Should I Form a Partnership?
Owning a small business remains part of the American dream for many people. If you have decided to become a business owner you will have to answer a number of questions during the formation stage of the business. One of the most important questions you will need to answer is “Should I form a partnership or some other type of business entity?” The type of legal structure you choose for your business will have an impact on things such as your personal liability, the way in which the business is taxed, and your ability to expand the business in the future.
There are three basic types of business structures your business may take – sole proprietorship, partnership, or a corporation. Beyond those three basic types of entities there are a variety of sub-categories and hybrids as well from which you may choose. Understanding the benefits and the drawbacks to forming a partnership will help you make the right choice for your fledgling enterprise.
A partnership, by definition, is simply two or more individuals who share in the management and profit from a business. A written agreement is not required to form a partnership; however, it is always wise to execute a partnership agreement in order to ensure that the roles and responsibilities of the partners are clearly defined. In the United States, the federal government officially recognizes two types of partnerships. In a general partnership all partners share in the management and obligations of the partnership. In a limited partnership there are both general and limited partners. The general partners run the business and assume responsibility for the debts and obligations of the company whereas the limited partners are investors only. Limited partners have no say so in the day to day running of the company nor do they assume liability for the debts and obligations of the partnership.
A partnership is easy to form and much easier to maintain, from a recordkeeping standpoint, than a corporation. Profits and losses in a partnership pass through to the partners and are reported on the partners’ individual tax returns. One of the biggest drawbacks to being a general partner, however, is that you will be personally liable for any debts, obligations, or liabilities of the partnership. Another potential drawback is that a partnership is often not as attractive to investors as a corporation is should you wish to expand the business in the future.
If you are contemplating becoming a business owner it is in your best interests to contact an experienced Conshohocken, Pennsylvania business law attorney as soon as possible to discuss your business structure options in depth and decide which one is right for your venture. Contact the business law attorneys at Curley & Rothman, LLC by calling 610-834-8819 today to schedule your free consultation.