Partnerships Are Not Eternal

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 May 21, 2017 in Business Essentials

The article “Protect Your Business and Your Family” raised a valid point — that partnerships are not eternal.  But the point is not an obvious one.

Many business owners I know and advise refer to their “business partner” as the person with whom they own a business.  The business may take the legal form of a corporation or a limited liability company, but they’ll still use the word “partner.”  After all, it’s a lot more succinct than “co-shareholder,” which conjures up stark, impersonal images of monolithic corporate entities.  And it’s a lot less socially awkward than saying “this is my co-member” . . . which has salacious overtones.

It’s not often that business partners are true “partners” — in the legal sense of the word as being partners of a “general partnership.”  Perhaps that’s because a general partnership has some definite downsides as a legal entity, namely, that the personal assets of all partners are at risk in the event of a judgment or loss.  I see fewer and fewer people affirmatively choosing a “general partnership” as a form of business nowadays.

Another downside — that the author, Georgiana Latino, alludes to — is that when a partner of a general partnership dies or leaves the business (for any reason!), the business ceases to exist.  The legalities behind it are that “the business = the partners.” And not just any partners — only the partners who are noted on the certificate of partnership that’s filed with the county clerk.  If a partner leaves — or joins — the business is no longer what it was before and, therefore, can’t exist.

That’s why it is absolutely vital to have a partnership agreement in place.  A partnership agreement can help ensure an easy transition from one set of partners to another, including “administrative details” like the ability to keep bank accounts open.

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