On Ethics and Business Partners

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq., owner of Ask The Business Lawyer, is an award-winning business attorney, speaker, and Entrepreneur Magazine online contributor. She saves consulting and professional services companies time, money, and aggravation by serving as their outsourced legal counsel.

Posted on June 27, 2015 in Disputes

My Sunday mornings begin . . . at the end.  Of the New York Times Magazine, that is.  I’ll peruse the Lives column, for stories about, well, people’s lives.  Then, I’ll jump to the front of the magazine and indulge in an “educational minute” with William Safire’s column On Language.  Before I move on to fun and games with the Sunday crossword puzzle (jumping again to the back of the magazine), I’ll stop to read Randy Cohen’s column, The Ethicist.

A couple of Sundays ago, he had an interesting tidbit about business partners.  What happens when you’re in a failing business and one of the partners chooses to go bankrupt, leaving the other holding the bag for the business debts?  The non-bankrupt partner wanted the bankrupt partner to pay for half.  What’s the ethical response?

Cohen’s response was, in a nutshell, “too bad so sad.”  And he’s not far wrong, as a legal response, although his answer is a little like the way that TV detectives solve crime mysteries without giving you all the facts.  He’s right that the rights and obligations of a business partnership relationship are governed by the partnership agreement.  But business partnership agreements (whether corporate shareholder or LLC operating agreements) can vary in their terms.  We don’t know what these two particular partners agreed to, which could change its ethical complexion.  You can include provisions in your agreements where, if one partner is made to pay (or be obligated on a debt for) more than her fair share, the other partner(s) will make it up to her.

Failing that, those are the risks and dangers of choosing differring courses of action.  As Benjamin Franklin said (albeit in a different context), “we must all hang together or, most assuredly, we shall all hang separately.”

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