Overview of Partnerships
Yesterday I talked about Sole Proprietorships, and some of the pros and cons associated with that type of business structure. While it is the quickest and easiest way to get strated in business, it’s not necessarily the best.
It’s possible that you need to partner with someone to be able to afford to start your business.Maybe you are going into business with a friend or family member. Regardless of the circumstances, if there is someone going into business with you, you might want to consider forming a partnership.
Partnerships 
Starting a general partnership is almost as easy as starting a sole proprietorship. Two or more people decide they want to share ownership in a business, and they can start operations. There aren’t any limits on the number people in the partnership, as long as it’s more than one. There aren’t any forms or legal hoops to jump through. All it takes is an agreement to operate as partners.
While in theory it looks quick and easy, there is a bit more to it if you want to do it right. Although contracts and written agreements aren’t required, they are highly recommended. By getting all of the terms of the agreement in writing before starting operations, you will avoid a lot of stress and hard feeling in the coming years. There are a lot of little details that can crop up, and you and your partner(s) may or may not agree on how to handle them. A good business lawyer that has experience with partnerships can help you think through those issues, and give advice on how to set things up. It’s inevitable that things will occur that will have to be decided on later on, but the more that is defined up front, the happier life will be for everyone invoilved.
How Much Time and Money Will Each Partner Contribute?
Some partnerships are set up as 50/50 propositions. Each partner will contribute half of the money, and the work will be divided evenly between them There are other arrangements where one person has the vision and the expertise and they partner with a person with enough money to bankroll the venture. One partner would contribute the majority of the money, and the other partner would handle most of the day to day operations.
It should be spelled out in the initial agreement which person is expected to do different tasks.
How Are Decisions Going To Be Made?
I mentioned earlier that regardless of how much is spelled out initially, things will come up that need to be decided. When that happens, you should already have a plan for how those decisions are going to be handled. When it’s all said and done, someone has to have the final authority to make decisions. That responsibility may be shared with each partner given authority in different areas, but if no one has the authority for a final decision, the business will be stalled in endless debate.
How Are Profits and Losses Going To Be Shared?
This especially tricky when the money or work contributed be each partner is not equal. You and your partner(s) need to agree before starting operations exactly how profits and losses are going to be divided, and get that decision in writing.
It’s important to remember that partners are jointly liable for any losses or liabilities of the business. If your partner gets into financial difficulties, his/her creditors can come after you for payment. Then you will have to get reimbursed by your partner. That’s why it’s so very important to know the person you are partnering with.
What Happens When A Business Partner Dies or Decides To Stop Working?
Unlike a sole proprietorship, shares in a partnership can be sold or transferred if there is an agreement in place specifying how that is to be handled. If you want to leave your share in the partnership to a loved on in your will, and your partner agrees to that, when you die that loved one becomes the new partner. If there is no agreement and there is only one remaining partner, the partnership is dissolved.
Taxes
Like a sole proprietorship, a partnership is not taxed as a business. Each individual partner files their own tax return based on their share of ownership in the company. Profits and losses are handled according to each partner’s individual tax rate.
Tomorrow I’ll wrap up the discussion about types of business structures by going over the pros and cons of Corporations. While they may be more expensive and time consuming to operate, there are some very distinct advantages as well.
