Monday, 15 October 2018

Shipping Goods and the 30-Day Rule

Shipping Goods and the 30-Day Rule

If your business plans to ship products to customers, you need to be aware of the Federal Trade Commission’s (FTC) Mail, Internet, or Telephone Order Merchandise Rule. Better known as the 30-Day Rule, it governs the manner in which businesses fulfill orders that are to be shipped. Basically, the rule is meant to ensure consumers that their goods will be shipped in a timely manner while also leaving a reasonable amount of flexibility for businesses.

The 30-Day Rule for Shipping Goods

The 30 Day Rule requires that when a business advertises shipping its goods within a certain time frame, the business must have a reasonable basis for stating so. If you don’t make a statement regarding shipping time, you must ship within 30 days–thus, the 30-Day Rule. The 30-day window begins when the business receives a completed order and payment.

If the business is unable to ship within the promised time or within 30 days, the merchant must promptly tell the customer by mail, telephone or email, and give a new shipping estimate and give the customer a chance to cancel their order and receive a full refund. This offer to cancel or accept the new shipping date must give the customer sufficient time to make a decision. In other words, you can’t call to inform a customer you can’t make a shipping time and then demand an immediate answer.

If you don’t wish to ask the customer whether you can delay the order, you can cancel the order yourself and give a full refund within the time period shipping was promised. All refunds that are forced by shipping delays must be full refunds, and not credit for future purchases.

Who Is Covered by the 30-Day Rule?

The 30-Day Rule applies to goods the customer orders by:

  • Mail
  • Telephone
  • Fax
  • Internet

Shipping Advertising and the 30-Day Rule

The 30-Day Rule focuses solely on the method of ordering. It doesn’t matter how the product is advertised or who initiates the sale. If a customer orders by any of the above methods, the shipment is covered by the Rule. The only exception would be a situation where a customer orders a product and the business sends the product along with an invoice that’s payable on receipt. In this situation, the 30-Day rule does not apply, however, if you’re still unreasonably slow in delivering such goods you may be in violation of FTC rules against deceptive advertising.

The Credit Exception

If you have customers who order merchandise through in-house credit (that is to say, your business is offering a line of credit), then you get an extra 20 days to send the merchandise. This means you have 50 days total to ship the goods (the extra 20 days is for approval of their credit).

However, if you’ve advertised a time frame within which customers will receive their merchandise, then you must ship within that stated time, even if you have to approve their credit. By stating a time frame, the business is assumed to have taken the credit approval process into account. So be careful of what you promise and make sure you can deliver.


The FTC has wide ranging powers to enforce the 30-Day Rule. Businesses can be sued by the FTC for injunctive relief, damages of up to $16,000 per violation, and redress for the consumer. Additionally, state and local agencies can sue you for violating consumer protection laws.

Using Drop Shipping Services

Drop shippers are distributors who hold a retail business’ inventory and ship goods to customers once the retailer has made a sale. Drop shippers can be the manufacturer or another business that provides storage and shipping services. Drop shippers receive a sales order from a business and then ship the product directly to the customer, often using the business’ address or packaging.

Many online stores that don’t have brick and mortar buildings (e.g., Amazon) utilize drop shippers, and more small businesses are utilizing drop shipping services.

The Retail Business is Still Liable for Violations

Although drop shipping is an extremely useful service (a business doesn’t have to keep an inventory on hand), the retail business is liable if there is a violation of the 30-Day Rule. According to the FTC, the person or business that solicits the order, and not the agent who does the shipping, is responsible for on time delivery.

The FTC will look at certain factors when deciding whether to take action against a seller that uses a drop shipper who has failed to deliver as promised or within 30 days. The FTC will investigate:

  • Whether the business made all reasonable efforts to prevent violations, including contracting with the drop shipping company to make sure it complies with the 30-Day Rule and monitoring customer complaints.
  • Whether the violations where unforeseeable and beyond the seller’s control.
  • Whether the seller took immediate action once a violation was discovered and moved to remedy harm to the customer.

