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Business Partnership Liability: What You Need to Know
A general partnership is one of the most common types of small business, largely because it is so easy to set up. With a business partnership, you don’t have to worry about incorporation papers and other legal hurdles. However, you are trading these minor annoyances for something you might not be bargaining for—liability. Here’s what business partnership liability is and what you need to know to protect yourself.
What Is a General Partnership?
In a general business partnership, there are no incorporation papers or other legal filings. Like a sole proprietorship, a partnership is legally responsible for all actions and business decisions. That means that all partners, regardless of how much they invested, are equally liable for the business. If you are part of a business partnership, you are not just responsible for your own actions. You are responsible for the actions of all partners.
How It Can Backfire
While it is easy to set up and run a partnership, it isn’t very practical for the purposes of liability and financial responsibility. If your partner makes a bad business decision leading to a lawsuit, your property can be forfeited or your income garnished, just the same as the person who actually committed the crime or negligence. Likewise, if your partner engages in criminal activity in the guise of the business, you could be held liable and be similarly charged.
The best way to protect yourself from business partnership liability is to form a limited liability corporation, an S corporation, or incorporate outright. In these business models, you will have fewer instances in which you could be held liable for another’s actions. If it is too late and your partner has already been negligent or committed a crime, you will need excellent legal representation.
If you are in a business partnership and are worried about liability, we can help. Contact us today for more information or to schedule a consultation.