You have a small business and know that you need to make it “official” – Is a partnership the right for you?

 

Registering a new partnership with the US government involves filing the necessary paperwork with the state in which you want to form your partnership. Bear in mind that the specific requirements and fees for forming a partnership vary by state, but generally, you will need to file a partnership agreement with the Secretary of State and obtain any necessary business licenses and permits.

 

Types of Partnerships

 

General Partnership:

This is the most common type of partnership, where two or more individuals or entities share in the profits and losses of the business. Each partner is personally liable for the debts and obligations of the partnership.

 

Limited Partnership:

Limited Partnerships have one or more general partners who manage the business and are personally liable for the debts and obligations of the partnership, and one or more limited partners who contribute capital but have limited liability.

 

Limited Liability Partnership (LLP):

LLPs are similar to General Partnerships, but each partner has limited liability for the debts and obligations of the partnership.

 

Partnerships: Pros Vs. Cons

Pros:

1. Easy to set up: Partnerships are relatively easy and inexpensive to set up compared to other business structures.
2. Shared responsibility: The responsibilities of managing and running the business are shared among the partners, making it easier to manage the workload and make decisions.
3. Tax benefits: Partnerships are typically taxed as pass-through entities, which means that the profits and losses are passed through to the individual partners and reported on their personal tax returns. This can result in a lower overall tax burden compared to other business structures.
4. Flexibility: Partnerships offer flexibility in terms of how they are structured and managed. Partners can choose to manage the partnership themselves or hire managers to run the day-to-day operations.

Cons:

1. Personal liability: Partnerships do not provide limited liability protection, meaning that each partner is personally liable for the debts and obligations of the partnership.
2. Shared profits: Profits must be shared among the partners, which can lead to disagreements and conflicts.
3. Limited life: Partnerships have a limited lifespan and must be dissolved if a partner leaves or dies, unless the partnership agreement specifies otherwise.
4. Unlimited liability of general partners: In a General Partnership, each general partner is personally liable for the debts and obligations of the partnership, which can put their personal assets at risk.

 

Conclusion

Overall, registering your business as a partnership can provide many benefits, including ease of set up, shared responsibility, tax benefits, and flexibility. However, it is important to consider the potential drawbacks as well, such as personal liability, shared profits, and limited lifespan. It is recommended to consult with a legal or financial professional to determine if a partnership is the best choice for your business.