The seller is the one who controls the sale and maintains control over the actions of the drop shipper, and therefore is ultimately liable for delivery. Therefore, businesses must take care in choosing their drop shipper as well as taking steps to minimize potential problems.

Free Initial Consultation with an FTC Lawyer

When you need help with an FTC matter or other business law case, call Ascent Law for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

What is a Non-Disclosure Agreement or NDA?

What is a Non-Disclosure Agreement or NDA

Information is power, which is why people often go to great lengths to protect it. In the wrong hands (at least from the perspective of the party that wants to protect it), certain information can erode the competitive advantage of a business, ruin reputations, sink political careers, or violate someone’s privacy. Non-disclosure agreements, or NDAs, are legal agreements compelling a named party to keep quiet about a stated piece of information, whether it’s a company’s trade secrets or a politician’s sordid extramarital affairs.

NDAs are quite common in the world of business, particularly with respect to employees, partners, and intellectual property (or trade secrets in general). But they can be used in a variety of settings and generally serve the purpose of holding the subject of the NDA financially liable for disclosing certain information.

Simply put: If you disclose something after signing an NDA that prohibits you from doing so, you may be sued for damages. But there may be instances where the non-disclosure agreement is unenforceable. This article provides an overview of non-disclosure agreements, when they’re used, and what makes NDAs enforceable.

What is a Non-Disclosure Agreement Good For? 

As long as the subject of an NDA is not being asked to keep quiet about illegal activities, these agreements can be used for any number of purposes where the subject’s silence is desired. Common uses of an NDA include, but are not limited to, protection of the following:

  • Intellectual property shared with business partners, employees, contractors, etc.;
  • Discussion of a novel invention or business plan with a prospective investor or partner;
  • Certain trade secrets (such as competitive strategies and sales leads) specific to a business entity;
  • Knowledge of a consensual sexual affair or other legal, but potentially embarrassing, information; and
  • Knowledge of patients’ laboratory results by lab workers.

Elements of a Non-Disclosure Agreement

Non-disclosure agreements may be one of two basic types: either mutual or non-mutual. A mutual NDA holds both sides of the agreement responsible for not disclosing a given piece of information, while a non-mutual NDA is used to protect disclosure by just one party. But regardless of the type, all NDAs must include the following five elements:

  1. Parties to the agreement (the “disclosing” and “receiving” parties);
  2. Identification of the information deemed to be confidential;
  3. Scope of the confidentiality agreement (specific requirement, such as not disclosing the information to other business interests);
  4. Specific exclusions from confidentiality requirement (such as information already known to the public or independently known to another party without reliance on disclosure from the subject of the NDA); and
  5. Term of the agreement (how long the NDA lasts, typically two to five years).

Other provisions that may be added to an NDA include the designation of jurisdiction in case there is a dispute or the right to injunctive relief if necessary (i.e. the ability to stop the discloser from disclosing, in addition to liability for the disclosure).

Are NDAs Enforceable?

While it’s possible to sign an invalid non-disclosure agreement believing it to be valid and to fully comply with its terms, the true test of its validity comes when one of the parties tries to enforce it. This is why the validity of an NDA is framed in terms of whether it’s actually enforceable should the receiving party (the party agreeing to not disclose certain information) breach the agreement. So in order to understand when NDAs are enforceable, it helps to first consider when they are unenforceable.

Attorneys may challenge the enforceability of an NDA in any number of ways, but here are some of the most common challenges:

