Estoppel: The Final Saving Grace for a Pseudo-Partnership

A partnership is a very unique business form.  That is because a partnership can exist even if there has been no formal acknowledgement that you are engaged in a business.  A partnership, however, does have its pitfalls.  Despite its lax requirements for existing, partnerships are also one of the few forms of business that do not entitle its owners to limited liability.  Therefore, if the partnership is sued, your personal assets may be on the line.  It is obviously in your best interests that you are never in such a situation. However, if you are in such a situation, it is best to not be left on your own carrying the brunt of the partnership’s debts.  Because your partners are equally liable for debts of the partnership, you must do everything in your power to prove a partnership existed.

Partnerships can exist based on the factual circumstances.  In states that follow the Revised Uniform Partnership Act, such as Florida, a partnership is formed by an association of two or more persons to carry on as co-owners a business for profit, whether they intend to form a partnership or not.  No writing is necessary.  Capital investment is not required, and sharing of profits is presumed to create a partner.  In states that follow the Uniform Partnership Act, the test for a partnership adds a bit more: it is the agreement to share profits and losses, as well as a mutual right of control or management.  However, neither partnership act requires a formal agreement.

Perhaps the easiest way to prove there was a partnership is by pointing to the facts of the partnership: that there was an agreement, whether written or not, to share in profits or losses, as well as a mutual right of control or management if in a Uniform Partnership Act state.  However, if there is no such proof, there is one final saving grace for proving a partnership: estoppel. Estoppel is a universal legal concept that can be applied to multiple fields.  In the context of a partnership, it refers to the fact that once a partner has acknowledged the existence of a partnership, he cannot then later deny it.  This is beneficial for two types of actors: other partners who seek to hold other partners liable for any debts; and for third parties who have dealt at arm’s length with all of the partners and now seek to be able to reach the pockets of all of the alleged partners.  In essence, once a partner has acknowledged a partnership, he cannot then deny it.

In conclusion, there is one final saving grace for proving that a partnership existed.  Even if one cannot definitely prove to the factors necessary that a partnership existed, such as profit sharing or shared management, estoppel can prove that a partnership did exist.  If you are in a situation where a partner has denied the existence of a partnership in order to avoid sharing in the debts, having the right legal team in your corner can help you recover what is rightfully yours.  Call the Trembly Law Firm at (305) 431-5678 today to schedule your consultation.