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If you are thinking about beginning a new business partnership, you’ve come to the right place. This article will tell you all about the tips, tricks, steps, and legalities that come with a business partnership.
While the process may seem overwhelming, following the proper steps, doing the hard work, and setting yourself up for success will make the partnership run a lot smoother after you get things going.
There are many details to cover, but educating yourself on all fronts will help you start a successful and long-lasting partnership.
Though the process may vary by state, there are some general steps you will have to take to start a partnership.
A business partnership is when two or more persons come together to form a company as partners. These persons will each take on responsibilities within the business and will both benefit from the profits yielded by the companie(s) they own and operate together.
There are many different kinds of business partnerships. The main difference is how the responsibilities, involvement, and profits divide between the partners.
The business structure may look different within different partnerships. It is not uncommon in a business partnership for some partners to be more or less involved than others. The persons would come to a partnership agreement to ensure that everything is sorted out properly regarding responsibilities and benefits.
There is a lot to cover when it comes to sorting out the specifics of your new business partnership. You will need to make major decisions like what kind of business partnership you wish to enter. While many different types of partnerships exist, here are a few of the most common ones.
This type of business partnership essentially means that each partner involved in the business partnership is not necessarily liable for the actions of their other business partners.
LLPs are extremely common.
If you and other persons start a limited liability company, it means that there are legal protections in place to protect your personal liability from your business partner’s faults or actions. In turn, they are protected from your faults and actions as well.
A limited partnership is a type of business partnership where there are multiple persons involved. However, only one partner runs the business while the others remain as limited partners. As a limited partner, you do have some liability protection. Essentially, you are not responsible for anything more than the amount you have invested into the company, while the partner running the business has more liability for the business.
General partnerships are perhaps the riskiest of business partnerships. In this type of partnership, both you and your partners share liability within the business. Regardless of whose actions may have caused legal issues, each partner is responsible the same amount as the other.
One of the first things you will need to do if you do not already have an existing business name is to create one with the person or organization you plan to go into business. You will need to get that business name trademarked as well. You will have to check that there are no existing companies or corporations with your proposed business name already.
Where you need to register your business varies by state. You will want to either register with your local government or on the federal level based on your state laws. You will need to make sure you have the proper business license to operate legally within your state.
State requirements can vary widely in their business license requirements. Your state or even county may require you to obtain additional licensing and or permits depending on their rules and the type of business you wish to register.
There is a filing fee for registering your business that may vary by state, so it is essential to check these details out on a state-specific level if you plan on taking the next step to start a business partnership. Depending on your form of business, i.e. general partnership, limited partnership, limited liability partnership, etc. the fees required may differ.
When you register your business, you will either use the names of the business partners or use a different name that doesn’t relate to the legal names of the business partners. If you decide to use a business name other than the names of the persons involved in the business, you will be creating a fictitious business name.
A fictitious business name just means that the name does not include the names of the business partners involved.
It is always crucial to legally protect yourself and ensure that you and your business partner receive fair and equal compensation for your work. Creating a legally-binding contract or agreement with the persons you are creating a partnership with is an excellent way to make sure that if things ever get rocky, or a disagreement arises between the two of you, that there is a reference to go back and make sure things can be settled fairly for each party.
The last thing you want is for a dispute to happen between you and your partner and lead you to financial or personal loss. Set things up when things are good to protect you when and if things get bad. You can set this up by obtaining an attorney.
If you are a business owner already, I am sure you are no stranger to dealing with the headache of taxes. When you form a business partnership, you should ensure that you receive an Employer Identification Number for tax purposes. Having one is going to be essential come tax season. Keep track of all business activities with business records.
Business Partnerships will file taxes for their business and make the IRS aware of several specifics of their monetary gains and expenses from the business, including tax deductibles, profits, and financial gains and losses. They will not, however, pay their taxes as a business.
Instead, each partner will file to account for their portion of the business. Depending on what kind of business partnership the persons are engaged in, this may look different for each. The information appears on each partner’s personal tax forms, and each of them is only responsible for their portion of the partnership.
You will need to distribute a W-2 and any other necessary tax forms to all of your eligible employees in your business partnership. Business partners do not count as employees, so make sure you are only giving W-2s to those who are not financially involved in your partnership.
Hopefully, we covered most of the questions you had about beginning your business partnership. However, we wanted to include a bit more information for those of you who may still have questions regarding liability and differences between partnerships and other types of business relationships.
Liability in business means that business owners may be responsible for specific legal scenarios. In fact, sole proprietors and general partnerships invoke unlimited liability, which is an important distinction when forming your partnership.
A few different kinds of liabilities exist, including employment, product, and financial liability. The most crucial for business owners are employment and product liability.
While the terminology is heavy — vicarious liability — the bottom line is that employers may be liable for their employees’ unlawful actions. Whether an employer is negligent or other factors impacting the events, having employees involves some amount of liability.
Most business owners are well-versed in product liability because a faulty product can easily mean a lawsuit. That’s because companies are held responsible for the safety and quality of their products.
Partnerships differ from other forms of business because in a business partnership the persons involved are the business.
What I mean by this is that the business does not exist separately from the partners whereas a company is its own separate establishment. This affects the way a business partnership files taxes, shares liability, etc., as discussed earlier.
Hopefully, you feel more educated about business partnerships after reviewing the information in this article. By understanding topics such as types of business partnerships and liabilities within business partnerships, you can better prepare to make informed decisions that will best benefit you, your business, and your partners.
Beginning a partnership can feel like a lot of work and a lot of legal specifics to sort out, but getting a headstart on figuring these obstacles out with your business partner will help ensure smooth sailing for the start of and continuing into your business ventures.
The Incorporation Academy is run by a group of entrepreneurs who know the difficulties of starting and running a business. We are dedicated to helping businesses get started correctly and run more efficiently.