You’re in a partnership and don’t even know it. There are a number of business entities. They include Sole Proprietorship, Partnership, Corporation, Limited Liability Company, and a dozen others. Probably the scariest business entity to be in is a partnership, because every partner is personally liable for all of the acts of the other partners. You are legally responsible to the courts, the IRS, and everyone else for something somebody else does. NOT A GOOD IDEA!!
I speak to a lot of large audiences, and if I ask how many of the audience is in a partnership, I get about 2% of the hands. Only two percent of the people think they are in a partnership. I will bet big money that there are at least 60% of the people in the room in a partnership – not 2% — yes, 60%. They wouldn’t believe me when I say,”You’re in a partnership.
No, I am not talking about marriage. That’s a different type of relationship. We’re talking about the good ole’ everybody is jointly and severally liable (you’re screwed) you’re in a partnership. The partnership is the only legal relationship you can be in with somebody else and NOT have to have a written agreement. Marriage requires a written agreement. Corporations, limited partnerships, LLCs, and all of the other relationships have to have a written document, but a partnership does not.
You’re in a Partnership
I have seen people lose everything because they turned out to be a partner when something went way south. The issue turns on the legal definition of a partnership. Let me give it to you. “Two or more individuals engaged in a common activity with the intent to make money.” Who are you doing something with where you might be expecting a dollar or two? Are you fixing up a house with your son-in-law? Are you selling snow cones at the 4th of July parade? Are you letting the Boy Scouts park cars on your empty lot for the football games? Who are you doing something with where you are expecting to make a buck?
You’re in a partnership, and when the scout master is on the way to the bank to deposit the parking money, and he hits someone in the crosswalk and makes them a paraplegic, you are going to be the one that is sued, because you are the partner. You are personally liable.
Think!! Who are you making a dollar with? That’s the partnership. You don’t want to be in a partnership. So you need to establish a different type of relationship with your “partners.” Use a corporation, LLC, or some other entity to define your relationship and give you some asset protection shielding. The Accumulation and Preservation of Wealth goes through the different entities you can use. The Protecting Your Financial Future book gives you an introduction to trusts and how they fit into your asset protection plan.