Distinct Legal Consequences in a Legal Partnership

A partnership is a legal relationship that carries with it certain rights and obligations. Whether or not two or more persons have alegal partnership may become an issue. Our law defines a partnerhsip as a

“juridical person, distinct from its partners, created by a contract between two or more persons to combine their efforts or resources in determined proportions and to collaborate at mutual risk for their common profit or commercial benefit.”(La. C.C. Art. 2801).

However, a legal and valid partnership may be established without a written agreement or contract, circumstantial proof may be offered to maintain that there was indeed a partnership. All of the surrounding facts are taken into consideration and explored by the court in order to determine whether a partnership had been formed, and to what extent each partner was involved. Thus, the facts are extremely important when an alleged partnership is created without any written documentation to support that contention.

In a recent Second Circuit Court of Appeal Case in Louisiana, the court analyzed the plaintiff and defendant’s relationship in order to decide whether or not a partnership had existed between them. The facts consists of a duo who were romantically involved and lived together for an extended period of time. During their relationship, the defendant boyfriend approached the plaintiff girlfriend about starting a construction business together. The defendant had expertise and knowledge in the area, whereas the plaintiff had little if any, thus, he was relying on her more for the financial support versus any actual construction knowledge or managerial work. once they agreed on the type of construction operations they would be performing, they formed a company name and soon thereafter began small construction jobs around their community. They were approached by a third party construction company who showed interest in combining his construction company with the couple’s and forming a limited liability company (LLC). This is the point in the facts where the defendant faces a dilemma. The defendant was not included as a member of the L.L.C. because he was under a child support obligation to his former wife and he and the plaintiff wanted to protect their initial construction company from consideration in his child support proceedings. Further, the defendant had very poor credit and several outstanding judgments against him, therefore, it was in the best interest of the company, to put everything only in the plaintiff’s name. Both the plaintiff and defendant were paid nominal salaries, however, they constantly used the company’s funds for house hold bills and personal finances. Soon, the couple experienced problems and split apart, the plaintiff refused to allow the defendant access to any company records or funds and took the position that she was the sole owner of the company and the defendant a mere employee. Upon being prohibited any access to the company, the defendant filed suit, alleging that he and the plaintiff were business partners, each owning one-half of the initial company. He sought recognition as a co-owner of the company and requested partition of the company’s assets. However, the plaintiff denied the existence of any partnership, thus, relying on the state filings of the L.L.C. which listed her as the company’s sole owner. Thus, the question became, did they indeed have a partnership?

The trial court granted the plaintiff’s counsel moved for involuntary dismissal which was granted. The Louisiana civil code of procedure article 1672 states,

“In an action tried by the court without a jury, after the plaintiff has completed the presentation of his evidence, any party, without waiving his right to offer evidence in the event the motion is not granted, may move for a dismissal of the action as to him on the ground that upon the facts and law, the plaintiff has shown no right to relief. The court may then determine the facts and render judgment against the plaintiff and in favor of the moving party or may decline to render any judgment until the close of all the evidence.”

The trail court determined that despite the five witnesses the defendant offered, that the evidence taken as a whole, did not show that the fact or cause sought to be proven was more probable than not. Yet, on appeal, the dismissal was reviewed, taking into consideration what a partnership consists of and how it may be created. When there is no written agreement, as was the case between the parties, the existence of a partnership may be established by proof that the alleged partners agreed to form a partnership and participate in the profits to accrue from the business in determined proportions, to share in the losses as well as the profits of the partnership, and to have the property or stock of the partnership forma community of goods in which each party has a proprietary interest. Essentially, they must intend to have a business relationship between them that illustrates the major characteristics of a partnership. After reviewing the facts, the appellate court determined that the parties had agreed to form a construction business, operating it together, obtaining small jobs before the L.L.C. was even formed. Further, both the parties salaries were drawn from the company’s profits, and deposited into one bank account, allowing them to pay their shared living expenses. Lastly, the third party construction company owner testified that the plaintiff assured him that the couple was in partnership and that the defendant would obtain his share of the company despite the fact that she was listed as the sole member of the L.L.C. Thus, the appellate court reversed the involuntary dismissal, finding that the parties had in fact formed a partnership.

A partnership is a legal relationship that can be entered into by mere verbal agreement. A written contract or agreement is not necessary, thus, one must be careful when agreeing to become involved in any type of business venture without realizing the potential consequences. Legal advice is always encouraged, especially in light of the financial costs that go hand in hand with entering into a partnership. Thus, if you are considering entering into a business venture take heed the legal ramifications of entering into such a relationship.

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