The Basics of Starting a Business Partnership
If you are planning to start a business with someone else, you may be wondering how to properly form your partnership. A partnership is both a relationship between co-owners and a legally-defined type of business entity. There are a few important things to know about the latter if you want to start a business with another person.
What Is a Partnership?
By its legal definition, a partnership is a type of business with multiple owners but that is not legally registered as its own entity. It is very similar to a sole-proprietorship except with more than one owner.
There are two types of partnerships: general partnerships and limited partnerships. The former is much more common. In a general partnership, every partner is liable for all business debts and obligations. This means that partners’ personal assets can be at risk to cover the liabilities of the partnership.
In a limited partnership, one or more partner can be a limited partner. He or she has no role in management however, his or her liability is limited. There much be at least one general partner to manage the business. The general partner’s liabilities are not limited and function.
In some states, certain businesses may form limited liability partnerships. The rules of these vary but they are like a hybrid between a partnership and a limited liability company.
Creating a Business Partnership
To form a general partnership, you simply need to agree to do business together. You may need to register with your state, county or municipality. However, this is much simpler than forming a corporation or limited liability company, typically.
If you are operating under a fictitious name, one that isn’t the names of the owners, you will need to register that. There are no legal requirements to have a partnership agreement governing the business management; however, it is still a good idea in most cases.
To end a partnership, you will need to settle all debts and dissolve the partnership. This is the case even if only one partner wants to leave.
Other Ways To Establish a Business Partnership
If you want to work with other owners but don’t want the risk of a general partnership, consider forming a limited liability company or other business entity. This type of business requires a little more paperwork to start but offers greater protection for the owners.
Running a business with co-founders can be a great experience both personally and financially. Discover what you could accomplish and find the right funding to get your business off the ground.