  • Terms of Agreement are Overly Broad: An NDA must be reasonable, the criteria for which may vary by jurisdiction; courts may not enforce an NDA they consider to be overly burdensome, vague, or otherwise unreasonable.
  • Failure by the Discloser to Maintain Secrecy: If the party seeking to enforce the secrecy of a given piece of information fails to safeguard it on their end, and a breach occurs, the NDA may not be enforced.
  • Disclosure to Third Parties: If the receiving party discloses protected information to a third party, the NDA may not be enforced against the third party; disclosing parties often remedy this by including provisions requiring NDAs between the receiving party and the third party prior to disclosure.
  • Jurisdiction and the ‘Inevitable Disclosure’ Doctrine: If a disclosing party seeks to obtain an injunction against a breach by the receiving party, it may be denied by the inevitable disclosure doctrine (i.e. the information would have inevitably been disclosed, regardless of the receiving party’s actions). This varies by state law.
  • Damages Difficult to Quantify: How much is your reputation worth? Was a particular trade secret really that valuable to the company? These are difficult questions to answer and may make it difficult to calculate actual damages when attempting to enforce an NDA.

Additionally, any of the general reasons that a contract may be unenforceable also apply to NDAs. These reasons can include not having the capacity to contract (due to such factors as age or mental impairment); undue influence or duress; unconscionability; attempting to protect information about illegal activities; or a mistake by one or both parties.

Free Consultation with a Utah Business Lawyer

If you are here, you probably have a business law issue you need help with, call Ascent Law for your free business law consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Sunday, 14 October 2018

Debt and Divorce

Debt and Divorce

Divorce calls for couples to divide their property during divorce. It also requires division of debt.

Research suggests disagreements about money are the leading predictor of divorce in the United States. Arguments about money can sour a marriage and make divorce difficult. When money is an issue during marriage, debt is oftentimes involved.

Common forms of debt carried by many couples include:

  • Credit cards
  • Mortgages
  • Home equity loans
  • Car loans
  • Tax liabilities
  • School loans

In Utah, assets and liabilities are subject to equitable distribution. Just as value acquired by a couple is part of their marital estate, so is debt. Questions arise when debt is incurred from gambling, secret investments or the use of marital funds to support an extramarital affair.

Typically a couple may have a joint account or separate credit cards used for personal and household expenses. Unless it can be otherwise shown, this type of debt is often equitably divided.

If you have debt and are considering divorce, think about the following steps:

  • Try to eliminate as much debt as possible prior to divorce. It is easier to get a fresh emotional and economic start after divorce if you are not saddled with debt.
  • Close joint checking accounts at the outset of divorce.
  • Close unused credit card and other unneeded accounts.
  • Depending on your long-term objectives, speak with your divorce attorney about reducing your debt load during negotiations for marital assets.

Divorcing Later in Life

Divorcing after many years of marriage is a growing trend with some statistics indicating that the rate of divorce for people over the age of 50 has doubled since 1990. There is even a name for this new trend: gray divorce.

Divorcing later in life can bring a complicated set of circumstances into the process. As people grow older, they often face financial stresses. Divorce places even more of an economic burden on a separating pair who must now run two households instead of one. Emotional ties to a home may make dividing the value of this asset difficult. Significant debt or mortgages can complicate matters.

Children may be grown, so custody will not be an issue, but issues such as health insurance can be a problem for couples who are not yet old enough to receive Medicare. Sometimes couples may agree to live apart pursuant to a Separation Agreement to avoid the expense of health insurance, or the effects of taxes.

Many later-in-life divorces involve a high net worth that calls for a detailed valuation of assets. Businesses grow over time and become more valuable. Retirement accounts and stock plans can increase significantly as the years pass.

Typical items to be divided include:

  • Home and other real estate
  • Trust accounts
  • 401(k), Keogh plans, pensions and other retirement plans
  • Businesses
  • Bank and stock accounts
  • Profit-sharing agreements
  • Investments
  • Off-shore or foreign bank accounts
  • Significant collectibles or other personal property

How a Child’s Preference Affects Custody

A child’s preference for living with a parent can affect custody decisions in many states, including Utah. However, while most judges will consider a stated preference, they are still obligated to rule in a way that protects a child’s best interest.

