Will You Be My Partner?  Understanding Oregon’s Partnership Law

Will You Be My Partner? Understanding Oregon’s Partnership Law

In the business context, it is common to hear business associates loosely refer to one another as “partners”.  We have all probably been introduced to someone by reference as someone else’s “business partner”.

In a legal sense, references such as these can be misleading to third-parties, incorrect, and dangerous.  Therefore, partnership references should be used only if they truly apply to your legal association with another business partner.  

In Oregon, “partnership” means an association of two or more persons to carry on as co-owners of a business for profit created under ORS 67.055 (Creation of partnership), predecessor law, or comparable law of another jurisdiction.  A partnership includes a limited liability partnership.

If a “partnership” is created, partners are generally jointly and severally and personally liable for the business of the partnership and share equally in its profits and losses.  This means, in layman’s terms, that two partners are on the hook for everything equally and individually and benefit similarly. In the absence of an applicable exception, partners are jointly and severally liable for all obligations of the partnership as set forth here in Oregon law: https://www.oregonlaws.org/ors/67.105   These can be a very big risks for partners.  Consequently, “partners” need to choose one another carefully.  And since a legal “partnership” can be created fairly easily, business co-owners need to begin such arrangements carefully and before deciding to actually begin business operations or hold themselves out as doing so publicly.

By law, partners also owe one another the fiduciary duties of loyalty and care in the operation and business of the partnership, which include: https://www.oregonlaws.org/ors/67.155 Consequently, risk and responsibility are created between partners once a partnership is created even if they have not sold any goods or services to the public.

Partners can alter some of these statutory obligations and liabilities by entering into a written partnership agreement with one another.  You can learn more about partnership agreements in Oregon here: https://www.oregonlaws.org/ors/67.042  Partners can also choose to form a limited liability partnership in order to limit the associated personal liabilities of any limited partners, but they must adhere to legal notice/filing requirements with the Oregon Secretary of State’s Office made pursuant to applicable law as set forth here: https://www.oregonlaws.org/ors/67.603

Once a legal partnership exists, there are also rules governing how to dissolve it and/or otherwise govern how one partner may disassociate from the partnership to avoid future legal exposure, if the partnership continues after one partner leaves the business.  All of these issues are complex. Although, it is highly recommended you review all of Oregon’s partnership law under ORS Chapter 67 to begin with here: https://www.oregonlaws.org/ors/chapter/67  , each partner should consult with her own legal counsel before considering doing business with another as a co-owner.  Depending on your situation, you may have better legal options by creating another type of business entity like a Limited Liability Company (LLC) to avoid some of the common pitfalls and liabilities associated with a legal “partnership”.       

So, when someone next asks you: “Will You Be My Business Partner?” please do not commit until you educate yourself about all of these related issues and consult with a skilled business attorney.

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