BUSINESS LAW

Business Law

Business Law

The Michigan Uniform Partnership Act Section 6, defines a partnership as ''an association of 2 or more persons...to carry on as co-owners, a business for profit. Recently, the Michigan Supreme Court strictly interpreted this definition. The court held that MCL 449.6 does not require subjective intent to form a partnership, but merely an intent to carry on, as co-owners, a business for profit.

Construction companies or suppliers of goods often unite to bid on and/or perform a construction contract or supply agreement. As a result, construction or supplier group members (participants) form a joint venture (venture). A venture can be structured as an entity (corporation, limited liability company, limited partnership, or partnership) or a non-entity (consortium or a master subcontract relationship). Whether it is an entity or a non-entity, there should be an agreement (venture agreement) that delineates the rights and obligations of the participants.

Ventures are complex because of the number of parties involved and the variety of substantive provisions generally required in both the venture agreement and in the contract (supply agreement) between the venture and the customer. Consequently, venture agreements should be carefully developed to govern and accommodate two sets of relationships: (1) the ''outside'' relationship between the venture and the customer; and (2) the ''inside'' relationships among the participants.¡These two relationships raise interconnected issues such as the responsibility for liabilities, taxes, financing, insurance, performance, payment, and control.

Each entity or non-entity structure has its own advantages and disadvantages. One of the significant risks facing a non-entity venture is that the inside relationship and outside relationship, when taken together, may be deemed to have formed a partnership. When a venture is a non-entity, it is similar to a single purpose partnership, and it is this similarity that can raise an inference of ''partnership'' and the resulting joint and several liability of the participants.

The Michigan Uniform Partnership Act Section 6, defines a partnership as ''an association of 2 or more persons...to carry on as co-owners, a business for profit.'' Recently, the Michigan Supreme Court strictly interpreted this definition. The court held that MCL 449.6 does not require subjective intent to form a partnership, but merely an intent to carry on, as co-owners, a business for profit.3 This article discusses the various venture agreement structures and explains that a great amount of care is required when using the consortium or master subcontract, non-entity formats after the holding in Byker v Mannes.

Common Venture Formats

The three most common formats of ventures—separate entity, consortium, and master subcontract are outlined below.

Separate Entity

Creation of a separate entity venture in the form of a corporation, a limited liability company, or a limited partnership is accomplished by a filing with the state. A separate entity venture using the partnership format may be formed by contract or implied by law, and may also be registered with the county under the Uniform Partnership Act (UPA). The most useful formats for a separate entity venture include:

a) A limited liability company or corporation owned by the ...