Judges have a great deal of leeway when they make custody decisions. Among the factors they may consider are:

  • Custody preferences of each parent
  • Child’s custody preference, but only if they are old enough to fully comprehend the implications of their choice
  • State of a parent and/or child’s physical and emotional health
  • Perceived stability and resources offered by each parent
  • Potential impact on home and social life, including school and community participation
  • Whether or not parents desire to help sustain a relationship with the other parent
  • History of domestic violence, if applicable

Although all of these issues are generally considered, the safety of the child is of primary importance in a custody decision.

What’s more, while the desire of the child is always taken into account, the older a child is the greater consideration a preference is given. If a child is 13 years of age or older, their preference is given greater weight since they are considered to be more independent and less likely to be manipulated in their choice. Additionally, siblings are typically kept together, although a judge may separate them if he or she believes it to be in a child’s best interest.

In most cases, children are not compelled to testify in court about their desires to live with a particular parent. Sometimes a law guardian is appointed to interview the child and identify his or her needs and desires, or an “in camera” interview is conducted which records the interview that is later transcribed.

Free Consultation with Divorce Lawyer in Utah

If you have a question about divorce law or if you need to start or defend against a divorce case in Utah call Ascent Law at (801) 676-5506. We will fight for you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Saturday, 13 October 2018

Who Gets Retirement Accounts After a Divorce?

Who Gets Retirement Accounts After a Divorce

Whenever couples get divorced, they go through the process of dividing their marital assets. These assets include any retirement accounts that were created during the time the couple was married. In some cases, retirement accounts could potentially be among the most valuable components of the overall estate, which means they can become a focus of divorce disputes.

Retirement accounts could include any of the following:

  • Savings accounts that were established during the course of the marriage
  • Pension benefits that were earned during a marriage
  • Other retirement assets like IRAs, 401(k)s, thrift savings plans, stock options, annuities and other benefit and contribution plans.

However, not all retirement accounts are automatically counted as being marital property. Any accounts acquired before the marriage or received by gift or inheritance do not count as marital property, nor do accounts excluded by prenuptial agreements or payments made toward 401(k)s before the marriage began.

In determining who gets what accounts or benefits after a divorce, whether the account was marital property or not is the largest factor. In most cases, the benefits will be subject to an “equitable split” between the two depending on the same kinds of factors that are used to determine any kind of marital property division, including income and overall need. But those accounts and benefits that were not marital property will stay solely in possession of the owner, the person who initially opened those accounts.

Handling Custody When the Parents Aren’t Married

Negotiating child custody arrangements between parents can be one of the most contentious areas after a divorce. Likewise, unmarried parents often have to confront the same set of complicated issues about the care and welfare of their children when they separate, including determining living arrangements, obtaining child support and setting up a visitation schedule.

Special considerations

Because unmarried legal parents of a child — whether they are biological or adoptive — do not divorce when they split up, they are sometimes able to create their own plans regarding the care of the child without the involvement of the courts. For many, this can work well as long they remain flexible and sustain open communication.

One essential element is to ensure that both parents can be present in their children’s lives and that they both remain responsible for their upbringing, including sharing the financial burden. Alternatively, in many states, separating couples propose their own arrangements to a judge who either approves them or requires modifications in terms of sharing custody and providing support.

The benefits of legal assistance

Although arrangements may often be made without the intervention of a family court, this does not hold true if the physical or financial needs of the child are in jeopardy — or if a once-amicable agreement has deteriorated. In this case, involved parties will often need to consult a lawyer to resolve key shared parenting issues, and if they are unable to create a satisfactory agreement, they may have to attend mediation sessions. Courts may also order subsequent modifications or additional support, and are never bound by agreements they deem inadequate.

Free Consultation with Divorce Lawyer in Utah

If you have a question about divorce law or if you need to start or defend against a divorce case in Utah call Ascent Law at (801) 676-5506. We will fight for you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ten Ways to Market Your Business

Ten Ways to Market Your Business

The way you market your business is as important as the quality of your company’s products and services. Savvy business owners (small business owners, medium sized owners, and big business owners) know that marketing a business effectively doesn’t require a massive advertising budget. Many smart and experienced business lawyers will tell you its not so much the quantity, but the quality. There are also the 3 M’s, which are the message to market must match.

