Understanding Business Partnerships

Business Legal Structures Part Two

A Look At Business Partnerships

Business partnerships are started every day by literally thousands of small/home based business owners.

Before signing their name on the dotted line and agreeing to the partnership, the parties involved should discuss the pro's and con's connected with the business venture.

What is a partnership?

According to the Small Business Administration (SBA)"a partnership is an association of two or more people as co-owners of a business for profit."

Experts recommend the members of the partnership sign an agreement which shows their obligations to the business.

Business partner roles should always be shown in the contract. Division of profit shares for each member should also be entered in the contract. One section of the contract should show steps to end the partnership.

Note: Limited partnerships are started by co-owners who contract to risk an agreed upon investment in the business.

All members involved in the partnership should hire an experienced contract lawyer to handle legal matter.s This step will protect all partners involed in the business.

Advantages

A partnership is easier to start than a corporation.

Partnership are easier to deal with than corporation although less flexible than a proprietorship.

The partnership pays no federal or state taxes. The profits obtained from the business go directly to the partners.

Partnerships, like proprietorships, pay no state or federal tax. Although, partners are required to pay personal tax on all business profits.

Startup Money- is easier to obtain for a partnership than a sole proprietorship because two or more owners are able to invest money in the venture.

The skills and experience of all partners are combined to handle decisions.

Disadvantages

If one partner wishes to end the business the partnership will terminate. Buy out issues might arise. This is one reason why buy out issues should be covered in a written contract before entering into the partnership.

Partnerships have to jump through many hoops to obtain the financing they require while corporations find an easier road to travel when seeking financing.

Note that each partner is liable for the business debts incurred by other business partners. So if one business partner makes a very costly business decision the other partners will also be liable for the debt.

A blending of experiences and skills is one unique advantage of a good partnership. A clear advantage over a sole proprietorship where limited skills/experience might limit success. Although the Partnership might sound good on the surface you should choose business partners carefully.

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by BB Lee (C)2008 Visit http://www.geocities.com/newbizreviews for the top online money making ideas and to subscribe to Newbizreviews Newsletter.

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