Are you thinking about forming a business partnership or wondering how to manage and protect an existing one? Don’t let uncertainty or legal challenges slow down your success. Proper legal support can make a big difference in the health and growth of your partnership and put you on the path to profits. Contact a business partnership lawyer from Palumbo Law today to learn how.
What Is a Business Partnership?
A business partnership is a legal arrangement where two or more people own and run a business together. Each person in the partnership contributes something to the business, like money, skills, or labor. In return, they share the profits and losses of the business. Partners also make decisions together about how to run the business.
The rules for how partnerships operate are simple, especially if no written partnership agreement exists. Partners cannot draw a salary in such cases but must share the business’s profits and losses equally. Partners have a duty of loyalty to each other, meaning they must not use the partnership for personal gain at the expense of the other partners.
Types of Partnerships
Business partners can form several different types of partnerships, such as:
- General Partnerships: In a general partnership, all partners actively manage the business and are responsible for its debts. This means if the business owes money, each partner must pay a part of that debt personally.
- Joint Ventures: A joint venture acts like a general partnership but only exists for a limited time or a single project. People enter joint ventures to combine resources for a specific goal or project, like real estate development or research collaboration.
- Limited Partnerships: Limited partnerships have two types of partners: general and limited. General partners run the business and are responsible for its debts. Limited partners invest money but don’t manage the business. Their responsibility for the partnership’s debts is limited to the amount they invest.
How Partnerships Differ from Corporations and LLCs
Partnerships differ from corporations and limited liability companies (LLCs) in several ways. In partnerships, each partner is responsible for the business’s debts. This is not the case in corporations and LLCs, where owners have protection from the company’s debts.
Additionally, partnerships don’t pay taxes as separate business entities. Instead, each partner pays taxes on their share of the profits when they file their personal tax returns. In contrast, corporations pay taxes on their profits, and their shareholders pay taxes on any dividends they receive.
How Do I Form a Partnership?
Forming a partnership starts with choosing a partner who shares your business vision and goals. Trust is key in this decision, as partners share all business profits and losses. Once you have a partner, decide which type of partnership you want.
While you don’t need a written agreement to form a partnership, having one is a good idea. A written partnership agreement prevents misunderstandings by clearly stating each partner’s rights and responsibilities. It should cover how you’ll divide profits, handle losses, and make decisions. It should also outline how you’ll add new partners and what happens if a partner wants to leave.
The Uniform Partnership Act (UPA) governs partnerships in many states. The UPA says that a partnership forms when two or more people go into business together with the intent to make a profit. You don’t need to file any papers with your state to create a general partnership under the UPA. However, you should register your business name and get the necessary licenses or permits.
How Does Personal Liability Work in Business Partnerships?
Personal liability plays a significant role in a business partnership. Each partner is personally responsible for the debts and obligations of the business. If the company can’t pay its debts, creditors can attempt to settle those debts by going after the partners’ personal assets, like their homes or savings.
Regarding tax obligations, it’s worth noting that business partnerships don’t pay taxes directly. Instead, the partnership’s profits and losses pass through to the individual partners. Each partner then reports their share of the profits or losses on their personal tax returns. This is known as “pass-through” taxation, which means the partners pay taxes at their individual tax rates.
Pros and Cons of Business Partnerships
Business partnerships offer unique advantages that can be beneficial for those looking to start or grow a business. Here are some key pros of entering into a business partnership:
- Partners can divide workload and responsibilities, making it easier to manage the business.
- Different partners bring varied skills and viewpoints, which can lead to better decision-making.
- It’s often easier to secure financing, as partners can pool resources and creditworthiness.
- Partnerships are generally easier to form, operate, and dissolve than corporations.
- Partnerships enjoy pass-through taxation, meaning the business itself isn’t taxed.
While there are many advantages to business partnerships, there are also significant risks and drawbacks that need careful consideration, such as:
- Each partner is personally liable for the debts and obligations of the business.
- Differences in opinions and management styles among partners can impact business operations.
- Partners must share profits, which might be less appealing if one partner feels the other is not contributing.
- Each partner must consult with others for major decisions, which can delay decision-making.
- If a partner leaves or passes away, the partnership may face challenges in continuing operations.
How a Business Partnership Attorney Can Help
An experienced business lawyer can provide valuable guidance and work to ensure your partnership operates smoothly, legally, and to your best advantage. Here are some ways a lawyer can help if you have or are thinking of creating a partnership:
- Advising you on the most suitable legal structure for your partnership
- Drafting a partnership agreement that clearly outlines roles, responsibilities, and profit-sharing
- Reviewing and negotiating contracts with suppliers, customers, and other third parties
- Ensuring that your partnership complies with all relevant state and federal laws
- Resolving disputes between partners amicably and efficiently
- Protecting your partnership’s intellectual property rights
- Managing business registrations, renewals, and compliance filings
- Advising you on tax implications and strategies for your partnership
- Assisting you in securing financing or investments for your partnership
- Providing representation in legal proceedings, whether in court or in negotiations
- Advising you on business succession planning or the dissolution of the partnership
Contact a Business Partnership Lawyer Now
Thinking about creating or strengthening a business partnership? Palumbo Law is here to help. From creating solid agreements to offering sound legal advice, we’ve got you covered. Don’t wait for legal issues to arise. Contact Palumbo Law today for a consultation, and let’s build a secure future for your business partnership.
