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Bankruptcies and business partnerships

Businesses in Salem may, despite their differences in size and scope, face many of the same financial challenges. These may range from unrest in economic markets to simple changes in consumer demand. In many cases, these challenges may be bad enough to force companies into bankruptcy. According to data shared by TradingEconomics.com, an average of 46,826 businesses in the U.S. sought bankruptcy protection between the years of 1980 and 2015. While the struggles that many companies encounter may be shared, their impact is often felt disproportionately, particularly with small businesses.

Startups and small businesses founded through partnerships may be particularly susceptible to financial hardships, especially if one of the partners experiences his or her own money problems. The U.S. Small Business Association recognizes three general types of professional partnerships:

  •          General partnerships
  •          Joint ventures
  •          Limited partnerships

Limited partnerships may only assign liability to business owners based upon each one’s individual investment percentage. However, with joint ventures and general partnerships, profits as well as liabilities are each considered to be jointly owned.

What does this mean if one of the partners files for bankruptcy? It could mean that, if the debts in question are dischargeable, that the owner not filing for bankruptcy could become responsible for them in their entirety. That could be especially troublesome if clauses in a debt agreement call for immediate collection in its entirety if one of the holders defaults.

Another issue that could arise when a business partner declares bankruptcy is that of ownership. A joint owner in a company may potentially lose his or her interest to the bankruptcy estate, making the trustee a joint owner. However, if the business is small enough as to not interest the court in pursuing ownership, all controlling interest may then fall to the other partner. 

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