A business partnership is a popular legal entity. Partnerships in business are very similar to those in personal situations. They involve two or more people coming together to build a business. Each of these people help the business financially as well as structurally. They share skills and resources and often, a partnership is a good way to build a business. It helps to take the financial and general business stress and anxiety off of just one person and shares it with others.
In a business partnership, each of the partners has a vested interest in the business. Each has ownership so every decision is made by a collaboration of the partners, unless an agreement is drafted that states otherwise. Some partnerships are silent, which means that one partner may provide financial assistance for the business but another partner runs it.
Partnerships are different than corporations as they are not separate entities from the owners. Much like a sole proprietorship, partnerships are liable for the responsibilities of the business, including the debt. If the business fails, the partners are not protected from losing their personal assets to pay for this debt. Profits and losses are equally divided among the business partners and they are paid by the partners, according to the agreement that has been made.
It is important to understand that there are different types of partnerships in business. General partners all participate in the day to day operations of the business and all have equal liability for the debts that the business incurs. Limited partners invest in the business but do not help to manage or run the business. With regards to pay, there are equity and salary partners. Some partners may choose to be paid as an employee while others only have a share in the ownership of the business.
If you feel that a business partnership is the right choice for your new small business, you will need to further understand the differences in the types of partners and be sure to work out an agreement about how the partnership will operate. Partnerships are typically registered in the state where the business is located but state regulations vary. Check with your state government to learn more about what is required in your state regarding business partnerships. Take time to determine the amount of investment that each partner will provide and work out any fine details such as how management will be split and how each partner will be paid.