Thursday, September 25, 2014

Do As I Say Not As I Do?

“Evans a partner in law firm” was the title of an article in The Mining Journal earlier this year.  That’s not true.  I am not a partner, and none of my “partners” are partners either.  Mistakes by newspapers are one thing, but this common error has legal ramifications when committed by so-called “partners”.

The dead give away that I am not a partner is that I work for Kenricks, Bordeau, Adamini, Greenlee & Keefe, P.C.  By statute, our firm must include the abbreviation “P.C.” or the actual words “Professional Corporation” because our firm is a professional corporation and all professional corporations must have “P.C.” or “Professional Corporation” in their names.  See MCL 450.1283. Corporations have shareholders not partners.  Similarly, a “PLC” or a “PLLC” is a “Professional Limited Liability Company”, and it has members, not partners. MCL 450.4903.  I could give other examples, but you get the idea. 

The whole purpose of incorporating a business, creating a limited liability company or really any other business entity other than a partnership, is to avoid creating a partnership.  That is to say, the purpose is to limit liability.  Partnership law was originally formed by the common law, but since around 1917 Michigan has also had a Uniform Partnership Act, which defines a partnership as follows:

(1) A partnership is an association of 2 or more persons, which may consist of husband and wife, to carry on as co-owners a business for profit; any partnership heretofore established consisting of husband and wife only, formed since January 10, 1942 shall constitute a valid partnership.

(2) But any association formed under any other statute of this state, or any statute adopted by authority, other than the authority of this state, is not a partnership under this act, unless such association would have been a partnership in this state prior to the adoption of this act; but this act shall apply to limited partnerships except in so far as the statutes relating to such partnerships are inconsistent herewith.

MCL 449.6.  You can create a partnership without filing any paperwork with the state; all you really need to do is act as a partnership. Id.  The reason why most people do not want to be partners is because they want to limit their liability, and partners have very broad liability for partnership obligations and the wrongful acts of their partners. See MCL 449.13, 449.14, and 449.15.  Moreover, even if you are not a partner or there is no actual partnership, if you hold yourself out to the public as a “partner” with others, you and your so-called “partners” who consent to such statements or actions can be held liable as partners. MCL 449.16.  This is called partnership by estoppel. Id. 

What’s the point of this post?  Stop calling yourself a partner or saying you are acting in partnership with someone else unless you actually mean it.  That is to say, unless you want to be liable for everything your partners do, stop it.  I know from a marketing standpoint saying you’re a “partner” or that your business is in “partnership” with another is attractive, but it’s actually dangerous.  It could defeat the whole purpose of the actual Corporation, Limited Liability Company, or other entity you formed and are attempting to operate.  It could eliminate the liability shield the entity otherwise provides.

Don’t feel bad if you have made this mistake.  Many people have done it.  I have seen email signatures and business cards for, and bills and letterhead from, attorneys who called themselves “partners” when they are clearly not.  It’s one thing to adopt the nomenclature in conversation, but to so formally and publish it is another.  Stop it!

That’s My Argument… and you know that I’m right because I’m a partner!

© September 2014 Brandon J. Evans