This is a continuation of the series of blogs describing basic forms of business entities that artists and businesses use to conduct their professional activities. I first described Sole Proprietorships in the previous blog. The second major form of business entity is a Partnership.
A Partnership is an association of two or more persons or entities that conduct a business for profit as co-owners. I have had many clients fail to understand that they are doing business as a partnership and therefore subject to all of the laws governing partnerships, including state partnership acts. If you are in business with someone other than yourself (a band, a duo, or any business owned by more than one person or entity), if your purpose is to make a profit, if you have not incorporated or formed an LLC—well then what you are doing looks like a partnership. If it looks like a duck, walks like a duck and quacks like a duck—then chances are it is a duck! And if it looks like a partnership, walks like a partnership and quacks like a partnership—then chances are it is a partnership. It doesn’t matter what you call it—if you are doing business in a manner that meets the legal definition of a partnership then you are a partnership. So what? Well, you are governed by the laws of partnership—that’s what. Except in Louisiana, a partnership is traditionally viewed as an association of individuals rather than as an entity with a separate and independent legal existence. A partnership cannot exist beyond the lives of the partners. The partners are taxed as individuals and are personally liable for the debts of the partnership. Each partner can legally bind the partnership to legal obligations.
So if one of your partners goes out on his own and purchases a new PA for the band, the partnership is liable for the purchase price. Or—if the seller of the PA cannot collect from the other band members he can collect the entire price from you (maybe you are the only partner who has money). Hopefully you can get reimbursed by your partners, but as between you and the seller, you have to pay it all. That is the law of partnership—the partners are jointly and severally liable for the debts and other obligations of the partnership. Partners also own partnership property equally. If you are operating a business as a partnership it is strongly suggested that you meet with your entertainment attorney and accountant to discuss whether or not you should form a corporation or LLC. If not, then, at a minimum, if you are going to remain a partnership consider having a written partnership agreement. There are many provisions of the partnership laws that can be changed or modified by a written partnership agreement. And there are other matters that should be included in the agreement. For example: What is each partner’s percentage ownership of the business? If the partnership ends, who owns or can use the name in the future? How does one remove a partner from the business? Are their any restrictions on a partner selling his or her partnership interest to someone else? These are serious matters which should be resolved in advance.
In the entertainment business we hear a lot about “joint ventures”. A Joint Venture is a cooperative business agreement or partnership between two or more parties that is usually limited to a single enterprise and that involves the sharing of resources, control, profits, and losses. InTennessee, a joint-venture is treated as a partnership and, thus, the laws of partnership apply. The reason is that it looks like a duck, walks . . . er . . . you know the rest.
[As in most matters legal, some states may have modified by statute the general laws of partnership so you should consult an attorney before acting on any information given in this blog.]