Starting business partnerships can be an exciting time. You can be your own boss, set your own schedule and work with people that you choose to work with. In the beginning, it may seem like developing documentation for you and your partners may be unnecessary, but that “high” that you are on can quickly change when there is a change of heart in the leadership team or there is a large dispute about the direction of the business. When you enter into a business partnership, you are setting rules in place to work together that protect all parties when an inevitable dispute arises.
It’s best to know what your options are when setting up a partnership for your business. Below are brief outlines of the primary types of business partnerships.
A general partnership is defined as a business arrangement by which two or more individuals agree to share in all assets, profits and financial and legal liabilities of a jointly owned business structure. Some general partnerships can even be entered into unintentionally. While you may have not signed a formal document, becoming co-owners of a business with another person(s) for the goal of making a profit, can develop a partnership by default.
If you have investors, a limited partnership might be a good choice. Limited partnerships, which require a state filing, have two types of partners: General and Limited. General partners are those similar in a general partnership- they are typically involved in the day-to-day operations of the company.
Limited partners are typically investors who contribute capital and share profits. Unlike general partners, limited partners typically are not involved in the day to day running of the business and they are limited in the amount of liability they have. They are only liable for debts up to the amount that they have invested.
Limited Liability Partnerships (LLP)
Not to be confused with an LLC, a limited liability partnership is one that is formed between licensed professionals such as attorneys, accountants, medical practitioners or architects. This type of partnership has similar governance as a general partnership except for the fact that each partner is responsible for his or her own actions within the company.
Partnership agreements are vital for sound business planning among a group of partners. While they are not required by law, they are vital to your organizational structure and the first step toward developing any type of official partnership.
Partnership agreements can provide a clear roadmap for dividing the shares of the company, developing a hierarchy of decision making, outline what would happen in certain unforeseen circumstances such as the death of a partner among many other important issues that would come up in the future of a business.
Find an Experienced Attorney
You can save yourself a lot of headaches up front by making sure that your agreements and business structure is completely vetted by an experienced business attorney. If you are looking for some guidance or want to find a company structure that reduces your tax burden, contact the Law Offices of Cipparone & Cipparone.
**This blog is for general informational purposes only. Cipparone & Cipparone, P.A. does not distribute legal advice through this blog. As such, this blog does not constitute legal or other professional advice and no attorney-client relationship is created between the reader and Cipparone & Cipparone, P.A.