Last month, the North Carolina Business Court examined whether an agreement to share the profits created a partnership, a joint venture, or whether the plaintiff was merely a contractor for Defendants. The Business Court explained that while sharing profits is evidence in favor of the existence of a partnership, the Plaintiffs failed to show other evidence indicating the existence of a partnership or joint venture.

Alleged, Unwritten Partnership Agreement Leads to Litigation

In 2016, Plaintiff Andrew Lucas began working with Defendants Harold Hopper and LH Service, Inc. on environmental projects related to the closure of MillerCoors Eden facility. For their first project—the Lagoon Project—Andrew and Harold informally agreed to split any profits on a 50/50 basis.

After the Lagoon Project, Andrew and his wife, Shannon, created SDB Partners of Eden, LLC to receive Andrew’s profits from the Lagoon Project. The parties then continued to take on multiple additional projects at the MillerCoors site under a contract LH Service had with MillerCoors, with payment made to LH Service and then from LH Service to SDB Partners. Andrew and the other Plaintiffs claimed that there was a handshake agreement to split the profits from these additional projects with Harold and the other Defendants 50/50. However, the Defendants argued that there was no agreement about splitting profits. In any event, for at least some projects, they did in fact split profits 50/50.

Eventually, when Harold sought to bring his son, Tyler Hopper, into LH Service, tensions developed between Plaintiffs and Defendants. Eventually, Harold and Tyler met with Andrew and informed Plaintiffs that they were terminating the business relationship between Plaintiffs and Defendants.

After trying in vain to preserve the relationship, Plaintiffs filed suit arguing two theories: (1) Plaintiffs and Defendants had formed a partnership, and Defendants breached it; and (2) if they did not have a partnership, they had formed a joint venture, and Defendants had breached it.

Profit Sharing Alone Does Not Create a Partnership in North Carolina

Under North Carolina law, a partnership is “an association of two or more persons to carry on as co-owners of a business for profit.” N.C. Gen. Stat. § 59‑36. A partnership does not require a written agreement or even an express agreement; instead, it may be inferred from the circumstances if those circumstances show a meeting of the minds as to the material terms. Courts look at several factors to decide whether a partnership exists, including whether the parties filed partnership tax returns, maintained a partnership bank account, obtained state licensing, or made capital contributions.

 Plaintiffs pointed to several facts to support their partnership claim, including:

  • Andrew and Harold agreed to split profit 50/50;
  • The other Plaintiffs and Defendants joined the partnership in later years;
  • The efforts undertaken by parties were in furtherance of the partnership; and
  • Andrew received portions of the profits that LH Service earned on the projects.

In response, the Defendants argued that

  • No partnership ever existed;
  • Andrew and his co-Plaintiffs were independent contractors; and
  • Just because Andrew and his co-Plaintiffs were paid a portion of profits as compensation did not automatically create a partnership.

The Business Court rejected the existence of any partnership between Plaintiffs and Defendants. First, the Business Court explained that Plaintiffs and Defendants did not co-own any enterprise. The only actual business at issue was LH Service—a corporation owned by Harold’s wife. Second, the projects that the parties worked on together were performed according to contracts that LH Service obtained with the facility owners. Third, Andrew conceded that he did not have the authority to sign checks or enter into contracts regarding the projects. Finally, Andrew’s deposition testimony showed that he did not make capital contributions, there was no partnership bank account, the partnership never filed a tax return, and the partnership did not even have a name. In fact, Andrew was paid on a 1099 basis, as an independent contractor, rather than as a partner, with a K-1.

The Business Court also commented that while Andrew and Harold may have referred to themselves as “partners” at times, that was not enough to convert a non-partnership arrangement into a partnership.

Joint Ventures Require Shared Control in North Carolina

The Plaintiffs claimed that—if they did not have a partnership with Defendants—then they did have a joint venture. In North Carolina, a joint venture is “an association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business adventure for profit, for which purpose they combine their efforts, property, money, skill, and knowledge, but without creating a partnership in the legal or technical sense of the term.” Joint ventures are governed by substantially the same rules as partnerships, but the main distinction is that a joint venture is narrower in scope and purpose than a partnership. Critically, joint ventures—like partnerships—require shared authority and control over the enterprise.

In Lucas, the Business Court determined that there was no evidence that Andrew had any right to direct Harold or the Defendants, and therefore, there could not have been a joint venture between Plaintiffs and Defendants.

Big Picture

Lucas v. Hopper underscores a simple but critical point: sharing profits—even evenly—does not, by itself, create a partnership or joint venture. Without shared ownership, control, and formal indicia of co‑ownership, courts will treat profit sharing as compensation, not partnership. Informal deals carry real risk when expectations are not clearly defined.

Our Business Disputes & Litigation Practice Group routinely represents clients involved in partnership and joint venture disputes or related to the ownership of a business.  If you are facing a partnership battle, contact the author or a member of our Group today.