How should a partnership agreement be structured to protect personal assets?
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How should a partnership agreement be structured to protect personal assets?
My wife and her partner want to open a dance studio. They are forming a LLC in the name of the studio. How should the partnership agreement between them outlining duties and responsibilities be structured? Is it between the LLC dance studio partners or them personally, to protect our homes and personal assets?
Asked on June 8, 2011 under Business Law, California
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 12 years ago | Contributor
Duties and responsibilities have almost nothing to do with whether someone incurs personal liability from an LLC. (The *almost* is because there are a very small number of debts which can attach to an LLC member or manager, such as for failing to remit certain taxes to the government; the responsible member may be liable.)
As long as they form an LLC and do not sign anything in their personal capacity, but only as members of the LLC/for the LLC, they should avoid the vast majority of debts. Of course, if they do personally guarantee anything--like a lease or a small business loan--but personally guaranteeing, they give up their protection from liability.
To be careful of: if they get "corporate" or "business" credit cards, the person(s) whose names are on the cards and to whom they are issued are still personally liable.
If they do anything tortious--e.g. run someone over while driving a corporate car to a business meeting--in addition to the company being liable, they can be personal liable, as the one committing the tort.
In addition to forming an LLC, having insurance is therefore a good idea.
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