Partnerships are one of the simplest and least expensive type of c-owned business structure to establish especially when compared to corporations where a lot of confusing technicalities about how to establish the business.
However before undertaking a partnership establishment, the would-be partners should first consider the following:
• Personal liability – Except for limited partners (who is only liable for the debt incurred as based on his/her investment), all general partners to all the debts and obligations of the business or company.
• Joint authority – All general partners can represent the whole partnership in business and can bind the whole company to a contract.
• Joint liability – All partners (including limited partners to some extent) can be held accountable for the debts of the company.
• Partnership Taxes – Tax payment in a partnership usually requires the partners to submit an IRS form to declare their separate incomes. In a partnership, partnership does not generally incur taxes on profits until it is distributed to the partners.
Another thing to consider before establishing a partnership is to decide on what kind of partnership you will be venturing in.
• General Partnership – All partners have a pre-defined share of the profit and have authority to manage the business
• Limited Partnership – Partnership with at least one general partner and some limited partners who have limited liability and has no managing powers.
• Limited Liability Partnership – All partners may be a limited partner, however, all may have a hand in managing the business
Requirements for partnerships establishments in every state may vary, but generally, most partnerships have to go through the following before they can start operating:
• The partners should first decide on what type of business they will be venturing into.
• The partners should decide on a business name and have it registered.
• If your partnership will be a limited partnership or a limited liability partnership then you may need to file a certification or registration of the partnership with the Secretary of State.
• The partners should obtain the necessary permits and licenses to operate from federal offices, state government and the local government.
However, before starting operations, the partners should first create a partnership agreement to function properly.
A partnership agreement is a set of rules and policies that is drafted with a business attorney and agreed upon by all partners.
This is also a reference used to deal with future conflicts in the partnership.
A partnership agreement should include:
• Name of partnership
• Contributions of the partners
• Distribution of profits, gains and loss
• Authority and duty of each partner
• Decision making of the partnership
• Performing of Administrative functions
• Admission and withdrawal of partners
• Buying of a partner’s share in case of illegal activity, death, etc.
• Authorized signature
• Conflict resolutions
Although it is the simplest mode of co-owned business structure, partnership establishment would still benefit from the aid of a good business attorney especially in drafting the partnership agreement and filing of the necessary paper works to establish the partnership as a legal entity.
Our experienced business lawyers provide legal assistance in partnership establishment. For consultation, log on to our website and dial our toll free number.
