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The Responsibility of the Partners in Partnership.

Posted by Giselle Ayala Mateus | Jul 28, 2021 | 0 Comments

A partnership is a pretty simple business structure to organize a business. A partnership is basically an agreement between two or more to carry out a business as co-owners for profits. Considering the flexibility of the figure and the lack of formalities, many entrepreneurs start with a partnership. There is nothing wrong about it. However, before engaging another into the business it is advisable to understand that a partnership does not protect the personal assets of the partners, and that the extent of responsibility can be more than what an entrepreneurs wants starting a new business. 

All partners are agents for each other

In general terms, all partners are agent for each other. This means, that as a result of their explicit or implicit agreement to carry out a business as co=-owners for profit, partners can bind each other in transactions that are related to the business. Of course, not all transaction will bind the partners. The understands that partners can bind each other with respect to all activities within the ordinary course of the business of the partnership. In other words, partners can compromise each other while conducting activities that are performed for the purposes of furthering the business or the goals of the partnership. Although it sounds clear, the concept is very broad. Therefore, partners are advised to document their partnership, be clear about the authority that each partner has with respect to the partnership and keep themselves information, so that the are no misunderstandings. 

What to include in the agreement?

An agreement between the partners should be clear about the business of the partnership, the role of each partner, the decision that are subject to vote, the mechanism that the partners will use to resolve their dispute, and the any necessary limitations of authority. Additionally, it may be important to include indemnification provisions. 

Is the agreement enough?

Probably not. It is very important that entrepreneurs understand that the authority of a partner may be express, the result of explicit manifestations of consent, or implicit, the result of an interpretation of the words or conduct of the partners. Additionally, if the roles in partnership are not clear, third-parties, customers or others, may assume that a partner has authority to bind the others. 

Personal Responsibility, What does it Mean?

Partners, unless they form a limited partnership and limit their involvement into the day-to-day business of the partnership, respond personally for the debts and liability of the partnership. In other words, partners respond with their personal assets whether or not those assets are for the benefit of the partnership business. If the partner want to limit the amount of their responsibility, they must agree to it, or elect a different business structure. 

Who will be sued in Partnership?

All partners can be sued for the debts of the partnership. Partners are severally and jointly responsible. Therefore, a creditor may sue some of the partners or all of them, for all or part of a debt. 

How can the firm help you?

At the office of Giselle Ayala Mateus, we understand that not all entrepreneurs are ready to engage in the costs associated with a corporation or an LLC. However, there are other options available to get your business started. The first step is to schedule a consultation, once we understand your goals and your vision for the business, we will counsel you with the right strategy.

About the Author

Giselle Ayala Mateus

Giselle Ayala Mateus is a NY attorney with comprehensive experience in transactional law, creative agreements, business formation, and immigration law. She is also the founder of FOCUS a not-for-profit project focused on supporting entrepreneurs and artists.

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