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How do you choose the best form of business partnership?

On Behalf of | May 10, 2017 | Commercial Litigation

Choosing the most useful type of formation for your business is one way to get the venture started off right. A partnership is actually the easiest business entity to form. This is because you don’t have to have a written agreement in order to form the partnership. You also don’t need to file any official documents to start the business. You just need two or more parties entering into the agreement and who will share in the profits of the business venture.

The fact that a partnership is the easiest form of business to enter into doesn’t mean you should jump into a partnership without carefully thinking it through. Here are some things to consider before starting your business.

Three main types of partnerships

There are three main options in forming partnerships. The form you ultimately choose for your partnership depends on your needs and goals.

General — There is an equal division of responsibilities and profits.

Limited partnership — Liability of each partner is limited to what they invest in the business. In this case, one partner must accept primary responsibility for the business, which creates more liability and risk for that person.

Limited liability partnership (LLP) — Some partners only invest money and only risk losing the money invested, hence the term limited liability. Other partners manage the business and take on the other risks associated with the business venture.

Other important factors in your decision

Many factors may be included in your decision-making process for the partnership, including your needs, goals and management style. Here are some key practical items to consider:

Taxes –Partners are still required to file taxes separately for their percent of investment in the business. Is this partnership arrangement going to meet your tax needs in the way you hope it will?

Honesty – How well do you know the person or people you are considering for this venture? Can you trust him or her? Will your new partner or partners pull their weight? Will you need to worry about the money being conserved to help the business succeed or will your new partners try to siphon off that should be funneled back into the business to keep it going?

Relationships – If you are considering entering into a partnership with a friend, you should consider how this venture will affect the friendship. You should also consider what will happen if you need to address your partner’s weaknesses on the job if this becomes a problem. Will you be able to communicate in a way that will make the partnership stronger going forward and will the business fall apart at the first sign of conflict?

Whatever form of partnership you choose, having the agreement in writing will prevent many problems and disagreements down the road. An experienced business attorney can assist you with what should be included in your partnership agreement and provide guidance in preparing this important contract.


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Arnett Law Group, LLC, was founded by Daniel J. Arnett, a trial lawyer with more than 25 years of experience.

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