BREAKING UP Is Hard to Do.

• Author: MACEY, ERIC N.
• Position: Business partnerships - Statistical Data Included

Dissolving a business partnership can be acrimonious and full of legal pitfalls.

SAM is driving me crazy. He's never here when I need him. His golf handicap is definitely lower because he'll use any excuse to get a tee time. He's ignoring what we built together, and I'm stressed out picking up his slack. I love the guy, but it's over. What do I do now?

Sam isn't an uncaring husband or a wayward lover. He's your business partner, and business divorce--like its cousin, marital divorce--is neither pleasant nor predictable. It is a daily occurrence that most of us are familiar with-either from our own experiences or our families' or friends'. A substantial portion of businesses and business transactions are not driven by Corporate America. Rather, it is "Partnership America"--two or more people joining together to undertake a common venture with a sharing of the ups (profits) and, unfortunately for some partners, the downs (losses).

The reasons partnerships are so plentiful are obvious. With the exception of meeting licensing requirements, you typically don't have to file any type of registration papers with a government body to start a business. There are no formal reporting responsibilities to government agencies. Income tax planning is not difficult. Partnerships don't pay taxes; only the partners do. This is an advantage over corporations, which must pay income taxes (with some exceptions), and shareholders must then pay taxes on any dividends. Finally, you don't need a contract with your partner(s) to do business as a partnership.

Partnerships are everywhere, in all shapes and sizes. The country's largest law firms, the corner coffee shop or bagel store, major real estate investments owning some of the nation's priciest real estate, a home-based consulting business, interior decorators--you name it, there's probably a partnership doing it. While it's easy to get started (just like the marriage proposal and the great wedding with all those dreams), if the venture doesn't work out and you want to divorce your partner, things can start to get complicated--and expensive.

First, some basics about partnerships. These are not rogue entities outside the reach of the law like frontier outlaws. Partnerships are governed by state law. If you and Sam have been practicing as physicians in Pennsylvania, your partnership will be governed by Pennsylvania law. Most states have adopted the Uniform Partnership Act, which defines what constitutes partnerships, sets forth a few fundamentals on how they are run, and spells out the ground rules for divorce.

This isn't a lecture on partnership law, just a few insights on what you had better know before you get involved to lessen some of the often-disastrous consequences of a partnership breakup. The biggest problem is something called "joint and several liability." This simply means that you are personally responsible for all the debts and liabilities of the partnership, even if you never personally created them. Let's get back to Sam and...