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Do not fall into a general partnership

In the commercial and legal parlance of the United States, a general partnership is an association of persons, each of whom, are generally jointly and severely liable for any legal actions they may face. Be aware of the danger of falling into such an arrangement without even knowing it. To really understand a general partnership, take any business relationship and if you can pinpoint a specific agreement between the parties that does not memorialize a corporation, LLC, LLP, LP, employer-employee relationship, employer-contractor relationship, or some other entity, it is likely a general partnership. A general partnership can have far reaching effects on the relationships between partners and the partners and the outside world.

Most importantly, once it is established that the arrangement is a general partnership, an entire body of law dealing with the relationship is assumed unless disputed by other specific agreement. For example, these casual relationships start out by saying, let’s split profits 50-50, you provide the labor, I’ll provide funds. All of sudden, you are in a general partnership which means the default provision provides each of the partners not only share profits, but also the loss 50-50.  The acts of one partner may bind the other partner, including defaults on creditors, etc.

That is the most basic example, but where it really comes into play is in joint ventures between parties, including corporations. When two parties enter into a project or a joint venture, what they are really entering into is a general partnership. Be weary.

Nasir Pasha, Esq.

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Managing attorney and co-host of podcast Legally Sound | Smart Business

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