Put Your Business Relationships in Writing

In a recent Nebraska Supreme Court opinion, Clemens v. Emme, 316 Neb. 777 (2024), the court affirmed a jury’s verdict finding no business partnership between a couple who had worked together for over 20 years, and on occasion, held themselves out as business partners.

Under Nebraska law, a “partnership” is “an association of two or more persons ‘to carry on . . . a business for profit,’” the court wrote. “Co-ownership distinguishes partnerships from other commercial relationships such as creditor and debtor, employer and employee, franchisor and franchisee, and landlord and tenant.” The objective signs of co-ownership commonly include sharing profits and losses and control of the business, contributing to the equity of the business, and owning property together. No single sign is necessary to prove co-ownership nor must all signs be present. Even so, by statute, someone who receives a share of the profits is presumed to be a partner in the business “unless the profits were received in payment for services as an independent contractor or wages or other compensation to an employee or under specified circumstances [in the statute].” Neb. Rev. Stat. § 67-410(3)(c).

According to the court’s opinion, the plaintiff, Elaine Clemens, claimed she was a business partner of the decedent, Arthur “Butch” Emme. Butch had established the O’Neill Body and Frame shop in 1978. After his divorce around 1990, Clemens started working with him at the shop. In 1992, they became romantically involved, and ultimately, moved in together. From then on, they lived and worked together at the shop and in other business ventures. In 2015, they had a falling out and Butch died two years later. ?

Clemens initiated the lawsuit against Butch’s estate generally seeking a fair share of the partnership assets. Although there was no written document showing a business partnership between Clemens and Butch, Clemen’s claimed they acted as a business partnership up and until Butch’s death. The personal representative of Butch’s estate denied the existence of a business partnership and alleged that Clemens was merely an employee.

In the “voluminous” evidence offered at trial, several witnesses testified that Butch did not consider his relationship with Clemens to be a business partnership. An employee of the shop said Butch described Clemens as “brought in to run the books, take care of the financials, office manager, secretary.” In contrast, Clemens testified that from 1999 forward, she did not receive a W-2 or 1099, but rather a “flat draw,” without withholding, even though there wasn’t a similar payment to Butch. To employees, Butch was seen as the individual “in charge” and “always had the last word” on business decisions. Butch’s accountants had never heard Clemens described as a business partner, and if they had, they would have completed Butch’s taxes differently. A partnership tax return was never filed, and the assets and losses of the shop were only included on Butch’s tax return.

Although some evidence showed Butch and Clemens holding themselves out as business partners, no single legal document was found identifying Clemens as a business partner. Also, Clemens signed documents and letters on behalf of the businesses as the “business manager.” The evidence showed Clemens was actively involved in all the aspects of the business. Even so, she wasn’t shown as a co-owner of business property. Clemens was listed as an authorized signatory, not an owner on the bank accounts where both Clemens and Butch were named. The bank’s information on the shop account showed it as a “sole proprietorship,” not a partnership. Only Butch showed as the owner of the real property, and only his property was included on financial statements for the businesses. “Clemens also acknowledged that she signed Butch’s name on, witnessed, or notarized documents describing alleged partnership properties as belonging solely to him.” Clemens’ representation of the businesses in small claims court as a corporate representative was also not sufficient to show her as a business partner.

The jury found that Clemens had “failed to meet her burden of proof establishing that a partnership existed and failed to meet her burden of proof establishing a presumption that a partnership existed under Neb. Rev. Stat. § 67-410(3)(c).” On appeal, the court acknowledged that the evidence showed that Clemens “‘worked more than 40 hours per week . . . for many years’ and was a ‘very hard worker[,’ b]ut people can work a significant number of hours and perform work diligently without being partners in a business.” While there was some evidence in favor of finding a business partnership, it was such that the jury could have come to differing conclusions.

The court agreed with the jury’s determination, saying: “Here, there was no written partnership agreement; there were no partnership tax returns ever filed; there was no personal property titled jointly in the names of Clemens and Butch; though five bank accounts were titled as co-owners, other bank accounts were not, and there was an explanation as to why Clemens was listed as a co-owner on the account for [the shop] for a period of time; there was no evidence that Clemens and Butch were jointly responsible for any indebtedness; there was no evidence that Clemens was responsible for any losses incurred by the business; and there was conflicting evidence as to whether Clemens had control over the business. As such, we find the jury determination to be correct.”

As a practical application of this decision and to avoid similar litigation, business owners should put their relationships in writing. Whether it’s a partnership arrangement, employer and independent contractor or key employee relationship, or that of a business owner and investor relationship. And individuals undertaking a business opportunity together would be wise to put the scope and details of their relationship in writing to avoid future misunderstandings. To protect one’s investment of time and energy into a business, securing a written understanding of whether one has an ownership interest in the business and how you’ll be compensated can protect that investment and limit potential liabilities.