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Deciding on a legal business structure is a critical first step when starting a new company. It impacts everything \u2013 from how you report income and your level of personal liability to compliance with legal obligations at all governmental levels.<\/p>\n
For many, forming a business partnership<\/strong> is a strategic move. Partnerships can offer a synergy of expertise and resources, creating a collective capability greater than the sum of its parts. Unlike an LLC, a partnership implies that the business is conducted by individuals who share the management and profits.<\/p>\n A partnership is when two or more people or groups agree to run a business together. Each partner shares in the profits, losses, and business decisions. Partnerships can be formed between individuals, businesses, or organizations \u2013 anyone who wants to work together to make a profit and move forward with shared goals. Simply put, it's a team running a business, sharing the ups, downs, and responsibilities.<\/p>\n <\/div> Once you’ve formed a partnership, it’s pivotal to clearly and legally document the understandings and expectations between partners. This step ensures a smoother business operation and helps prevent potential disputes. This brings us to another crucial term – the partnership agreement<\/strong>, which outlines the detailed terms and conditions among partners.<\/p>\n A partnership agreement is a contract between business partners. It answers: Who owns what? Who does what? How will profits (and losses) be shared? It also sets the rules for solving disagreements and explains what happens if a partner leaves or passes away. It's a safety net, ensuring everyone knows the plan and preventing future disputes.<\/p>\n <\/div> In my nearly 30 years as an attorney, entrepreneur, and advisor, I have navigated the nuances of different business structures, often evaluating the unique benefits and challenges of forming a partnership. And as an attorney, I’ve drafted hundreds of partnership agreements for various ventures. And I was a partner in numerous legal partnerships (which historically had to be structured as partnerships). This guide is your roadmap, with practical advice, actionable tips, and best practices from mentoring hundreds of entrepreneurs and small businesses and helping thousands start and expand their ventures.<\/p>\n <\/div> Before diving into the details, let’s look at the popular types of business structures<\/a>:<\/p>\n Sole proprietorship:<\/strong> This business is owned and operated by a single individual. This person maintains complete control over the company but bears all the risk.<\/p>\n LLC (Limited Liability Company)<\/a>:<\/strong> This business structure merges the characteristics of corporations, partnerships, and sole proprietorships. It provides limited liability protection to its owners or members.<\/p>\n Corporation<\/a>:<\/strong> A corporation is a business entity legally separate from its owners or shareholders. It can sell shares of stock to raise capital, something a sole proprietorship or partnership can’t do.<\/span><\/p>\n <\/i> Hire an expert to form your company and save time.<\/span> Our trusted partners can help: Northwest ($39 + state fee)<\/b><\/a> or Bizee ($199 + state fee)<\/b><\/a>. Embarking on a business journey with a partner isn’t just about having company. It’s about combining strengths, sharing responsibilities, and multiplying resources to create a resilient, resourceful, and robust venture.<\/p>\n Forming a partnership can weave a safety net, enabling the business to take leaps with shared risk and blend diverse skills to brew innovation and stability. From shared financial responsibilities to melding distinct skills, a partnership opens up a world where mutual benefits are not just possible but are often amplified. Here are fifteen tangible benefits for people when choosing a partnership structure:<\/p>\n Receive six actionable guides, including a how to start a business checklist, detailed comparisons of LLCs, corporations, sole proprietorships, and partnerships to determine the best fit for your business, plus insights on crafting a compelling pitch deck to attract investors.<\/p> Receive six actionable guides, including a how to start a business checklist, detailed comparisons of LLCs, corporations, sole proprietorships, and partnerships to determine the best fit for your business, plus insights on crafting a compelling pitch deck to attract investors.<\/p> Receive six actionable guides, including a how to start a business checklist, detailed comparisons of LLCs, corporations, sole proprietorships, and partnerships to determine the best fit for your business, plus insights on crafting a compelling pitch deck to attract investors.<\/p> Being tethered to another person or entity in business could mean conflicts, liability, and intricate financial management. Here are ten potential drawbacks of partnerships:<\/p>\n Recognizing these potential challenges allows prospective partners to tread wisely, crafting strategies that mitigate these risks and leveraging the benefits to navigate the potential hurdles of partnership businesses.<\/span><\/p>\n Partnerships are not a one-size-fits-all model. There are various forms, each bearing its distinct set of rules, liabilities, and operational methods:<\/p>\n All partners share equal rights, responsibilities, and liabilities in a general partnership.<\/p>\n Best for:<\/strong> Consulting firms, law practices, small retail businesses, and local service providers. Some partners enjoy limited liability and are not involved in management, while others have unlimited liability and manage the business.<\/p>\n Best for:<\/strong> Real estate investment groups, film production companies, family businesses wanting to involve silent members, and venture capital firms. All partners have limited liability and can be involved in business management.<\/p>\n Best for:<\/strong> Professional practices like law and accountancy firms (my law firms started as partnerships and converted to LLPs when state laws permitted this conversion), consulting businesses, medical practices, and design agencies. Two entities come together for a specific project or a specified period.<\/p>\n Best for:<\/strong> Construction companies on a specific project, tech companies collaborating on a product, multinational business expansions, and research and development projects. Businesses collaborate and form strategic partnerships for mutual benefit without forming a new entity.