If you are reviewing different types of structures for a new business venture, partnerships should be at the top of your list, especially if you are starting a business with someone else. Keep reading to learn more about partnerships, including a basic definition and when they make sense.
Partnerships: A Basic Definition
Partnerships are a way to share the responsibilities of running a business, as well as distribute the profits and losses amongst partners.
While partnerships are different from sole proprietorships or corporations, the process of setting up and registering a partnership is similar to that of corporations.
During the partnership’s setup, there is typically an agreement of the terms between the partners, including the sharing of profits and losses, the responsibilities of each partner, and the voting processes.
Different Types of Partnerships
There are different types of partnerships: general partnerships, limited partnerships, and limited liability partnerships.
A general partnership involves two or more partners who will equally share profits and losses. General partnerships are popular in professions like lawyers and accountants.
A limited partnership is when the partnership has one general partner who manages the business operations and legal responsibilities, and the other partner acts as a silent investor.
Lastly, a limited liability partnership is similar to a general partnership, except for the fact that each single partner is not responsible for the negligent acts committed by other partners.
Why Choose a Partnership
Partnerships provide two or more people an opportunity to share resources, experiences, and knowledge to grow their venture without necessarily having to take out loans to fund the business.
Partnerships can also be beneficial for tax purposes, as they help avoid the double taxation that occurs when you own a corporation.
However, since important decisions must be made in collaboration, problems can arise when partners have different long-term goals for the venture or different levels of work ethic. So make sure to weigh your situation and expectations carefully before getting into a business partnership.
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