apparent authority to bind the partnership.
So, for those of you not wishing to formally establish a partnership at the state level, and, whether you are willing to entertain and execute a partnership agreement or not, you may wish to have a better understanding of the risky business you could be entering into, or, may already be involved in, as a partner in a general partnership.
Tags: dinner drink, e corporation, life chances, limited liability companies, limited liability partnerships, limited partnerships, partnership agreement, sole proprietorship, staggering number, types of partnerships