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When a partnership owns a business and one of the partners…

When a partnership owns a...
When a partnership owns a business and one of the partners works in the business is that partner considered an employee?
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1/20/2018
legalg
legalg, Attorney
Category: Business Law
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No, partners are considered to be self-employed and not an employee of the partnership; this is why they will receive a K-1 form 1065 versus a W2; here is information from the IRS regarding this topic:

https://www.irs.gov/faqs/small-business-self-employed-other-business/entities/entities-1

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Customer reply replied 7 months ago
Purchase and sale agreement states the agreement "buyer and seller acknowledge that buyer has not offered any terms of employment to any of Seller's employees as consideration for the sale contemplated herein; however, Buyer shall have the opportunity to interview and discuss employment with Seller'semployees on a date acceptable to Buyer and Seller, but in no event later than fourteen days prior to inventory date. Seller agrees to cooperate with buyer if buyer elects to hire any employee of seller and such employee access such offer of employment.
Customer reply replied 7 months ago
Since I am an owner, not an employee one consider an offer of employment to me consideration for the sale?

For a partnership the seller would be the partners, and the employees would, based on the normal usage of that term, be the employees of the partnership i.e. the partners;

so normally the employee would not include the partner and normally consideration for the sale of the partnership is the money paid for the business.

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Customer reply replied 7 months ago
if I ( seller) was offered employment during the negotiation of the sale of my business. That would be considered inducing me to sell. Then the fire me I have grounds for a fraud claim?
Customer reply replied 7 months ago
They (buyer) would not be indemnified by my above statement in the contract because I am not an employee.
If the seller was offered employment generally it is for a specified (ie transitional ) period. Otherwise it is usually for a set period or at will. The grounds for termination would determine if there was fraud in the inducement; for example the plaintiff seller would have to prove the buyer had no intention to keep the seller as an employee and that the offer was made solely to induce the seller to sign. And yes, that is correct, that clause would not apply to a partner generally unless it stated that a partner that was then hired as an employee of the new owner, for example. It may include early termination compensation as well (ie severance )
legalg
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Customer reply replied 7 months ago
When the employment is at will and the termination is wrongful and the hiring is induced to produce the sale. The seller should be able to recoup damages based on prior history of business profits. I was non competed for 5 years so 5 years profits should = damages. Correct?
If the employment is at will then the employer may terminate the relationship so long as it is not for a discriminatory reason. At will means either party may terminate at any time.Noreally for wrongful termination the court will look to lost future wages for determining damages.If a sale of a business requires the buyer to hire the partner normally that will be stated in the contract for sale and in the employment agreement and will specifically set forth what the damages would be if the seller partner is terminated prior to the time specified in the contract.But at will has no restrictions for the most part so long as the relationship is not terminated for an unlawful reason such as discrimination or whistle blowing.
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