Partnership Law: A General Overview for Professionals
A business partnership is a very special relationship. From the moment you team up with other likeminded business partners, your destinies are intertwined. Whether your enterprise flourishes or the partnership dissolves, the legal attributes of your partnership will play an important role.
Co-owners who share profits are partners by default
A partnership is defined legally as an association of two or more persons who operate as co-owners and share profits. To become a partner, an individual may make an investment of startup money, offer his or her services or both.
No written documentation is required to create a general partnership. If you are acting like partners (i.e., operating as co-owners and sharing profits), you are deemed to be part of a legal partnership. This is important because partners have certain legal rights and obligations. Of course, it is always recommended to have a written partnership agreement!
Partnership duties, rights and liabilities
In the absence of a written agreement, partners do not draw a salary and share profits and losses equally. Partners have a duty of loyalty to other partners. This duty means that, for example, partners must attend diligently to their responsibilities in the conduct of the business, and must not to enrich themselves at the expense of the partnership (for instance, a partner may not accept personal kickbacks for agreeing to a deal with a supplier at an inflated price). Partners also have a duty of accounting to the partnership, meaning they must be open and honest in disclosing business information to other partners.
Each partner also has rights, many of which derive from the right to see other partners live up to their duties. Unless the partners have agreed otherwise, each partner also has the right to participate in the day-to-day management of the business, and, importantly, to bind the firm in any act done in carrying on the business.
Since you are liable for the acts of a partner made in carrying on the business, it is imperative to choose your partners carefully, and, when necessary, to protect yourself to the extent possible through a written agreement or legal action. In a partnership, you are personally liable for business obligations; this means that if your partnership incurs debt or legal liability that the partnership cannot afford to pay, creditors are able to seek recompense by going after your personal assets.
Written partnership agreements
Even though no written agreement is required to establish a partnership, many partners choose to put a partnership agreement in place. A partnership agreement can modify the default partnership structure to better fit the needs of the individual business. Strong partnership documentation can help prevent disagreements and give the business a more well-defined direction.
A limited partnership is a special type of partnership that does require written documentation. In a limited partnership, limited partners invest money, but retain little or no control over the partnership’s operations. Unlike in a general partnership, limited partners cannot be held liable for debts incurred by the partnership.
Learn more from a partnership dispute attorney
If problems have arisen in your partnership, there are legal strategies that can help you resolve them. If you do not have a partnership agreement in place, or if your partnership agreement does not address the particular issues that have arisen in your partnership, it is especially important to get the help of an experienced partnership dispute lawyer. Talk to an attorney today to learn more.