Things To Consider In Partnership Establishment

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:

β€’ 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.

β€’ Joint authority – All general partners can represent the whole partnership in business and can bind the whole company to a contract.

β€’ Joint liability – All partners (including limited partners to some extent) can be held accountable for the debts of the company.

β€’ 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.

β€’ General Partnership – All partners have a pre-defined share of the profit and have authority to manage the business

β€’ Limited Partnership – Partnership with at least one general partner and some limited partners who have limited liability and has no managing powers.

β€’ 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:

β€’ The partners should first decide on what type of business they will be venturing into.

β€’ The partners should decide on a business name and have it registered.

β€’ 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.

β€’ 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:

β€’ Name of partnership

β€’ Contributions of the partners

β€’ Distribution of profits, gains and loss

β€’ Authority and duty of each partner