Partnerships Are Not EternalBy Nina Kaufman, Esq.
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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