ARE WE REALLY BUSINESS PARTNERS?

What many business entrepreneurs do not understand is that it is entirely possible to be in a partnership without even knowing it! In Nevada, a general partnership agreement may be formed orally without a fancy written contract. The most common feedback from clients who have been sued is: “We don’t even have an agreement” or “We were going to put something in writing later…”

A very common mistake between many entrepreneurs is to initiate business without legal formalities. It typically begins with a novel idea, a spark of industry and imagination between a few individuals, and a plot to make their idea a reality.  Take this set of circumstances for example that is all too familiar to business law attorneys:

Imagine four different individuals.  Call them Engineer A, Investor B, and Manufacturers C and D.  Parties A, B, and C have thought up an amazing idea for a new business venture and everyone is excited! They cannot wait to begin work on their new project and get Product X out to market!

Everything is going quite well, Engineer A, has developed a beautiful prototype. Manufacturer C has sourced product materials and potential shipping and warehousing space. Investor B has obtained the capital to begin work, but Investor B later informs Manufacturer D about the proposition as that may significantly reduce cost over time. Things become a little more complicated. Investor B approaches Engineer A and they have a discussion. It just makes business sense to go with Manufacturer D, doesn’t it? Of course, yes, why not? Manufacturer C starts to get the cold shoulder, no returned calls, missed lunch appointments, and is basically left out in the dark.

Fast forward two months and we have a disillusioned party who is angry when novel Product X hits the market and does well. Before Engineer A and Investor B can make it to the bank, they are served with a summons and complaint for breach of the oral partnership agreement, breach of their fiduciary duties, and a demand for Manufacturer C’s gross profits, along with a long list of other legal demands.

Under Nevada law, a partnership is an association of two or more persons to carry on as co-owners of a business for profit. See NRS 87.060. A partnership agreement means the agreement, whether written or oral or implied, among the partners concerning the partnership (including all amendments). See NRS 87.306.  The intention of the parties will be the focus of the court. The parties must have intended to carry on a business as co-partners for profit.

Whether an oral partnership agreement has been entered into is a question of fact. Evidence can come in many forms, the strongest being the sharing of “gross profits” of any venture between the parties.

Nevada has recognized additional evidence that may demonstrate that a partnership is or is not formed including but not limited to: 1) how the parties hold title of property, 2) the designation by the parties that their entity is a “partnership”, 3) whether partners contributed money or services to the enterprise, 4) the amount of time or activity each party spends in the enterprise, and at times, 5) simply the mere mutual promises at inception leading to a determination of partnership.

So what does this all mean?  Question of fact…intent…oral or implied…? Well, it means you could be in for a long and expensive lawsuit if an angry party asserts that they are a partner to your business venture and that you or others have breached the partnership agreement.

What can an entrepreneur do to protect himself or herself early on in the process of planning their next big venture?

1.  If your intent is to create a partnership, then create a partnership agreement at the very beginning which is signed, sealed and delivered prior to starting any business activities. This agreement should contain, at a minimum, terms and conditions that govern the following:

Scope of workRoles and responsibilities of partnersShare of gross profits and liabilitiesDispute resolutionExit strategies

This provides protection from one party’s “fuzzy” recollection concerning these matters later on. It is much better to develop the agreement early in the process, while all parties are getting along, rather than rely on a jilted party’s memory after they have sued you.

2.  If you do not plan on creating a partnership, it would be wise to obtain proof of its non-existence in writing as well. A signed statement, similar to the one below may save you from a frivolous lawsuit down the line. (Of course this statement is used as an example; any statement you utilize moving forward should be reviewed by counsel of your choosing).

Disclosure of Intent Not to Create a Partnership:

Nothing concerning today’s discussion shall be construed as creating a partnership or joint venture of any kind between (or among) the parties or as constituting either party as the agent of the other party. Neither party has the authority or power to bind the other party or to contract in the name of or create a liability against the other party in any way or for any purpose. All parties agree that a partnership or joint venture shall not be formed until all parties hereto have signed a fully integrated, written, agreement at a later date.

Sign and Date.

As with any legal planning, it should be left to those licensed to practice law. If you believe you have a great idea for a start-up venture, take a moment and schedule a quick consultation with trusted counsel. Minor legal planning from the onset may save you from expending unnecessary time, money, and your sanity in the long run. Protecting your business assets early will ensure a better defense from potential claims later on when you have much more to lose!

NOTICE:  The information contained on this Blog is designed to enable you to learn more about the services that Essential Legal Services offers to its clients. These materials do not, and are not intended to, constitute legal advice, nor are they intended as a source of advertising or solicitation. Your use of this Blog does not create or constitute an attorney-client relationship. You should not consider these materials to be an invitation for an attorney-client relationship. Further, you should not rely on the information provided on this Blog without first obtaining separate legal advice.

