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Faizan
If you're starting a business, deciding on the type of entity you want to form is one of the first and most important decisions you make. When you're working with other people in your business, being proactive is even more important because you could find yourself stuck in a partnership without even intending it.
Minimal Formation Requirements
The requirements to form a legally binding partnership are surprisingly minimal: You only need two or more people engaging in business activity attempting to make a profit -- you don't even have to actually make money. If the partners always get along and don't have any disputes, this bare-bones agreement might work out, but almost every partnership has its rough patches, so it's much wiser to have a written partnership agreement that outlines the purposes of the partnership, as well as each partner's duties and responsibilities. But a legally binding partnership doesn't always meet the registration requirements for new businesses in the state where you live.
Legal Filing Requirements
Though creating a legally binding partnership doesn't require a formal document, you often need to file partnership documents with your state or local government. For example, your county might require that all businesses register before opening their doors. Similarly, if you use a name other than the name of yourself and your partners, you need to file for a doing-business-as certificate. Say you want to call your partnership Jim and Joe's Jungle Gyms -- you need to file for a DBA. Similarly, if you want to operate as a limited partnership or a limited liability partnership, you must file with your state. Finally, depending on your business, you might need to register with a state agency, such as if your partnership is a bank or architecture firm.
Partnership Agreements
Whether the dispute is over what each partner is supposed to contribute, whether the partners are each living up to their responsibilities, how to split the profits or who gets what when the partnership ends, states have defaults that will be used if the partnership agreement is silent (or nonexistent). For example, say you think you should receive 70 percent of the profits because you're putting in more work on the business. Unless you have an agreement to that effect, the default rule is each partner has an equal share.
Types of Partnerships
When you and your partner just shake hands or sign a partnership agreement, you're forming a general partnership. In a general partnership, every partner personally is liable for all of the debts of the partnership. If you're not wanting to take on that potential liability, consider a limited partnership or limited liability partnership. In a limited partnership, there are two classes of partners: limited partners, who invest, but don't manage the partnership and aren't personally liable, and general partners, who manage and have personal liability. In limited liability partnerships, which are generally professional partnerships among lawyers, accountants or architects, no partners have personal liability.
Minimal Formation Requirements
The requirements to form a legally binding partnership are surprisingly minimal: You only need two or more people engaging in business activity attempting to make a profit -- you don't even have to actually make money. If the partners always get along and don't have any disputes, this bare-bones agreement might work out, but almost every partnership has its rough patches, so it's much wiser to have a written partnership agreement that outlines the purposes of the partnership, as well as each partner's duties and responsibilities. But a legally binding partnership doesn't always meet the registration requirements for new businesses in the state where you live.
Legal Filing Requirements
Though creating a legally binding partnership doesn't require a formal document, you often need to file partnership documents with your state or local government. For example, your county might require that all businesses register before opening their doors. Similarly, if you use a name other than the name of yourself and your partners, you need to file for a doing-business-as certificate. Say you want to call your partnership Jim and Joe's Jungle Gyms -- you need to file for a DBA. Similarly, if you want to operate as a limited partnership or a limited liability partnership, you must file with your state. Finally, depending on your business, you might need to register with a state agency, such as if your partnership is a bank or architecture firm.
Partnership Agreements
Whether the dispute is over what each partner is supposed to contribute, whether the partners are each living up to their responsibilities, how to split the profits or who gets what when the partnership ends, states have defaults that will be used if the partnership agreement is silent (or nonexistent). For example, say you think you should receive 70 percent of the profits because you're putting in more work on the business. Unless you have an agreement to that effect, the default rule is each partner has an equal share.
Types of Partnerships
When you and your partner just shake hands or sign a partnership agreement, you're forming a general partnership. In a general partnership, every partner personally is liable for all of the debts of the partnership. If you're not wanting to take on that potential liability, consider a limited partnership or limited liability partnership. In a limited partnership, there are two classes of partners: limited partners, who invest, but don't manage the partnership and aren't personally liable, and general partners, who manage and have personal liability. In limited liability partnerships, which are generally professional partnerships among lawyers, accountants or architects, no partners have personal liability.
Posted in: Business Laws