You will need to set aside some money in your budget, but the most effective marketing consists of direct referrals, networking directly with your target customers, and creating an online presence (such as a website and social media participation). A huge advertising blitz isn’t always the right choice, but every business can benefit from a comprehensive marketing plan.

  1. Build a Great Website

Prospective customers search the internet when choosing what service or product to purchase. A professional presence on the web is important for driving consumers through your doors. A simple, easy to navigate site is perfect as long as it’s not a bare-bones site. Project professionalism and quality through your website. And avoid playing hide and seek with prices by being up front about what a customer can expect from your products and services.

  1. Optimize Your Company Website

In addition to building a business website, you will want to optimize it for search engines. Search engines such as Google and Yahoo use complex algorithms to match certain search terms with search results. By continually optimizing your site, you can assure that your business pops up near the top of searches. For example, if someone types in “beauty salons in Albany”, and your site is optimized for those keywords, your business can be near the top of the search results.

  1. Consider Social Media Publicity

The internet is a place where people talk and are talked about. With the emergence of social networking applications that allow customers to rate businesses (such as Yelp), Facebook — where companies can build pages and have “fans”, blogging, and microblogging — there is a virtual guarantee that your small business may be the topic of a tweet, a comment, or a blog post. When marketing a small business, consider being active on social media avenues, and weigh out any concerns regarding privacy. If you do forge ahead, be sure to maintain professionalism.

  1. Encourage Word of Mouth Referrals From Existing Customers

The best, and cheapest, form of marketing a small business is from the mouths of your current customers. People trust their friends’ opinions over an advertisement in a newspaper, radio, or television and you should take advantage of this built-in marketing tool. Offer customers discounts on future purchases for each new customer they refer.

  1. Target Your Customers and Understand How to Reach Them

Understanding your target audience is critical to getting the most value out of your marketing dollar. Taking an ad out in a major newspaper may get you little response, while reaching out to an influential blogger or listing in a local circular may net you greater value. If you own a restaurant, it makes sense to create relationships with local reviewers, critics, and “foodie” websites and bloggers. A simple investment of your time can net big results if you know where your target customers congregate or what they read.

  1. Use the Press to Get the Word Out

If you have a compelling story, use it to full effect. Get the word out to a local media source and they may feature your business in an article or television segment. Even if you don’t’ believe your story is worthy of a news story, make an effort to stay friendly with local media sources and they may remember your business when they do a related piece.

  1. Be Passionate About What You Do

Your enthusiasm for your business will drive more business your way because customers are naturally drawn to those who love what they do. You define your business in the way you conduct yourself in day to day operations. Marketing a small business is only as strong as the product and people in the business, and projecting passion and professionalism is essential in successfully connecting with potential customers.

  1. Survey and Follow-Up with Your Customers

The best way to understand what your target customers want is to go directly to the source. Find out why they come to your business, what products/services they like the most (and which they dislike), and anything they would like to see more/less of in the business. By doing this, you can cater to your customers and learn how to best market yourself to the rest of the public. You should also keep a database of customers so that you can follow up on their experience in the store and keep them updated on sales, discounts, and new services or products you’re offering.

  1. Be Wary of Branding Based on Price

While consumers are sensitive to pricing, by advertising your business as the lowest price, it’s essentially a race to the bottom and there will always be someone who’s willing to go even lower. As an alternative to proclaiming how “cheap” your products or services are, focus on the value customers will receive. By equating your business to quality and value for the dollar, you can better insulate your business from competitors who undercut your prices.

  1. Referral Exchanges with Related Businesses and Promotional Events

You can kill two birds with one stone by creating relationships with neighboring or related businesses and increasing customer awareness through cross promotional advertising or events. If you own a beauty salon, you might approach a neighboring bar or restaurant to host a happy hour event with them providing food and you providing an attractive, young clientele and free samples of your products or discounts on a future visit. Businesses that aren’t in direct competition can help each other enormously by working in conjunction.

