Best Practices

Ostensible Partnerships In CA: The Unintended Legal Consequences Of Overusing The Term Partner

The law offices of Omar Figueroa take a look at general partnerships

Many cannabis entrepreneurs are surprised to learn that, in California, general partnerships can be formed and enforced without any formal paperwork or written contracts. All that is needed is two or more people carrying on as co-owners of a for-profit business, whether or not that was their intention and whether or not the parties consider themselves partners. Cal. Corp. Code § 16202(a).

Many cannabis businesses currently refer to “partners” or “partnering with” in reference to other cannabis businesses. Business websites display phrases like “we partner with craft farmers in California” or “partnering with dispensaries across California” on their home pages. While seemingly insignificant, such designations can have massive repercussions, opening up cannabis businesses to civil litigation by creating “ostensible partnerships.” Ostensible partnerships arise when misrepresentations to third parties suggest that a partnership exists. They can be created by the words or conduct of the parties in question or from a party’s consent to being represented as a partner. Cal. Corp. Code § 16308(a).

For example, referring to persons as partners in conversation and writing can be used as evidence that an actual partnership exists. In re Lona, 393 B.R. 1, 14 (Bankr. N.D. Cal. 2008). In the case of In re Lona, an ostensible partner was taken to bankruptcy court and found to be jointly liable for the company’s debt. A significant portion of the evidence related to the conduct of the purported partners, including letters signed as “we” or “us,” references to themselves as “we” in business dealings, and repeated business related interactions between the creditor and the ostensible partner. 

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