Legal Question in Business Law in California

If a person proves that he has a De Facto partnerhsip and has a legal right to a share of the net profits, does that mean that he should share in the debts of the company?

Since he has not been able to control some of the major debt decisions over the year, such as rent or payroll, can he be required to pay unpaid debts?


Asked on 8/22/11, 10:05 pm

3 Answers from Attorneys
Michael Stone Law Offices of Michael B. Stone Toll Free 1-855-USE-MIKE

What is a "De Facto" partnership? Read the partnership agreement. What does it say? No attorney that I know of recommends partnerships as a form of business organization, one reason being is that each partner is responsible for debts incurred by the other.

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Answered on 8/22/11, 10:13 pm

You can't have your cake and eat it too. Either you are partners, in which case you share the entire P&L and Balance Sheet, or you are not.

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Answered on 8/23/11, 2:53 pm
Kevin B. Murphy Franchise Foundations, APC

As a Franchise Attorney I agree with both attorney answers. A major risk of any partnership is one of the partners making bad decisions that result in debt that must be paid for by all partners. If you are a partner, you're on the hook. Consult with a good business or franchise attorney in your area for specific advice.

Mr. Franchise - Kevin B. Murphy, B.S., M.B.A., J.D.

Franchise Foundations, a Professional Corporation

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Answered on 8/24/11, 7:25 am


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