There are many different ideas for effectively marketing a small business, but remember that it starts with a great product, a passion for the business, and building upon your network of existing customers. It’s called a customer base for a reason — a successful business builds upon it.

Free Consultation with a Utah Business Lawyer

If you are here, you probably have a business law issue you need help with, call Ascent Law for your free business law consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Friday, 12 October 2018

Fraudulent Transfers in Divorce

Fraudulent Transfers in Divorce

A fraudulent transfer is a transaction one person makes to frustrate another person’s legitimate claim to an asset. In divorce, fraudulent transfers occur when one spouse deals away property he controls to prevent the court from counting it and distributing it to the other spouse.  Fraudulent transfers are illegal, of course, but they can be tricky to discover and difficult to “unwind.” However, a spouse with a legitimate claim to a transferred asset can compel even a good-faith recipient to return the property.

For example, a husband anticipates that his wife is going to file for divorce. They’ve discussed selling a vacation cabin that he bought with marital assets, so he figures a quick sale won’t raise any red flags. He makes the sale for roughly what he paid for it back in the day, but significantly less than current market value.  The buyer is a prospective client, who is so happy with the deal that he signs a big contract with the husband’s company.  The husband’s also happy, because the profit he made from the sale — his deal with the client — won’t come through until after the divorce, so he won’t have to share any of the proceeds with his wife. That is, unless she finds out.

Because the husband originally bought the cabin with marital assets, the cabin itself is part of the marital estate, so all proceeds from the sale go into the marital estate for equitable distribution. But the proceeds of the sale don’t tell the whole story.

If the wife discovers that the sale of the cabin was for below market value and was motivated by the husband’s desire to cheat her out of marital property, she can allege fraudulent transfer. If the court agrees, there are three possible remedies:

  • The court will impute the market value of the house to the transaction and hold the husband responsible to the wife for the shortfall.
  • The court will consider the new business contract as part of the marital estate and order those profits to be split with the wife.
  • The court will void the sale to the client and return the cabin to the marital estate for equitable distribution.

The court will rarely unwind a transaction to a good-faith buyer if there is another way to compensate the defrauded party. But transactions to close friends or family members who are co-conspirators can be voided depending on the totality of the circumstances.

Should You Move Out of Your Home During a Divorce?

There are a lot of potentially stressful issues that you will encounter during your divorce, not the least of which is the choice of whether you should move out of your home during the process. Your home could possibly be your most valuable asset, and you have likely built up a lot of sentimental attachment to it as well.

So what are some things that you should consider when deciding whether to move out?

  • Your personal comfort and safety. If you believe that you would be in any danger by staying in your home, the choice is a no-brainer — get out as soon as you can, and take your children with you. If you are concerned about domestic violence, there is also the option to ask a judge to order your abusive spouse to move away. If the issue is simply that you are uncomfortable and that continuing to live together with your spouse would pose some challenges, then you need to consider potential custody and property arrangements.
  • Child custody. The primary custody-related dilemma is that if you move out without your children, your ex could portray the situation as you causing a disruption in their lives. You can avoid potentially being penalized by writing down a parenting agreement before either parent moves out, with a clear-cut schedule and an agreement that neither parent is giving up custody rights. You can also ask the courts to create such a schedule if you and your spouse cannot come to an agreement.
  • Property concerns. Who will get the house after the divorce? As soon as you leave, your chances of keeping the property significantly decline. However, another major factor in determining who gets the house is the financial standing of each spouse. Higher-earning spouses that move out will still be expected to pay some household expenses, but even then, the lesser-earning spouse may not have enough money to hang on to the home.

