| What is a partnership? |
|
A partnership is a business owned by two or more individuals or entities. For example, two
corporations can form a partnership.
Partnerships
can have employees and operate in all the ways that a corporation or sole proprietorship can. The difference is
that the financial and legal responsibility for everything rests with the partners. The partners have
unlimited liability, which means that their personal assets can be used to pay for business debts. |
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| General versus limited partnerships |
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If you have investors who will not be directly involved in the business, you may form a
limited partnership, where the investors have limited liability protection. Anyone who is
involved in the business must be a general partner, and all limited partnerships must have at
least one general partner. There are forms for limited partnerships, but this kit
does not contain a partnership agreement for limited partners. Please contact an attorney. |
|
| Can my spouse be a partner? |
| Whether your spouse is a co-owner primarily affects social security and settlements in the event of divorce. If your spouse is a participating in the business, ideally both you and your spouse should form a partnership with a percentage contribution (it does not have to be equal). This does not guarantee that in case of a divorce, the courts will allocate business ownership on the same percentage, because the state looks at what is equitable. However, it does show your original intent for ownership.
If you are divorced and your spouse did not participate in the business or you formed sole proprietorship, the courts will divide the business according to what is equitable. Usually, the courts separate the inherent value of the business (goodwill) from the value of the business that is directly because of the person. Goodwill is often divided, while the direct value is not. However, both you and your spouse should talk with an attorney about this issue so that you both are in agreement. |
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| Partners are responsible for each other's actions |
| Partners are responsible for the actions and debts of their partners, even if they were unaware
of those actions. So it is best to know your partners well and make sure that you both have similar sized assets at
stake. If not, consider forming a limited liability company or a corporation. |
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| What if I want limited liability protection? |
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You can either form a limited liability company or a corporation.
Limited liability
companies are more flexible than corporations because you do not have to have annual
meetings with minutes. |
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| Can I incorporate or form an LLC later? |
| Yes, but legally and for tax purposes, you will have to
"close down" the
partnership and "open" the new corporation or LLC. Your customers won't be affected,
but you will have to go through the paperwork and accounting processes.
|
|
| Revenue versus profit |
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Hopefully your business will have lots of sales...however, don't make the mistake of believing that your sales revenue is available for hefty personal salaries or business expansion. Payroll must be paid first. Then you will have to pay for your cost of goods and your operating overhead. A little less than 50% of the amount remaining must be paid in taxes (28% federal; 15.3% self-employment tax + 3.4% for state taxes ). The remaining is available for your after-tax salary and business expansion. |
