A partnership is one of the four general ways you can choose to organize your business.
As John D. Rockefeller once said, "It's better to have a friendship based on a business partnership than a business partnership based on a friendship."
That is why it is important for a partnership to follow good business principles.
Just What is a Business Partnership?
A partnership is a business jointly owned by two or more individuals. Each of the individuals is personally liable for the debts of the partnership.
Forming a business partnership can be done with a handshake—and often they are. In fact, partnerships are the only business entities that can be formed by oral agreement.
Of course, as with any important legal relationship, oral agreements often lead to misunderstandings, which often lead to disputes. That is why you should only form a partnership that is created with a written partnership agreement.
General or Limited Partnership - You Decide:
The first kind of partnership is a general partnership. A general partnership does not have to register with the state and no legal agreement is necessary, though as we stated earlier, it is highly recommended.
For general partnerships, each of the partners, known as "general partners":
When you form a partnership, you and your partner are considered co-owners and are taxed according to your share of the partnership profits.
The other form of partnership is the limited partnership (LP). A limited partnership has both general partners and limited partners, but must have one or more general partners. As in general partnerships, general partners run the business and are liable for partnership debts. A limited partner, on the other hand:
Partnerships and Capital Needs:
The advantages of a partnership are similar to those of a sole proprietorship.
One additional benefit is that a partnership allows for additional capital and management resources, since more than one person is contributing to the company.
Other Advantages Include:
Liabilities of Partnerships:
The biggest disadvantage of a partnership is the same as for a sole proprietorship: liability. There is added liability in a partnership because you will be liable for your partner's actions and debts as well as your own.Other disadvantages include:
Forming a partnership can be a real benefit for your business. It can be complicated, though, to form the best agreements possible. To give your partnership the best chance for success, you should strongly consider consulting with an experienced business attorney before opening for business.
Next In This Guide
Forming a Corporation - Preferred Choice for Liability and Taxes - A corporation is a separate legal entity that acts as a single person and is created under statutory law. The corporation owns the business and, in turn, the corporation issues shares of stock to individuals investing in it.
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Forming a Sole Proprietorship - An Easy Way to Get Your Business Organized - There are many different forms your business can take. The sole proprietorship is one of the most common forms. As with any business decision, being a sole proprietor has distinct advantages and disadvantages.
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