If your business will be owned and operated by several individuals, you’ll want to take a look at structuring your business as a partnership.

General Partnerships

In a general partnership structure, all of the individually named partners manage the company and assume responsibility for the partnership’s debts and other financial, legal and tax obligations. General partnerships are much easier to form because they have far less required filings and administrative complexities than a limited partnership.

Limited Partnerships

Limited partnerships can have both general and limited partners. General partners own and operate the business and assume all liability for the partnership, while the limited partners serve as investors only — they have no control over the company and are not subject to the same liabilities as the general partners. There are also a lot of administrative complexities in a limited partnership, so unless you expect to have a lot of passive investors, a general partnership is more suited to your needs.

Advantages and Disadvantages

  • Much like a sole proprietorship or an LLC, profits and losses pass through to the tax returns of the individual partners. But because of this, all general partners are personally liable for all of your partnership’s financial, legal and taxation liabilities. Personal assets are at risk and could be seized to satisfy any debts or legal claims that may be filed.
  • Each general partner can act on behalf of the partnership to take out loans and make business decisions that affect and are binding on all of the partners (should the partnership agreement permit).
  • Partnerships are more expensive to establish due to the extensive legal and accounting services that are required to form the partnership.

Written Partnership Agreement

If you are starting a business with a partner, protect both of your interests with a written partnership agreement. Partnership agreements should answer the following questions:

  • What is each partner’s investment?
  • What are the responsibilities and duties of each partner?
  • If a partner becomes disabled, how long will he or she get a share of the profits?
  • Can the partners have other outside partnership interests?
  • What will you do if one partner wants to withdraw?
  • How will you restrict partnership-interest transfers?
  • Can a partner pledge his or her interest as collateral for a loan?
  • Are additional contributions mandatory?
  • How will conflicts be resolved?

King Law Firm Attorneys at Law, Inc. is here to help answer any questions and draft partnership agreements that best fit the needs and concerns of the business and its partners. Contact us to discuss whether a partnership is right for you.

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