A business entity, wherein two or more people share ownership is called a partnership. This type of business may be formed by individuals, schools, interest-based organizations, businesses, governments or a combination of any of these. All the partners contribute in all aspects of the business, including capital, property, skill and labor. In return, all share in the company’s profits and losses.
Though it is not legally required, a partnership agreement will definitely prove an essential element in this type of business format as this will allow business partners to handle the following important matters with clarity:
- How business decisions will be made;
- How profits will be divide;
- How disputes will be resolved;
- How ownership may be changed (when bringing in new partners or buying out current partners); and,
- How the partnership may be dissolved.
There are three types of Partnership:
Limited partnership. Under this partnership arrangement the liability and share in profit of a member is proportionate to the amount of his/her investment. Though one or more individuals can be a limited partner, there is, at least, one who shall remain as a general partner, exercise control of the business and have full personal liability for the debts and obligations of the business. A general partner, as different from a limited partner, earns higher profits, but also has more liability, in case the business suffers financial loss. Limited partners do not participate in management decisions.
General partnership. Under this arrangement, profits, losses, management responsibility and liability are divided equally among the members. If there will be unequal distribution, it is recommended that this, as well as specific percentages assigned to each partner be stated in the Partnership agreement. General partnership comes with a tax advantage: profits are not taxed to the business; partners include these on their individual tax returns, thus a lower tax rate.
Limited liability partnership (LLP). Under this arrangement, some or all business partners have limited liability. One partner, however, will not be held liable for another partner’s acts of negligence or misconduct.
When starting a business, the advice and assistance of a qualified legal professional is always vital as this can affect a firm’s future growth and changes; these will also have a substantial impact on how a business functions and operates.
As pointed out by Tucson corporate attorneys, “Corporate formation doesn’t have to be a daunting challenge. With the guidance of an experienced attorney, new businesses, such as those in Tucson can be given the establishment they need to grow and flourish. Furthermore, with such help, a business owner can rest assured that critical legal errors that could affect the company’s success will be avoided.”