32 replies added

  1. yenilmezler December 9, 2020 Reply

    Like!! I blog frequently and I really thank you for your content. The article has truly peaked my interest. Bren Fred Dylane

  2. bollywood January 31, 2021 Reply

    This is one awesome article post. Really thank you! Really Great. Anitra Steven Greenwell

  3. turkce February 10, 2021 Reply

    I was very happy to uncover this website. I wanted to thank you for your time due to this wonderful read!! I definitely appreciated every part of it and I have you book-marked to see new information on your website. Tarah Tam Zaneski

  4. turkce February 13, 2021 Reply

    Ahaa, its pleasant conversation {regarding|concerning|about|on Farica Hamel Henrik

  5. turkce February 13, 2021 Reply

    Having read this I believed it was rather informative. I appreciate you finding the time and effort to put this content together. I once again find myself spending a significant amount of time both reading and leaving comments. But so what, it was still worthwhile! Esmaria Nev Brodench

  6. turkce February 13, 2021 Reply

    You made some good points there. I checked on the web for additional information about the issue and found most individuals will go along with your views on this web site. Tabbie Sloane Britt

  7. turkce February 13, 2021 Reply

    I visit day-to-day some websites and sites to read articles or reviews, except this blog offers feature based writing. Madeline Damon Aronow

  8. turkce February 13, 2021 Reply

    It was very useful, I can say it was a useful article for me. Merlina Jefferson Koeppel

  9. turkce February 13, 2021 Reply

    Wow! After all I got a blog from where I be capable of in fact take valuable facts concerning my study and knowledge. Shirley Noble Nani

  10. turkce February 13, 2021 Reply

    I got this web page from my pal who told me regarding this web site and now this time I am browsing this web site and reading very informative articles at this place.| Delilah Bennie Tomkin

  11. turkce February 13, 2021 Reply

    Wonderful beat ! I wish to apprentice while you amend your site, how can i subscribe for a blog website? The account helped me a acceptable deal. I had been tiny bit acquainted of this your broadcast offered bright clear idea Jackelyn Eugene Avrom

  12. turkce February 13, 2021 Reply

    I have been a yahoo individuals for some years now. I am just starting to use the devices which they provide, one of which being post. I have composed a blog site and also wants to recognize if my article are being seen by others. If not then does any individual understand exactly how I get my articles review. Juliet Cornall Sharai

  13. turkce February 13, 2021 Reply

    You should be a part of a contest for one of the most useful sites online. I most certainly will highly recommend this website! Minta Horacio Miof Mela

  14. turkce February 14, 2021 Reply

    Hello! Do you know if they make any plugins to protect against hackers? Shelagh Waring Raquela

  15. turkce February 14, 2021 Reply

    certainly like your web site but you have to take a look at the spelling on several of your posts. Several of them are rife with spelling issues and I to find it very bothersome to tell the reality however I will certainly come back again. Goldi Davidson Alta

  16. turkce February 14, 2021 Reply

    Et harum quidem rerum facilis est et expedita distinctio. Nam libero tempore, cum soluta nobis est eligendi optio cumque nihil impedit quo minus id quod maxime placeat facere. Eddy Son Schick

  17. turkce February 14, 2021 Reply

    Hello, just wanted to tell you, I liked this blog post. Cloris Emery Stevena

  18. turkce February 14, 2021 Reply

    I like it when individuals get together and share opinions. Great blog, continue the good work! Giovanna Prescott Stoffel

  19. turkce February 14, 2021 Reply

    very few web sites that transpire to be detailed beneath, from our point of view are undoubtedly properly worth checking out Bren Fred Dylane

  20. turkce February 14, 2021 Reply

    I spent a lot of time to locate something such as this Eve Fergus Lazaro

  21. turkce February 15, 2021 Reply

    Money and freedom is the best way to change, may you be rich Juana Lazarus Dotti

  22. turkce February 15, 2021 Reply

    Wonderful post! We are linking to this particularly great article on our site. Keep up the good writing. Jojo Hamnet Bradan

  23. turkce February 15, 2021 Reply

    Absolutely pent subject material , appreciate it for selective information . Latashia Leighton Marder

  24. turkce February 15, 2021 Reply

    This was a really great article. Thanks for creating it. Gussi Jay Bailar

  25. turkce February 15, 2021 Reply

    Generally I do not learn article on blogs, however I wish to say that this write-up very forced me to take a look at and do it! Your writing taste has been amazed me. Thank you, very great article. Deanne Brady Egbert

  26. turkce February 15, 2021 Reply

    Instead, focus in on a subject you know well or have a great interest in. Veronica Benji Brandes

  27. turkce February 15, 2021 Reply

    I am actually thankful to the owner of this web page who has shared this wonderful piece of writing at at this place. Miriam Fair Corene

  28. erotik February 16, 2021 Reply

    If you are going for best contents like I do, only go to see this web page all the time because it presents feature contents, thanks Saraann Natal Derwon

  29. 샌즈카지노 February 17, 2021 Reply

    May I simply say what a comfort to discover an individual who genuinely understands what they are discussing on the internet. Lonni Gaspard Vachil

  30. erotik February 17, 2021 Reply

    I just like the helpful info you supply on your articles. Jocelyne Mahmoud Drugge

  31. erotik February 17, 2021 Reply

    What a stuff of un-ambiguity and preserveness of valuable familiarity concerning unpredicted feelings. Dale Leonidas Lenhard

  32. 샌즈카지노 February 17, 2021 Reply

    You can make this fudge in the microwave in 2 min. Meridel Marcello Tasiana

Leave your comment