Running a business or being engaged in a partnership can be a very rewarding experience. Often times, the partners make a formal agreement to run their business in a certain manner, and proceed to do so. More times than not, these formal agreements are reduced to writing. However, no formal agreement is needed to be engaged in a partnership. While the benefits of being engaged in a partnership can be plenty, there are also determinants that partners often do not think about; namely, personal liability. Therefore, many business venturers expose themselves to personal liability by being in a partnership without realizing it. More importantly, many business venturers expose themselves to personal liability for acts by their partners without realizing it.
How do you know if you are in a partnership? There is no definitive answer. A definition advanced by courts over the years as to what a partnership has found that a partnership exists “when there is an association of two or more persons to carry on as co-owners of a business for profit.” Courts over the years have used a case-by-case approach to make a determination as to whether or not a partnership exists. As mentioned above, a formal or informal agreement, written or not, is but one factor courts consider. Another important factor which may weigh more heavily than others is whether some sort of agreement to share profits or losses from a co-venture. In fact, if there is a receipt of a share of profits, courts may treat this as prima facie evidence that a partnership exists. Another equally important factor is whether or not multiple partners have formally or informally agreed to mutually control or manage their co-venture.
In sum, there is no definitive way of stating when you are in a partnership and when you are not. The consequences of being in a partnership without realizing it can be disastrous, potentially exposing yourself to personal liability. Taking the rights steps to ensure you are protected is vital in any business. If you believe you may be in a partnership, and thereby exposing yourself to unwanted risk, it is not too late to take the proper steps to protect yourself and your venture. Call the Trembly Firm at (305) 431-5678 to schedule a consultation today.