Legal Question in Business Law in California

Re: Partnership Documentation

Well, I'll start by saying that I never approve clients entering into a general partnership -- there is too much [unlimited] risk and liability for the 24/7 actions of every partner. Corporate status is the only organization that I approve for conducting business. That being said, if you insist on taking those chances with your personal assets, you obviously need to sit down with counsel and document the partnership properly as it should have been done at formation. You'll need a thorough Partnership Agreement, Buy-Sell provisions, Hold Harmless provisions [for the little good they do!], Key Man provisions, bank authorizations, etc, etc.

Thinking that you are saving money by 'doing it ourselves - we don't need no stinking lawyers', generally results in spending a fortune in legal fees in litigation that arises over disputes and problems later, that would have been avoided or controlled by proper documentation.

Feel free to contact me if serious about doing this right with a corporation, or sorta right with cleaning up the partnership status.

Re: Partnership Documentation

I agree with Mr. Nelson that the general partnership form of business organization is largely obsolete in the 21st Century; there are better alternatives for most purposes including the corporation and the LLC; both cost you a franchise tax, but that's cheaper than the cost of equivalent liability insurance. Changing forms of business organization with a mature business can, however, be a little complicated, especially if you have a strong partnership agreement in place and have loans or contracts in the partnership name that mightn't be assignable to a successor LLC.

As to the bank account, the starting point would be to ask a senior officer of you bank what the bank's policy on changing partnership signature cards on death, resignation or removal of a partner is.

As to the property, keep in mind that there is case law in California that property used in a partnership becomes partnership property even though legal or record title is held in the name of one or more individual partners. Continuing to hold it as is may have tax advantages - consult a tax advisor. To avoid possible future litigation over title, it would be best to have a signed memo of understanding between A, B, C and D as to the partnership's beneficial ownership of the properties; this could be an amendment to the existing Partnership Agreement - which I assume you have???

The partnership also needs to keep good books and records, both as to its profits and losses and as to its assets, liabilities, and each partner's equity or capital position. The books and records should be consistent with the partnership's ownership of the real property, and not reflect something different. The books should be professionally prepared and inspected by each of you from time to time for neatness, completeness and accuracy.

Then re-read Mr. Nelson's advice.