If a general partner pays more then their share to keep the business going, are they entitled to reimbursement when the business assets are sold?

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If a general partner pays more then their share to keep the business going, are they entitled to reimbursement when the business assets are sold?

In 09/06 I entered into a General Partnership with a friend. We both contributed equally to put a down payment on a commercial property, purchase inventory, and other things. The business failed as each year and expenses exceeded income. Although the terms of the partnership stipulated that each party was to share in all expenses, labor and profits, except for the initial investment, my partner never contributed any help or money. I have been paying the mortgage each month to prevent foreclosure. If the property is sold, will I be entitled to only 50% of the money received?

Asked on January 23, 2011 under Business Law, Florida

Answers:

MD, Member, California Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

No, if you paid more than your fair share of the expenses and your contract indicates each is to contribute or share in the expenses, then you are entitled to reimbursement for that amount paid outside of the 50% share you paid. If there is an issue with your partner about this accounting, consider jointly talking to an accountant or business lawyer or hiring a mediator or arbitrator to handle the matter.  If it is in foreclosure, the issue becomes whether legally each of you would be jointly and severally liable to pay amounts owed to the mortgage company. Joint and several essentially means you each owe that amount fully (mortgage company can get the whole amount from either one of you) and together you owe it. So if mortgage company obtains the full amount from you, you can seek contribution from your partner and that is where your accounting may have an impact. So if you seek contribution of sixty percent instead of fifty percent, you need to prove you paid more than what was half owed.

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

The law is not so rigid that it does not allow a Judge to take in to account those circumstances that have evolved since the execution of agreements between parties.  Although it is true that contracts are binding and the terms are not to be changed orally, if your partner has not lived up to his end of the partnership he has breached the agreement and the it would be void or voidable.  Then you can ask the court to allow you a set off for the amount that you have been paying to keep the property from being foreclosed.  All the numbers can be worked out amicably as well if your partner agrees.  Good luck to you.


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