I am not a lawyer, I am a Judgment Broker. This article is my opinion, and not legal advice, based on my experience in California. Laws vary in each state. If you ever need any legal advice or a strategy to use, please contact a lawyer.
A business partnership is an association of two or more people running a business with the goal of earning a profit.
A business partnership is considered to be one and the same as its owners. There may be little or no formality involved in creating a valid partnership.
The rules for determining the existence of a partnership are outlined in Part II of the Uniform Partnership Act (UPA).
Any profits pass through to the owners, and are divided according to what is specified in the partnership agreement.
As with a sole proprietorship, a partnership has only one level of taxation. A partnership is a tax-reporting entity, not a tax-paying entity.
While pass-through taxation is an advantage, owners of a partnership have unlimited personal liability. In general, each partner in a partnership is jointly liable for the partnership’s obligations.
Joint liability means that the partners can be sued as a group. Several liability means that the partners are individually liable. Joint and several describes multiple people or entities. Joint and several liability can apply to judgment debtors. An example would be Dan Debtor owes $10,000 and Rod RipOff owes $5,000.
In some states, each partner is both jointly and severally liable for the damages resulting from the wrongdoings of other partners, and for the debts and obligations of the partnership.
Three rules for partnership liability are:
1. Each partner is liable for their own actions.
2. Each partner is liable for most actions of the other partners.
3. Each partner is liable for most actions of the employees of the business.
Unless there is an agreement to the contrary, the UPA gives partners equal voting rights, even if they contributed different amounts of capital to the partnership.
As with the case of a sole proprietorship, if the partnership chooses a fictitious name (different from the names of the partners), it is required to file a fictitious business name statement in the county where it is located.
Partnerships must also register with either the Secretary Of State, or be registered locally, sometimes at the county superior court.
Partners owe both a contractual duty and a fiduciary duty to one another. According to Black’s Law Dictionary, a “fiduciary duty” is the “duty to act for the benefit of another person while subordinating one’s personal interests to those of the other person”.
Sometimes partnership operating agreements waive the fiduciary duty, so that partners can pursue other future opportunities.
What if you are a judgment enforcer, and the original judgment creditor is a general partnership that has dissolved? Can their judgment be recovered if you find one of the previous general partners?
The bigger problem to consider, is does the judgment debtor have any available assets to satisfy the judgment? Check that first, because that is the most important factor in any judgment recovery attempt.
Anyone who is still authorized by the old partnership agreement, can assign the partnership’s judgment to you.
The partnership agreement for a partnership, is similar to the bylaws of a corporation. The partnership agreement defines who can manage the affairs of the partnership, and who has the authority to get things done.
The most certain way to know if a person has the authority to assign a partnership’s judgment, is to get a copy of the partnership agreement and read it, and see for yourself if that person is authorized.
A potential problem with doing something as simple as looking at an agreement and agreeing that someone is authorized (if you are not a lawyer) might be close to giving legal advice, which might be an Unauthorized Practice of Law (UPL).
Any person still vested with the power to assign anything of the partnership, (e.g., insurance policies, leases, rights to subrogation) may assign a judgment the partnership owns.
Ideally, the partnership would still be active, so they can easily assign their judgment to you. It is best to have all signatures sign your purchase agreement and your assignment of judgment.
If they are not active, the safest way to proceed, is to have the member who claims they have the authority to assign a judgment on behalf of the partnership, put that in writing, and sign and notarize it, and give you a copy.
If you recover their judgment, who do you pay? One option is to make the check payable to the partnership.
Another option, is to have the creditor partnership draft a document where the person who assigned the judgment to you, gives specific instructions as to whom the partnership’s share of a judgment recovery is to be paid, and in what pro-rata amount.
If you owe a partnership money, and there are no instructions, you can pay each of the partners a pro-rata amount equal to their percentage share of ownership specified in the partnership agreement (or the latest amendments to it).
Some judgments list more than one person as owing $10,000 jointly and severally. That means you might be able to recover a total of $10,000 (and possibly some costs and interest) from any of them, or part of that from more than one person, however the most that can be recovered is that amount. Sometimes judgments specify one person owes $10,000 and the other owes $5,000 with no overlap. In that case, you could recover that amount from each debtor, for a total of $15,000. In multi-party judgments, most creditors go after the party with the ability to pay the fastest.