|Forming a business partnership. Photo by cquarles.|
In a market of uncertainty it is a relief when you are not going at it alone and instead you have a partner. Although your business goal might be to have complete control over your business and receive 100% of its profit but forming a business partnership may be the best option for you and your business. Having a complete understanding of your personal and business needs take some of the hassle out of figuring out what entity best suits you. Some businesses take on a partner to help their business survive or to help in the management side of the business. Whatever the reason you may decide to start a partnership, you should at least know what that means in the eye of the law. Today’s discussion covers partnership.
A partnership is the relationship of two or more people invested in starting a business.
As partners you each equally share in the profits, the decisions, and the business debt. You are no longer solely responsible for the success and/or failure of your business.
When you form a business partnership it is imperative to consider if this would be a good business decision. You have to make sure that you and your partner share the same business goals and have a common view of where you plan to take the business. It is important to have written agreements that cover the following:
- Each partner contribution
- Decision Making
- Profit Sharing
- Future additional partners
- Partner buyouts
In the eye of the law just like sole proprietorship, partnership is seen as one with the business. The law does not see a distinction between the business and its owners. Just like sole proprietorship there are unlimited liabilities and both you and your partner personal assets can be at risk.
To figure out if partnership is the best option for you use the below advantages and disadvantages for partnership as a guide.
The advantages of partnership
- Assistance with raising capital
- Assistance in business set up (Now you’re not stretched so thin and don't have to worry about doing everything on your own.)
- Pass-through taxes (Pass-through tax treatment allow for business owners to report their gains/losses on their personal income tax which eliminates the possibility of double taxation.)
- Easy to establish
- Liabilities are split
- Have to share control (It is imperative to have a partnership agreement and have a unified business goal and expectations to help avoid conflicts.)
- Profits are shared
- Limited business life (If one partner unfortunately dies it could cause the business to suffer severely or close.)
- Liabilities are unlimited
- Medical Premiums for Employee benefits are not taxable.
- Disassemble of the business can become a hassle.
- Your personal assets can be liable for your business partner’s actions.
- Partners are jointly and individually liable for the business debts and actions.
If there will be a different business name used other than the business partner names then you have to:
- Register your name with the necessary parties. Giving your business its own name will require you to register that name as a DBA (doing business as) or assumed as.
www.sos.state.(enter your state abbr.).us
- Get an EIN/TIN (Employer Identification Number/ Tax identification number) from the IRS by visiting their site. www.IRS.gov.
Sometimes a partnership is the best option and way to successfully launch a business. Knowing which partnership entity is best fit for you and your business is the key here.
"Copyright © 2010, Dawn Austin, Recipe for Small Business, writer, SmallBiz Stew. All rights reserved. Permission granted to reprint this article on your website without alteration if you include this copyright statement and leave the hyperlinks live and in place."