Professional Documents
Culture Documents
Business Partnerships
There can be many advantages to starting your small business with a partner; sharing
your responsibilities with another individual who’s equally invested in your mission
and goals can be highly beneficial. However, without careful planning and strategic
thinking, a partnership could quickly become a burden for your business and even
lead to its dissolution.
1. General Partnership
Each party who’s involved in a general partnership shares responsibility for the
small business. This includes liabilities and management as well as assets and
profits. A key advantage of this type of partnership is that forming a general
partnership is typically less expensive and less complicated than forming other
types of partnerships. A general partnership also allows each partner to file their
business tax income, deductions, and credits on his or her individual taxes. As a
result, there is usually no taxation on the small business itself.
Like a limited liability company (LLC), an LLP allows each partner to assume
limited liability, meaning that the individual partners typically aren’t responsible
for negligence of another partner. All profits and losses are passed through to the
partners, and the partnership can opt between a centralized or decentralized
management system.
3. Limited Partnership
In this type of partnership, there’s at least one general partner and one limited partner.
The general partner participates in the management of the business and assumes full
liability of the partnership obligations. The limited partner does not participate in the
management of the business and assumes limited liability. Often, the limited partners
in these types of partnerships are investors.
Sharing the responsibilities of running and growing a business can come with a variety
of advantages. You’ve most likely heard the saying, “Two heads are better than one.”
However, a partnership can be a good or bad thing for your small business based on
your specific circumstances and who the partnership involves. Here are a few pros and
pitfalls to consider.
If you opt to develop a partnership, you can help safeguard your small business with a
written agreement or “business prenup” that will protect you if one of your partners
decides to leave. This agreement should address the course of action you’ll take if a
partner wants to retire, passes away, suffers a long-term illness, has to file for
bankruptcy, goes through a divorce, or experiences another problem that limits their
ability to further participate in the partnership.