Offit Kurman business law and transactions attorney Michael Mercurio was a recent guest on AHA Business Radio on Baltimore’s WJZ AM 1300, CBS Radio. Mercurio and host Alan Hirsh discussed business entities from sole proprietorships to C corporations and S corporations. During his time on the air Mercurio discussed partnerships and the issues that can arise when a business has more than one owner and is operating in an informal fashion.
Opportunities and Issues that face Partnerships
While a sole proprietorship is one owner in an informal business structure, a partnership is more than one person engaged in business for the purpose of making money. And, like a sole proprietorship, a partnership can be informal and occur without any written documentation. Issue #1: Liability “Whereas a sole proprietor, the sole proprietor [is] 100 percent liable for the obligations and the responsibilities . . . of the sole proprietorship or the business,” said Mercurio, “in a partnership each of the partners are 100 percent liable for the activities of the partnership.” Being 100 percent liable for your partners’ activities when you don’t necessarily know what they’re doing at all times and can’t control their actions is a really slippery slope and a very dangerous position to be in. Issue #2: Surprises “You have to be very, very careful . . . that you don’t form a partnership by default or an unintended partnership, because that happens from time to time,” explained Mercurio. “You’re engaged in business, and you’re making money, and the next thing you know you have a partnership.” Issue #3: Issues When problems arise between partners, it is important to resolve these differences as quickly and cleanly as possible. For this reason, Mercurio advises that all partnerships, at a minimum, have their legal counsel draft a well-written partnership agreement. These documents govern everything from the owners’ rights and responsibilities while running the business to how to deal with disputes. Each week, host Allan Hirsh and his guests seek to provide listeners with useful information to help them run their business and guide decision making. If you have any questions regarding Partnerships or Partnership Agreements, please contact Offit Kurman business law and transactions attorney Mike Mercurio at: firstname.lastname@example.org | 301.575.0332 Mr. Mercurio regularly counsels entrepreneurial individuals and assorted entities on all aspects of business and commerce including formation and structure; ownership, management and control; financing and capital; expansion and acquisition; sale and transfer; and contraction and dissolution. He is well versed in the various issues and challenges companies of all sizes and industries face in the business life cycle. You can also connect with Offit Kurman via Facebook, Twitter, Google+