You can form your business in different structures, including as a partnership. Starting a company with a partner or choosing one after formation offers significant advantages.
Nonetheless, you need to understand how this structure works to make informed decisions. This guide discusses this.
Two or more parties
A business partnership can be between two or more individuals or companies. You and your partner should sign a written contract to validate the agreement.
Different types exist
A business partnership can be general, limited liability or limited. In a general partnership, partners share legal and financial responsibilities equally. This means that profits and losses are distributed equally.
In a limited liability partnership, every partner has limited liability for the debts of the business. This means that a partner will not be liable for the damages of another.
A limited partnership combines the other two types – at least one party must be a general partner, while the others have limited liability (limited partners/ silent investors).
Each of these types has its benefits. For instance, general partnerships are easy to create and offer a low cost of operation. Limited liability partnerships protect the personal assets of partners, but they can only be formed in certain businesses, such as those in the legal, accounting and medical fields. Limited partnerships can be the best option for short-term projects.
Binding contracts
For a business partnership to work, you need to have binding contracts. Your contracts should have clear roles and responsibilities, percentage of ownership, profit and loss allocation and scope of authorities, among other clauses. The clauses in a contract may be specific to the type of partnership.
A business partnership can help you attain your company’s goals, provided it has a good foundation. Consider getting legal help to form a successful partnership.