Blog

Understanding When You Are Liable for a Partner’s Actions in a California Partnership

When you decide to go into business with another person in a California partnership, you are no doubt dreaming about the profits that you are going to make by working together. What you might not be thinking about, however, is the fact that you may become liable for that partner’s actions, even if those actions are taken unilaterally and without your specific approval.

 

The analogy that a business partnership is like a marriage in not true in all respects, but there is some connection in the sense that your partner’s debts and liabilities may well become your liabilities, if they are incurred in the course of the partnership. Confusion over who should pay for partnership liabilities is frequently a source of partnership litigation in California, and you are encouraged to consult with an experienced partnership litigation attorney regarding your rights and obligations should such a dispute arise.

When You May Be Liable For a Partner’s Liabilities

You can be liable for a partner’s debts – whether they arise out a commercial contract (e.g. an agreement to buy goods for a vendor every month), out of a tort judgement (e.g. a personal injury lawsuit or fraud claim), or other potential liabilities – so long as the liability arose when the other partner was: 1) acting in the ordinary course of business of the partnership; or 2) with the authority of the partnership.

 

To put this into a simple example, let’s say you run a grocery delivery business with another partner. If that partner causes a car accident while delivering groceries for the partnership, this would be in the ordinary course of business, and you as a partner would potentially be liable for personal injury claims.

 

Let’s say, however, that the partner decides to go to the airport using a company car, which is outside the ordinary course of the business, but you give approval of this action. If a crash occurs on the way to the airport, you could be liable because the partnership as the partnership gave approval or “authority” for this trip.

 

On the other hand, if the partner causes an accident while drunk driving in a company car late on Friday night, and this was not in the ordinary course of business and without the partnership’s approval, there may not be liability for the partnership or you personally.

 

The above example involves a tort case, but the same would go for contracts entered into by one partner, and a relevant question regarding liability would be whether the contract was in the ordinary course of business of the partnership and/or whether it was approved by the partnership.

Understanding the Extent of Your Liability for CA Partnership Debts

While the liability of the partnership is one question, a further question is just how much liability an individual partner will face. This will depend on: 1) the type of partnership created; 2) the role of a given partner; and 3) when the partner joined the partnership with respect to the liability.

 

These are complex questions, but, with respect to the first issue, general partners can see their partnership assets at risk, and also be personally liable (meaning creditors can seek their personal assets outside of the partnership), while those in limited partnerships or LLCs may be shielded from having personal liability. With regard to the second question, a limited partner may also be able to shield his personal assets in a way that a general partner cannot (but the fact that you are merely a “dormant” general partner may not shield you). Finally, partners are generally only liable for debts and judgments that arise after they join the partnership.

 

Speak to an experienced partnership litigation attorney for further insight about your particular situation.

Work With an Experienced Los Angeles Partnership Dispute Attorney

At Wagenseller Law Firm in downtown Los Angeles, our attorneys have extensive experience in resolving all types of partnership litigation matters, including those related to fraud, contractual disputes, and alleged breaches of fiduciary duties. Contact Wagenseller Law Firm today to schedule a consultation to discuss your partnership dispute.

© 2018 Wagenseller Law | Attorney Advertising | Privacy Policy
Site design by ONE400