A Partnership Made in Heaven


You have decided to start a business, but you do not want to do it alone. A friend of yours has the capital and experience that you need. It is a partnership made in heaven.

You begin doing business as a partnership.  One of you handles the books and the other the operations.  It seems simple enough.

General Partnership

General partnerships form when two or more parties carry on as co-owners of a business for profit.  It is usually the sharing of profits and losses that determines whether it is considered a partnership (not necessarily the intent to form a partnership). It is very similar to a sole proprietor, except you will have someone to help you.  However, there are some pretty big distinctions.  The most significant difference is the liability.  As a partner in a general partnership, each person is jointly and severally liable for the other party’s actions.

When you are jointly and severally liable, you are held liable for each others’ debts and judgments.  In other words, if your business partner applies for and receives a credit card in the partnership’s name even without your permission, you will be held responsible for the entire debt (not just 50%).  It does not matter whether you intended to apply for the credit card.  The other partner created the liability.  This applies to any matters that go ahead to court. For example, if your partnership is sued because of a breach of contract or because of a tort, then both partners will be subject to the judgment and responsible for the entire amount.

Although each partner is jointly and severally liable for the debts, it is possible to contract around these rules.  An agreement can be drafted that outlines each party’s responsibilities and liabilities.  If an agreement is not made beforehand, then the partner who paid the debt or satisfied the judgment can be indemnified or seek contribution from the other partners.  The problem is that without an agreement beforehand, it can be challenging to continue the business relationship.

Final Thoughts on Partnerships

A partnership is a great way to begin and build a business.  You will conquer the business world a lot faster if you have someone who compliments your skills.  As a practical matter, you should not go into business with someone who shares your skillset.  It is better to have a partner who can do things you are not.  However, just because someone can help you build your business does not mean you should go into it blind.  Having a plan in place will help your business progress in a meaningful way.  It will also help you prevent unnecessary strife.