How close do you need to work together to be legally considered liable partners? While it might be surprising to some, business law precedent dictates that partnerships can be determined not only by the paperwork that you file while declaring your business, but by the way in which that business is conducted.
The Precedent: Redfern Farm Services Ltd v Wright
In 2006, a precedent was set by a case between a Manitoba farm supply retailer and a family of farmers. The farmers, a father and his sons, each claimed to operate their farm separately from the others. They didn’t directly share profits, and each owned a separate parcel of the family land.
The problem, however, was their businesses assets. They pastured animals together, they jointly operated through each other’s accounts, and when their businesses were dissolved in 2004, the distribution of compensation and debt did not correlate in any way to the value of each individual business.
The farmers were found to have been running their businesses as a co-op, and were thus found jointly responsible for the debt accumulated by all three farms.
A Business Lawyer in Toronto Translates:
While we don’t have many family farms within the city limits, we do have a number of businesses who work closely together, particularly when the owners are close friends or relatives. Whether you’re using a joint account to get materials from a supplier or lending out floor space in a store to display a product, a little informal cooperation can potentially turn into co-operative shared liability if you aren’t careful about it.
Protect Yourself from Shared Liability
The easiest way to ensure that you aren’t legally found to have a partnership is to treat your interactions like a business. Have clear terms and agreements anywhere your businesses overlap. Don’t let debts, profits, or assets to exist without a clear owner. Use contracts, invoices, and paperwork to firmly keep your businesses separated to ensure that you won’t get saddled with joint liabilities or debt.
Consult With Your Toronto Business Lawyers
The best way to be certain that your businesses aren’t operating co-operatively within the eyes of the law is to consult with your Toronto business lawyer. We’ll be able to look at your partnerships and ensure that you are not left vulnerable to shared liability, as well as any number of other potential legal business dangers.
To schedule an appointment with our business lawyers, give us a call or book an appointment. If you have any questions about business law, or any other type of law, please feel free to submit a question through our Ask A Business Lawyer in Toronto.