Have you ever seen this brief legal ditty? Sure you have. And whether you know it or not, you likely accept contracts containing this language on a weekly, maybe even daily basis.

Ever valet park your car or use the services of your local dry cleaner; or, maybe you have attended an amusement park? Well then, without signing anything, you have just entered into an “adhesion contract”.

Adhesion contracts are contracts between two parties that do not allow for negotiation — it’s take it or leave it! However, can you realistically leave it? What would your options be anyway? Should you park your car elsewhere or take your clothes to a different cleaner? Won’t you just be faced with the same issue there? And what about that pocket size agreement? Will it really limit their liability? I mean really, who can even read that boilerplate it’s so small?!

And how about the long-form adhesion contract that you actually sign; a residential lease agreement, for example? Were you afforded the opportunity to negotiate its terms or, did the landlord stand in a position of such superior bargaining power that you signed it, knowing also that it would not be any different down the street?

Theoretically, the common debate relating to contracts of adhesion have reasonably focused on whether or not courts should enforce them. On the one hand, they undeniably fulfill an important role of efficiency in the marketplace. These standard form agreements can substantially reduce transaction costs by eliminating the need for buyers and sellers to negotiate the terms of every sale of goods or services. However, they may also consequently result in unjust terms being agreed to by the accepting party. Few would disagree that it is simply unfair for the seller to avoid all liability or to unilaterally give themselves the right to terminate the agreement.

So then, are these contracts enforceable?

In common law jurisdictions, these standard form agreements are treated like any other contract and a signature or other manifestation of acceptance and intent to be legally bound will bind the acceptor. This reality, however, has caused for many common law jurisdictions to develop special rules that govern such situations. As a general rule, courts in these jurisdictions will interpret the standard form agreement contra proferentem which, literally means — ‘against the proffering person.’

Most of the United States, however, follows the Uniform Commercial Code which, similar to the common law jurisdictions mentioned above, has provisions relating specifically to standard form contracts and; when a standard form contract is found to be a contract of adhesion, it is given special scrutiny.

For a contract to be treated as a contract of adhesion, it must be:

1. Presented on a standard form and on a “take it or leave it” basis; and
2. Give the consumer no ability to negotiate because of their unequal bargaining position.

Next, the “special scrutiny” may be performed in a number of ways, a few of which are:

1. If the term was beyond the reasonable expectations of the “adhering” party, the court can find it to not be enforceable; or
2. Under the equitable principles of the Doctrine of Unconscionability, unconscionability may be found and the contract held unenforceable when there is an “absence of meaningful choice on the part of one party due to the one-sided contract provisions, together with terms which are so oppressive that no reasonable person would make them and no fair and honest person would accept them.” (Fanning v. Fritz’s Pontiac-Cadillac-Buick Inc.)

So…the good news is: recourse may be available for the underdog!

The bad news is: both parties will have to expend time and money for a court to determine if the adhesion contract is enforceable.

Whether pertaining to your personal or professional life, chances are you have entered into, or sought to enter into a partnership at some point.  For some, it provides a sense of security; for others, a dinner drink led to a friendly discussion about an idea you had and WHAM, you’re going to move on that idea together – as partners, or; for those timid-hearted types, perhaps you gravitated toward a partnership because you simply wanted half the responsibility, half the risk, and half the potential blame.

Whatever your cause, and whatever your (personal) purpose, you could stand to save yourself a lot of time, frustration and money by knowing up front what sort of partnership you’re actually getting into.

Whereas some people use ‘partnership’ more as a term of art (i.e., corporation owners may call themselves ‘partners’, but that does not necessarily make it so), there are, in fact, a variety of legally recognized partnerships.  They are: (1) General Partnerships; (2) Limited Partnerships; (3) Limited Liability Partnerships; (4) Limited Liability Companies and; (5) Joint Ventures. And of these different types of partnerships – some governed by corporate law and still others governed more by contract law – the one that is of particular interest in this article is that of the “General Partnership”.

Attorneys are often surprised to find the staggering number of parties involved in general partnerships who believe they are being afforded certain corporate law advantages.  Let’s take a moment to touch upon a bit of the confusion.

A General Partnership is like a sole proprietorship except that there are two (2) or more persons conducting business under one name.  Unlike Limited Liability Companies, for example, no articles need to be filed with the Secretary of State, nor does the partnership even need to enter into a written partnership agreement (although it has been considered a terrible idea not to). A significant difference between formally established partnerships (i.e., LLC’s, LLP’s, etc.) and that of a general partnership is that each partner in a general partnership is jointly and severally liable for the actions and debts of the partnership.  Since any partner may bind the partnership, the other partners may be held liable for actions, contracts and/or debts in which they didn’t even know existed.  Take that one step further — partners can even be held personally liable for the acts of agents or employees that had apparent authority to bind the partnership.

So, for those of you not wishing to formally establish a partnership at the state level, and, whether you are willing to entertain and execute a partnership agreement or not, you may wish to have a better understanding of the risky business you could be entering into, or, may already be involved in, as a partner in a general partnership.

If an individual is looking to business-incorporation/”>form a new business, they may want to consider forming a Limited Liability Company. This type of business structure is similar to a corporation but is less formal, more flexible and offers several benefits, including personal liability protection, for its owners.

What is an LLC?

A “Limited Liability Company” (LLC) is a hybrid between a partnership and a corporation. It has the operating flexibility and “pass through” tax treatment of a partnership with the limited liability for its “members” accorded to corporate shareholders. “While an LLC is a business entity, it is best to think of it as an unincorporated association,” said Anthony Spotora, an extremely experienced business attorney. “Although sometimes incorrectly referred to as Limited Liability Corporations, they are in fact not corporations.” See California Corporations Code, Title 2.6.

Further Benefits

LLCs are highly attractive to some because of the flexibility in tax choices. LLC business ventures qualify for a single layer of taxation, which prevents ownership from being double-taxed under the corporate tax structure.

“However, LLCs may also elect to be taxed under a corporate tax structure if they wish,” Spotora advised. “In fact, the full list of taxation choices for LLCs are as a sole proprietor, a partnership and either an S- or C- Corporation.”

LLCs also often require much less administrative paperwork and record-keeping than do corporations. The laws also allow LLCs to customize the rules for how the LLC is best operated.

Drawbacks

Some people feel that LLCs do have disadvantages, however.

In California and a handful of other states, LLCs must pay a franchise or capital values tax on the business.

LLC’s in California must pay an annual tax to the state’s Franchise Tax Board. The fee is $800 per year, though if the LLC’s net annual income exceeds $250,000, then there will be an additional fee that must be paid, too.

Also, some people believe LLCs have a more difficult time raising financial capital because investors may be more comfortable investing funds into corporate firms.

If a person is considering forming a Limited Liability Company or other business entity, it is important for them to speak with a knowledgeable attorney. Anthony Spotora is a Los Angeles business attorney who specializes in incorporation and can guide you on the best strategy for your business.

You can visit our blog to learn more about corporate formation and other topics in business law, including the impact of RULLCA, California’s 2014 revision of the laws governing LLCs.