'Howdy, pardner': meet the business partner you didn't know you had.

• Author: Spendlove, Gretta
• Position: Legal Briefs - Documenting partnerships

"BUT I DIDN'T REALIZE ..." is a phrase lawyers hear over and over. One thing many businesspeople don't recognize is the high cost of failing to document partnerships. You may find that you're a member of a partnership you didn't realize existed, or Mute for debts you didn't think were yours.

What is a Partnership?

Under Utah law, "a partnership is an association of two or more persons to carry on as co-owners of a business for profit." There is no requirement that the partnership agreement be filed with the state, or even that it be in writing. While limited liability companies, corporations and limited partnerships are created by filings with the Utah Department of Commerce, general partnerships can be created "by default"--when a business relationship exists without written documentation. The Utah general partnership statute includes few guidelines for determining when a partnership has been created. The court or jury just examines all the facts, trying to intuit the parties' intentions and agreement.

Businessmen sometimes say, "But it wasn't a partnership--just a joint venture." However, joint ventures are specifically governed by Utah's partnership laws.

Mistakes People Make--the Liability Issues

"Without written agreements, people end up paying for someone else's liabilities," says Salt Lake City certified public accountant Mary Kay Griffin. "The person with the most money may not have intended to become a guarantor of all the company debts, but that's what happens when the business goes down. Sometimes, the money that is required is that persons retirement."

People who do business through limited liability companies and corporations can protect their personal assets from being taken by company creditors. However, if the assets of a general partnership are not sufficient to pay its debts, a creditor can take the partner's house, car or investments. That doubles the risk of entering into a partnership casually or unwittingly.

"So often, people just don't focus on the details of a business investment,"...