<\/p>\n Best for:<\/strong> Airlines sharing certain routes, e-commerce, and retail collaborations, tech companies sharing technology, and cross-promotional marketing campaigns. A variation of the LP where even general partners can have limited liability.<\/p>\n Best for:<\/strong> Large investment projects, family estate planning, agricultural operations, and certain real estate investments. Depending on different businesses’ unique financial and operational configurations, partnership taxes could be either an ally or an adversary. While a partnership as a business entity does not pay taxes, the profits pass through to partners who report this income on their personal tax returns.<\/p>\n Your partnership’s business name<\/a> must embody your brand while adhering to your state’s regulations. Typically, it should be unique and not misleadingly imply that you’re a government agency or an unauthorized industry.<\/p>\n Brainstorm potential names and ensure they align with your brand message. Run a name check to confirm that no business in your state has claimed it. Also, check for available domain names to create a business website with the same name.<\/p>\n This crucial document outlines how your partnership will function. Though not legally required in all jurisdictions, a partnership agreement can prevent future disputes.<\/p>\n Consider hiring a business attorney to draft the agreement. This document should cover, at minimum, the following topics:<\/p>\n Be sure all partners sign the agreement. Doing so is crucial for mutual understanding and legal clarity. The process is hassle-free when you sign documents online<\/a>.<\/p>\n We go into more detail below on the key terms of a partnership agreement and the pitfalls you should avoid.<\/p>\n Your partnership must be registered with the appropriate state agency, often the Secretary of State.<\/p>\n Check with your state’s Secretary of State office or a legal advisor for the specifics in your area. In most cases, you’ll need to file a document known as a “Statement of Partnership Authority.” This document generally includes details about your business name, purpose, duration of the partnership, and information about each partner.<\/p>\n An Employer Identification Number (EIN) is your partnership’s Social Security number. The IRS uses it to track your business’s tax obligations. Even if you don’t have employees, an EIN is usually necessary.<\/p>\n Apply for an EIN through the IRS website\u2014it’s free and straightforward. After submitting your application, you will immediately receive your EIN. The IRS has a helpful checklist<\/a> to help you decide whether you need an EIN to run your business.<\/p>\n A separate business bank account helps you keep your business finances separate from your personal finances, making tax time much easier. It also lends credibility to your business.<\/p>\n When opening a bank account, choose a bank that caters to small businesses. Prepare to provide your partnership agreement, EIN, and business registration documents.<\/p>\n If your partnership will do business in states other than where you registered, you’ll likely need to register your business there.<\/p>\n Each state has different rules regarding what constitutes “doing business” in their jurisdiction. Consult with a legal advisor to understand whether this step is necessary. Registration usually involves filing a similar form to the one you filed with your home state and paying an additional fee.<\/p>\n Depending on your industry and location, your partnership may need specific business licenses or permits to operate legally.<\/p>\n Research federal, state, and local requirements and apply for necessary permits and licenses. You can use the U.S. Small Business Administration’s license and permits tool as a starting point.<\/p>\n By following these steps, you’ll ensure your partnership has a solid legal foundation, giving you peace of mind to focus on growing your business.<\/span><\/p>\nWhat is a partnership?<\/h2>
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<\/div>\nWhat is a partnership agreement?<\/h2>
<\/p>\n<\/div>\nPartnerships: A Comprehensive Guide<\/h2>
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<\/div>\nTypes of business structures<\/h2>\n
Pay just $39 + state fees and you'll get a free year of registered agent service, articles of organization, privacy, and client support from local experts.<\/p><\/div><\/p>\nBenefits of forming a partnership<\/h2>\n
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Free Business Startup Kit<\/h2>
Get your free startup kit<\/i><\/a><\/div><\/div><\/div>Free Business Startup Kit<\/h2>
Get your free startup kit<\/i><\/a><\/div><\/div><\/div>Free Business Startup Kit<\/h2>
Get your free startup kit<\/i><\/a><\/div><\/div><\/div><\/p>\nDisadvantages of partnerships<\/h2>\n
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Types of partnerships<\/h2>\n
General Partnership (GP)<\/h3>\n
\nNot ideal for:<\/strong> Ventures with unequal investment or involvement, high-risk businesses, and tech startups with substantial liability.<\/p>\nLimited Partnership (LP)<\/h3>\n
\nNot ideal for:<\/strong> Small businesses with active partners, technology companies, and businesses that require all partners to be involved in management.<\/p>\nLimited Liability Partnership (LLP)<\/h3>\n
\nNot ideal for:<\/strong> Businesses desiring simplicity in structure, sole proprietorships, manufacturing businesses with high liability.<\/p>\nJoint Venture<\/h3>\n
\nNot ideal for:<\/strong> Ongoing, long-term businesses, small local businesses, independent entrepreneurs, and ventures requiring a singular brand identity.<\/p>\nStrategic Alliances<\/h3>\n
\nNot ideal for:<\/strong> Businesses desiring shared liability and responsibility, ventures that need a unified brand, and small businesses with limited resources.<\/p>\nLimited Liability Limited Partnership (LLLP)<\/h3>\n
\nNot ideal for:<\/strong> Small scale businesses, tech startups, businesses with straightforward operational needs, and single-location service providers.<\/span><\/p>\nTaxes and partnerships<\/h2>\n
Businesses that benefit from partnership taxation<\/h3>\n
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Businesses potentially disadvantaged by partnership taxation<\/h3>\n
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How to start a partnership<\/h2>\n
1. Choose a business name<\/h3>\n
2. Draft a partnership agreement<\/h3>\n
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3. Register your partnership<\/h3>\n
4. Obtain an EIN<\/h3>\n
5. Open a business bank account<\/h3>\n
6. Register to do business in other states (if necessary)<\/h3>\n
7. Obtain necessary permits and licenses<\/h3>\n