Category Archives: Business Structures

Business Structures: Partnerships

Before getting into a business partnership arrangement, a meeting of the minds must exist before signing a contract. Business partner roles must be clearly written in the contract. Each partner must fully understand their responsibilities as they apply to their situation.

Experts recommend that the members of any business partnership agree first on who will handle management duties, financial responsibilities, advertising, marketing, even equipment concerns. This will corner any future concerns which might arise over who is responsible for what duties.

The percentage of the profits each will receive also must be written into the contract. A specific clause in the contract should state how the partnership will terminate or what terms should be present to end the business.

Now, let’s take a look at another form called limited partnership. In a limited partnership the business partners only risk an agreed upon investment in the business. This is a popular form of partnership with much lower risk factors.

Business partners should seek the services of an attorney to draw up the partnership contracts. This will protect all members of the partnership in the long run.

Business Partnership Advantages

Partnerships are more flexible than dealing with corporations although less flexible than a sole proprietorship.

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

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

Money to invest in the business is easier to obtain for a partnership than a sole proprietorship because there are multiple partners with money to invest in the business.

The experience of all the business partners only adds to the advantages.

Business Partnership Disadvantages

If one partner dies or wishes to leave, 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.

Business partnerships often find it difficult to obtain financing as easily as a major corporation.

Each partner is liable for the business debts incurred by other business partners or the business transactions. So if one business partner makes a bad decision which cost the company plenty the other partners will also be liable for the debt.

Issues pop up suddenly when the partnership terminates. This concern must be covered in the contract agreement. And the contract signed by all business partners.

In conclusion, a business partnership might be the best alternative for you if the advantages outweigh the disadvantages in your business situation.