Free Consultation with Divorce Lawyer in Utah

If you have a question about divorce law or if you need to start or defend against a divorce case in Utah call Ascent Law at (801) 676-5506. We will fight for you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

General and Limited Partnerships

General and Limited Partnerships

After the entity known as a sole proprietorship, general partnerships are the easiest type of business structure to form. Unlike corporations or limited liability companies (LLC), partnerships have no formal requirements or paperwork that needs to be filed. All you need to form a partnership is a business and a sharing of profits (there’s no such thing as a non-profit partnership). If you are considering starting a business in Utah, or if you already have a business venture going, you really should make sure that you have a business lawyer in Utah. Partnerships are a unique business relationship because they are so easy to form, and, as you’ll see below, potentially difficult to manage and dissolve.

Types of Partnerships

There are three types of partnerships that businesses can choose — general, limited or joint venture. In a general partnership, the partners equally divide management responsibilities, as well as profits.

Joint ventures operate as general partnerships, but are specifically formed for a limited purpose or a single project. If, however, the joint venture is repeated, it may be labeled a general partnership, at which point it must follow the rules for dissolution of a general partnership.

Small Business Partnership

In a limited partnership, there are managing partners and limited liability partners (who are essentially passive partners who just invest money). The managing partner(s) manage the business and assume all liability from the success or failure of the business, while the limited partners can only lose the money they invested. Limited partnerships are more complex and generally require paperwork that formally recognizes the structure.

For this article, we’ll focus on general partnerships, as they are the most common, with a few references to limited and joint venture partnerships, where relevant.

Utah Partnership Basics 

Because partnerships are so easily created, you’ll want to choose your partners carefully and, wherever possible, enter into a partnership with a written document that guides the behavior of all parties. Without a written agreement, partners are required to follow certain rules for partnerships.

Another reason to choose partners wisely is that all partners share equal authority to bind the partnership to business deals and debt obligations.

Liabilities to Creditors

Probably the most important thing to know about partnerships is that owners are personally liable for all of the partnership’s obligations. Creditors can go after the partners’ personal assets, including bank accounts, cars, and homes. It is a frightening proposition and is the main drawback to partnerships.

There is an exception to personal liability in the case of limited partners, who have only invested money into the partnership. Limited partners must file a limited partnership certificate that includes the names of all general partners. Without such a document filed, even if the intent by all parties is to have general partners who run the business and limited partners who only invest money, the limited partners may still be personally sued by creditors.

Any debt that is owed to creditors can be collected from a single partner. The legal term is joint and several liability, and it means that each partner is individually responsible for the entire debt. It’s a legal method that prevents passing the buck between defendants (or, here, partners). Of course, if one partner does end up paying for the entire debt, he can sue the other partners to collect his fair share.

Responsibilities to Other Partners

As in any marriage, you owe certain duties and bear responsibilities to your partner(s). These responsibilities include:

  • a duty of loyalty and fiduciary duty
  • equal profit sharing (unless there’s an agreement that says otherwise)
  • equal control and no salary (unless there’s an agreement)

The fiduciary duty and duty of loyalty that all partners owe each other simply mean that a partner must act in the best interest of the partnership and can’t act primarily to enrich himself. Partners must provide a proper financial accounting of their actions, and the partnership can sue individual partners for any financial wrongdoing.

Partnership Taxes in Utah

Because the partnership isn’t a special corporate entity (like an LLC), taxes on profits are paid through partners’ personal income tax. The partnership reports its profits to the IRS (though it doesn’t pay taxes on them), and this way the IRS can be sure it collects the proper amount.

Terminating a Utah Partnership

In the absence of a written agreement, a partnership ends when a partner gives notice of his express will to leave (dissociate). When there’s a written agreement, the partnership ends when an event outlined by the agreement occurs or when a majority of the partners decide to end the partnership after a single partner dissociates.

Whether there is a written agreement or not, it’s fairly easy to leave a partnership, though you’ll still be responsible for obligations that the partnership incurred while you were there. Terminating a partnership is more of a process than a single moment in time because there generally remains business that needs to be wound down (i.e., debts to be paid, obligations to be fulfilled).

Free Consultation with a Utah Business Lawyer

If you are here, you probably have a business law issue you need help with, call Ascent Law for your free business law consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506