• General Partnerships in Idaho
  • September 21, 2012
  • Law Firm: Taylor Law Offices PLLC - Boise Office
  • What is a General Partnership under Idaho law?

    General Partnerships are covered by Idaho Code § 53-3-101.  A partnership is formed in Idaho when two or more persons engage in a business as co-owners, for profit, regardless of whether or not they intended to form a partnership!

    Example of a General Partnership

    Since it is summer time and very hot outside I like to think about the cold lemonade stands that young entrepreneurs often put out on a Saturday afternoon.  You have the parents, who supply the pitchers, ice, sugar, lemons, table and other miscellaneous items on one hand.  You have the child, who uses their bright eyes and enthusiasm and high pressure sales techniques on the other hand.  The child sells the lemonade to a customer and receives money, hopefully more than the factors of production (capital, labor, land, enterprise) so you receive a profit!  This is a general partnership!
    This may sound scary to most parents out there but is a good simple example of a general partnership.

    Applying Idaho Statutory Law to General Partnership Liability

    Now, applying Idaho Code § 53-3-305 PARTNERSHIP LIABLE FOR PARTNER’S ACTIONABLE CONDUCT to our example we can further understand liabilities under a General Partnership legal structure.  So, ignoring the fact that parents are responsible for minor children, let us examine what were to happen if the child, while making the lemonade, dropped some shards of glass into the pitcher of lemonade.
    Well, quoting the Code, “A partnership is liable for loss or injury caused to a person...as a result of a wrongful act...of a partner acting in the ordinary course of business of the partnership or with authority of a partnership.”
    Therefore, the general partnership would be liable to the customer who swallowed the glass and not just the partner (child).  So, although the parent is a partner and the child, who is also a partner, placed glass into the lemonade, the parent individually is not liable for the injury- the partnership is liable...for now!

    Now, we must examine Idaho Code § 53-3-306, PARTNER’S LIABILITY, to determine what liability the parent, as a partner, has under the statute. The general rule under § 53-3-306 states, “Except as otherwise provided in subsections (b) and (c) of this section, all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.”
    In simple terms, unless our injured customer (the claimant), another area of law (case law, conflicting laws, contract law, etc...), or enumerated exception within the statute states that the parent is not liable- they are liable to the customer for their injury!

    Customer Relieving Partner of Liability

    First, let us look at the customer.  They will not limit the liability of the parent since litigants, much like Jerry McGuire, say, “Show me the money!”  Since the parent has money, and the child doesn’t, then they will be a named defendant.  But, we still have the enumerated exclusions and other laws.

    Enumerated Statutory Exemptions of Partner Liability

    Second, we need to identify if the parent meets an enumerated exclusion in Idaho Code § 53-3-306(b) or (c).  In section (b) “A person admitted as a partner into an existing partnership is not personally liable for any partnership obligation incurred before the person’s admission as a partner.”  Since our parent was a partner from the beginning then they do not qualify!
    Now, we must look at section (c),
    “An obligation of the partnership incurred while the partnership is a limited liability partnership, whether arising in contract, tort, or otherwise, is solely the obligation of the partnership.  A partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for such an obligation solely by reason of being or so acting as a partner.  This subsection applies notwishstanding anything inconsistent in the partnership agreement that existed immediately before the vote required to become a limited liability partnership under section 53-3-1001(b), Idaho Code.  This subsection shall not affect the liability of a partner in a limited liability partnership for his own omissions, negligence, wrongful acts, misconduct or malpractice or that of any person under his direct supervision and control.”

    Actions as a Limited Liability Partnership

    Obviously, this needs to be broken down into parts.  The first sentence excludes partners of obligations of the partnership while it was a limited liability partnership (L.L.P.).  Under our facts that is not applicable since the partnership was never an L.L.P.

    Partner v. Partnership Liability

    Sentence two not-so-simply states that a partner is not liable simply because it was the partner who committed the act that resulted in injury- only the partnership is liable.

    Application of Enumerated Statutory Exemptions

    Sentence three is a good ol’ fashion loophole closer!  It tells us that even if you have a partnership agreement that says something to the contrary of subsection (c) the subsection takes precedence and applies!
    Finally, the last sentence makes it clear that the acts of partner in an L.L.P. will still be liable for their own “omissions, negligence, wrongful acts, misconduct  or malpractice OR that of any person under his direct supervision and control” regardless of subsection (c).

    Final Conclusion

    We have identified that the parent and child were engaged in a for-profit enterprise, that under Idaho statutory law they would be found to be a General Partnership, there was an injury to a class for which relief could be given under the statute and that there are no enumerated statutory exemptions which would be applicable to relieve the parent, as a partner, of joint and several liability for the injured class.  Unless there is case law which could relieve liability then the partner would be liable to the customer!