Small Business Partnership Agreements
Partnership in Small Business
Mulling about going into a business with one or more partners? Surely, taking in another person to share the ownership of your small business could be a complex decision.
And so, we have this guide to help you find out what you need to know before making that decision.
Advantages of Having a Partner in Your Small Business
One of the structures that your small business can take is a partnership. In a partnership, you can share the ownership of a business with one or more persons and share the profits and liabilities as well. Partnerships are easier to establish than some other business structures. It increases one's ability to raise more funds, and can attract prospective employees who knew they could have the chance to become a partner in the business.
Business Partnership Types
There are three types of partnerships: general, limited liability or partnership with limited liability, and joint venture. For general partnership, the partners split the management, profit and loss involved in the business. Usually the shares are equal. In limited liability, partners are limited in their liability according to their investments. If they do not participate in management, for instance, they also have limited personal liability for debts. This is often advisable for short-term projects. It is more complex than that the general partnership. A joint venture is more like a general partnership, but with a specific period of existence.
How to Form a Business Partnership for Your Small Business
If you are planning to form a partnership, it is necessary to list the amount of cash, physical assets or skill each prospective partner plans to invest in a business. If skill investment is important to your business, it is better to find a partner with skills complementary to yours. Then, determine how the profit or loss will be divided, how will the decision-making be made, how each partner will be compensated and at what duration, how the business will be modified or dissolved, and how disputes will be resolved. It's also important to develop procedures to follow in case one of the partners die or is incapacitated.
It is possible to form a general partnership by an oral agreement, but it is highly recommended that partners hire an attorney and enter into a legal agreement on how they intend to run their business. Since decisions are shared in a partnership, it is inevitable that disagreements can occur. Hence, it is important that you should have a legal agreement with your business partner.
Tax Information for Small Business Partnership
In a partnership, the profits from the business go directly to the partners' personal tax returns. Federal Tax Forms for Partnerships includes partnership return of income, partner's share of income, credit, deductions, individual income tax return, depreciation, self-employment tax; supplemental income and loss; employment tax forms, and estimated tax for individuals.
| Small Business Startup Grant | Small Business Administration Regulations |