– James (California)

Partnerships are common in the horse industry. However, these arrangements can generate problems, such as:

*      The trainer might buy an expensive horse trailer in the name of the partnership and both partners could be personally liable to pay for it if the partnership has no money of its own.

*      While the trainer is working with one of the partnership’s horses, someone might get hurt. Even though he never trained a horse and even if he is miles away from the accident, James can be sued merely because he is a partner in the business.

*      After the trainer has invested months, if not years, training the partnership’s horses, James might want to call off the deal and take away the horses he bought, giving the trainer nothing for her efforts.

This article discusses equine partnerships, risks, and how carefully worded contracts can help avoid trouble.

What is a Partnership?

Here are three of the most common forms of partnerships:

*      General Partnership

In the eyes of the law, you create a general partnership if you and at least one other person carry out a business activity together. As one reliable legal source (the Uniform Partnership Act) puts it, a general partnership is “an association of two or more persons to carry on as co-owners of a business for profit.”

*      Joint Venture

A joint venture is a type of partnership that is created for a limited or specific purpose. Joint ventures are sometimes established around breeding stallions, in which two people agree to promote a stallion to the public and share income from stud fees. Basic partnership law typically governs joint ventures.

*      Limited Partnership

Limited partnerships are much more complex than general partnerships. They involve two kinds of partners – general partners and limited partners. General partners typically manage the partnership’s business, while limited partners do not. Unlike general partners, who face unlimited personal liability for the partnership’s unpaid debts and obligations, limited partners only stand to lose what they invested in the partnership. Limited partnerships require special contracts and special filings with the state. They might also be subject to complex federal and state securities laws.

Risks

The biggest risk general partnerships present is that each partner is personally and individually liable for the partnership’s legal obligations. This means that if the partnership cannot pay its debts and liabilities, the individual partners must pay. In the example above, the partnership would likely be bound by the trainer’s horse trailer purchase because it was made within the course of the partnership’s business. If the partnership has no money to pay for the trailer, the trailer seller can seek the money from the personal assets of both James and his trainer. Also, in the example above where a partnership horse injured somebody, both partners can expect to be sued. And, if the injured person were to win a judgment, each partner would be individually responsible for paying it if the partnership had insufficient assets or insurance.

Benefits of a Written Agreement

Of the many reasons why written partnership agreements are helpful in the horse industry, here are two. First, the contract can confirm that a partnership exists. This could be helpful, for example, to a riding instructor who considers her assistant an employee, while the assistant thinks he is a business partner. It could also help the horse trainer who believes he is in partnership with his client when the two strike a deal to waive training fees in exchange for a share of the profits when the horse sells. Second, a well-written partnership contract, unlike a handshake deal, clarifies the terms of the agreement such as a partner’s authority to buy a costly trailer, how ongoing expenses (such as veterinary bills) will be paid, or who will purchase liability insurance to protect the partnership and its partners.

Possible Elements of a Written General Partnership Agreement

Written contracts for a general partnership can include, at a minimum, the following elements:

*      Purpose and location of the partnership
*      Names of the partners
*      What (if anything) each partner must contribute to the partnership’s business and expenses, now and in the future
*      Percentage ownership of each partner
*      Who will manage the partnership’s business (such as the paperwork)
*      Limits on what each partner can or cannot do
*      Insurance the partnership must buy
*      When, or if, partners can receive profits from the partnership
*      How profits and losses will be allocated between the partners
*      How the partnership can terminate
*      How, or if, one of the partners can be removed
*      Whether, and how, other people can join the partnership
*      How the partners will resolve disputes

This article does not constitute legal advice. When questions arise based on specific situations, direct them to a knowledgeable attorney.

About the Author

Julie I. Fershtman is an attorney with 19 years of experience who gets results for her clients. In 2004, alone, she won 3 jury trials, 2 appeals, and a major federal court case, all on equine-related cases. An independent lawyer rating service gives her its highest rating. She can be reached at (248) 851-4111, ext. 160.

Protect yourself by reading Ms. Fershtman’s books. In plain and simple language you will learn how to avoid legal disputes. MORE Equine Law & Horse Sense, sells for $22.95 + $5 shipping and handling, and Equine Law & Horse Sense sells for $17.95 + $5 shipping and handling. Order both books together for $42.90, first-class shipping included. Michigan residents add 6% sales tax. To order, call Horses & The Law Publishing at 866- 5-EQUINE, a toll-free number. Or, mail check or money order to Horses & The Law Publishing, P.O. Box 250696 Franklin, MI 48025-0696.